Problem 1 Aggregate planning

Consider the following 12-month forecast for bicycle sales at Ogden Cycles:

	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
Forecast	144	140	142	170	185	182	191	170	152	139	123	156

• Ogden Cycles manufacturing plant works 20 days per month.
• The production department currently employs 7 workers.
• The average pay in the production department is $150 per day.
• Current labor productivity is 1 bike per worker per day.
• It costs $600 to hire a new production worker and $1,500 to let one go.
• Inventory holding costs are $7 per bike per month.
• Stockout costs are twice as much as holding costs.
• Overtime is paid at 1.5 times the normal rate but is limited to at most 10 days per worker per month.
• For quality reasons, Ogden Cycle does not hire temporary workers.

Hints:

• When should you hire and when should you use overtime? A new hire costs a flat fee of $600 and a labor cost of $3,000 for a total of $3,600 for the first month. Rather than hire someone, the company could use overtime if the overtime cost is less than $3,600, which is 80% of $4,500, the fulltime monthly overtime cost (1.5*3,000 = 4,500). Therefore, you should hire if the need exceeds .8 worker; otherwise, use overtime.
• When should you lay off a worker? A layoff costs a flat fee of $1,500 or .5 month of production for one worker. Therefore, you should let an employee go only if the excess production capacity is greater than .5 month of production; otherwise, keep the worker.

1.1. Using the Excel spreadsheet provided, calculate the total cost of a chase strategy including labor, hiring, layoff, overtime, inventory holding and backorder costs.

(You should get $297,375)

1.2. Calculate the total cost of a level strategy including all relevant costs.

(You should get $292,681)

1.3. Which strategy would you recommend?

EXCEL SPREADSHEET

I'LL RATE GOOD BUT PLEASE INCLUDE THE EXCEL FORMULAS :)

THANK YOU.

A B C D E F G H 1 J L M N 1 Total cost of a chase strategy Jan 144 Feb 140 Mar 142 Apr May 172 185 Jun 182 Jul 191 Aug Sep 170 152 Oct 139 Nov 123 Dec 156 Total 1,896 0.00 0.00 2 3 4 Forecast 5 Production 6 Workers needed 7 Hires 8 Layoffs 9 Workers on payroll 10 Overtime 11 Ending Inventory 12 Back orders 13 14 Labor costs 15 Hiring costs 16 Layoff costs 17 Overtime costs 18 Inventory holding costs 19 Backorder costs 20 Total costs $