+ Problem 1- Aggregate planning Consider the following 12-month forecast for bicycle sales at Ogden Cycles:...

 

Transcribed Image Text:

+ Problem 1- Aggregate planning Consider the following 12-month forecast for bicycle sales at Ogden Cycles: Jan Feb Mar Apr May Jun Jul Aug Forecast 144 140 142 170 185 182 191 170 152 1.1. 1.2. ● 1.3. ● ● ● ● • Hints: ● ● ● 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. Sep Oct Nov Dec 139 123 166 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. 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. Using the Excel spreadsheet provided, calculate the total cost of a chase strategy including labor, hiring, layoff, overtime, inventory holding and backorder costs. Calculate the total cost of a level strategy including all relevant costs. Which strategy would you recommend? Forecast Production Workers needed Hires Layoffs Workers on payroll Overtime Ending Inventory Back orders Labor costs Hiring costs Layoff costs Overtime costs Inventory holding costs Backorder costs Total costs Total cost of a chase strategy Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 144 140 142 172 185 182 191 170 152 139 123 166 $ Total 1,906 + Problem 1- Aggregate planning Consider the following 12-month forecast for bicycle sales at Ogden Cycles: Jan Feb Mar Apr May Jun Jul Aug Forecast 144 140 142 170 185 182 191 170 152 1.1. 1.2. ● 1.3. ● ● ● ● • Hints: ● ● ● 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. Sep Oct Nov Dec 139 123 166 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. 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. Using the Excel spreadsheet provided, calculate the total cost of a chase strategy including labor, hiring, layoff, overtime, inventory holding and backorder costs. Calculate the total cost of a level strategy including all relevant costs. Which strategy would you recommend? Forecast Production Workers needed Hires Layoffs Workers on payroll Overtime Ending Inventory Back orders Labor costs Hiring costs Layoff costs Overtime costs Inventory holding costs Backorder costs Total costs Total cost of a chase strategy Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 144 140 142 172 185 182 191 170 152 139 123 166 $ Total 1,906

Answer rating: 100% (QA)

ANSWER 2 The recommended strategy is to produce at the forecast demand level and use overtime when n... View the full answer