Aggregate Capacity Planning and Inventory Cost Analysis for Disk Drive Production

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Aggregate Capacity Planning and Inventory Cost Analysis for Disk DriveProductionSHOW ALL WORK!!!!Answer Page forSelectedProblemsProvideonlyyourfinal answers(for example, the final numbers, selection, etc.)to the followingproblems. Remember to showyour workandanswers forthese problems on the problempages.Example only:the break-even point is 100,000 units as this is the point where the cost of thetwo options is equal. Below that level we prefer option A and above that we would use option C#1#2#3#4#5#6#7#8

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2#9#10

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31. (17points)A grocery store orders paper grocery bags from a distributor. The store uses 2,300 cases of bagsper year, and its ordering cost is $65 per order. The store’s carrying cost rate is 35% of thepriceper caseofbags. The distributor has the following pricing structure for cases of bags:Order Quantity (Number of cases)Price per case1-49$129.4550-249$127.95250-999$126.451000 and over$125.95a)How many cases of bags should the store order each time if we want to select the lowesttotal annual cost strategy(orderingcostplus holdingcostplus material acquisitioncost)?Ans:EOQ at different price points are:Price–129.45, EOQ =sqrt(2*2300*65/(35%*129.45)) =81.23Price–127.95, EOQ = sqrt(2*2300*65/(35%*127.95)) =81.7Price–126.45, EOQ = sqrt(2*2300*65/(35%*126.45)) =82.19Price–125.95, EOQ = sqrt(2*2300*65/(35%*125.95)) =82.35Only the EOQ at 127.95 falls in the order quantity range allowed for that price point.Total cost at this EOQ = 2300*127.95 + 65*2300/81.7 + 35%*127.95*81.7/2 = $297,944.23The total annual cost at the boundary conditions for each price point is calculated below:Price-$129.45, Order quantity = 1Total cost = 2300*129.45 + 65*2300 + 35%*129.45/2 = $447,257.7Price-$127.95, Order quantity = 50Total cost = 2300*127.95 + 65*2300/50 + 35%*127.95*50/2 = $298,394.56Price-$126.45, Order quantity = 250Total cost = 2300*126.45 + 65*2300/250 + 35%*126.45*250/2 = $296,965.19Price-$125.95, Order quantity = 1000Total cost = 2300*125.95 + 65*2300/1000 + 35%*125.95*1000/2 =$311,875.75Hence optimal cases of bags to be ordered is 250 cases

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4b)What is the resulting total cost per year (orderingcostplus holdingcostplus materialacquisitioncost) for this strategy and the next lowest cost strategy?Ans:a)Total cost per year = $296,965.19Next lowest cost occurs at the EOQ with the price point of $127.95i.e.$297,944.23c)If the store has only enough storage space for100cases of bags, how many should itorder each time? Why?Ans:Storage space = 100 casesHence order quantity <=100 as the peak inventoryin a system= Order quantity while minimuminventory is 0.As the EOQ of 81.7 at price point of $127.45 results in second lowest cost and also satisfiesstorage constraint, no of bags to be ordered is 81.7Ifa calculatedorder quantity is a fraction of a case,leave it as a fractional amount.

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52. (25points)The Austin, Texas plant of Computer Products producesdisk drivesfor personal and small businesscomputers. Gerald Knox, the plant’s production planning director, is looking over next year’s salesforecasts for these products and will be developing an aggregate capacity plan for the plant. The quarterlysales forecasts for thedisk drivesare as follows:1stQuarter2ndQuarter3rdQuarter4thQuarter2,3402,7002,6102,520Ample machine capacity exists to produce the forecast. Eachdisk drivetakes an average of 20 labor-hours. In addition, you have collected the following information:a.Inventory holding or carrying cost is $100 perdisk driveper quarter. The holding cost is based on theinventory at the end of each quarter.b.The plant works the same number of days in each quarter, 12 five-day weeks, 6 hours per day.c.Beginning inventory is zerodisk drives.d.In a backlog situation, the customer will wait for his order to be filled but will expect a pricereduction each quarter he waits. The backlog costs are $300 per floppy disk for the first quarter thecustomer waits, $700 for the second quarter the customer waits, and $900 for the third quarter thecustomer waits. In any quarter, if there is a backlog, this backlog will be filled before the demand forthat period is filled.e.The cost of hiring a worker is $800 while the cost of laying off a worker is $950.f.The straight time labor rate is $20 per hour for the first quarter and increases to $22 per hour in thefourth quarter.g.Overtime work is paid at time and a half (150%) of the straight time work.h.Outsourcing (contract work) is paid at the rate of $475 per disk unit for the labor and you provide themateriali.Demand is projected to increase this year. Demand during the fourth quarter of the prior year was2,340 units. The demand for the first quarter of the next year (year following the year you areanalyzing) is projected to be at the 2,700 unit level.a)You want to maintain a work force capable of producing 2,520 in a quarter andeither usingovertime oroutsourcingas explained nextforany disk units over this quantitythat are required ina quarter.If additional capacity is needed during quarters one and two, the company will useovertime to meet the additional demand during each of these periods. During quarters three andfour, the company will use outsourcing if needed to meet the demand during each of theseperiods. The company will only produce what is required during a quarter and underutilizationwill occur if all of the productioncapacityis not required.What is the total cost of this option,excluding the material cost? Be sure to include any hiring and layoff costs.

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61st Quarter 2nd Quarter 3rd Quarter 4th QuarterDemand2,3402,7002,6102,520Beginning Inventory0000Normal Production2340252025202520Overtime18000Outsourced production900Ending Inventory0000No of labor-hours required50400504005040050400Labor rate per hour20.0020.6721.3322.00Labor cost1008000104160010752001108800Overtime rate30313233Overtime hours0360000Overtime cost011160000Outsourcing cost00427500No of workers required140140140140No of workers hired140000No of workers fired0000Hiring Cost112000000Firing Cost0000Total Cost1120000115320011179501108800Cumulative cost4499950b)The company will maintain a work force capable of producing 2,340 units in a quarter. It will allowbacklogs to occur until the fourth quarter when it will outsource all demand that cannot be met withits own workforce.All workers will be fully utilized each quarter.In other words, there is nounderutilization. No overtime is worked during any quarter.What is the total cost of this option,excluding the material cost? Be sure to include any hiring and layoff costs.

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71st Quarter 2nd Quarter 3rd Quarter 4th QuarterDemand2,3402,7002,6102,520Beginning Inventory0000Normal Production2340234023402340Outsourced production0810Ending Inventory0000Backlog03606300No of labor-hours required46800468004680046800Labor rate per hour20.0020.6721.3322.00Labor cost9360009672009984001029600Outsourcing cost000384750Backlog cost01080001890000No of workers required130130130130No of workers hired130000No of workers fired0000Hiring Cost104000000Firing Cost0000Total Cost1040000107520011874001414350Cumulative cost4716950

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