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Magazine Chapter 4: Q11OQ (page 508)
Old Pueblo Engineering Contractors create six-month 鈥渞olling鈥� schedules, which are recomputed monthly. For competitive reasons (it would need to divulge proprietary design criteria, methods, and so on), Old Pueblo does not subcontract. Therefore, its only options to meet customer requirements are (1) work on regular time; (2) work overtime, which is limited to 30 percent of the regular time; (3) do customers鈥� work early, which would cost an additional \(5 per hour per month; and (4) perform customers鈥� work late, which would cost an additional \)10 per hour per month penalty, as provided by their contract. Old Pueblo has 25 engineers on its staff at an hourly rate of \(30. The overtime rate is \)45. Customers鈥� hourly requirements for the six months from January to June are
January | February | March | April | May | June |
5,000 | 4,000 | 6,000 | 6,000 | 5,000 | 4,000 |
Develop an aggregate plan using a spreadsheet. Assume 20 working days in each month.
Short Answer
It is very necessary for the company to plan its production schedule so that optimal use of available sources can be done. Following the following steps will lead the company to maximize its output production and therefore increase its revenue.
Step by step solution
Given data
Total staff = 25
Working days per month = 20
Straight time rate = $30
Overtime rate = $45
Carrying cost = $5 per hour per month
Overtime = 30% of straight time
Backorder cost = $10 per hour per month
Calculate the available hours per month
Let鈥檚 suppose the working hours per day is 8 hours
Working hours per month per worker = working days x working hours
= 20 x 8
= 160 hours
Straight time hours available per month = 25 x 160 hours
= 4000 hours
Overtime hours available = 0.30 x 4000
= 1200 hours
Prediction of the calculated hours
From the calculations, it is clear that the estimated demandcannot be met by working in regular hoursexcept for the month of February and June. Thus, the company needs to workextra hoursto full fill the demand.
To full fill such demand there can be two possible ways for the company and those are:
- Regular production and meeting the remaining demand by doing overtime in early time.
2. One can also full fill the demand by working in the delayed time.
We need to calculate the total cost in both conditions.
Straight time cost = Straight time hours x $30
Overtime cost = Overtime hours used x 45
Cost of doing the work late = Delayed work hours x 10
Cost of working early = Early worked hours x 55
Work on a regular time in early production
The costof the first alternative is $1,065,000.
Work on regular time in delayed production
The cost of alternative 2 is $934,000.
Alternate 2 should be followed by the company
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