Problems Solving

Week 6

13.12 Southeast Soda Pop, Inc., has a new fruit drink for which it has high hopes. John Mittenthal, the production planner,
has assembled the following cost data and demand forecast:

Quarter Forecast                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
1   1,800                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
2   1,100                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
3   1,600                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
4   900                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

Costs/Other Data

Previous quarter’s output = 1,300 cases
Beginning inventory = 0 cases
Stockout cost = $150 per case
Inventory holding cost = $40 per case at end of quarter
Hiring employees = $40 per case
Terminating employees = $80 per case
Subcontracting cost = $60 per case
Unit cost on regular time = $30 per case
Overtime cost = $15 extra per case
Capacity on regular time = 1,800 cases per quarter

John’s job is to develop an aggregate plan. The three initial options he wants to evaluate are:
Plan A: a strategy that hires and fires personnel as necessary to meet the forecast.
Plan B: a level strategy.
Plan C: a level strategy that produces 1,200 cases per quarter and meets the forecast demand with inventory and subcontracting.

Which strategy is the lowest-cost plan?
If you are John’s boss, the VP for operations, which plan do you implement and why? 

13.15 The production planning period for flat-screen monitors at Louisiana’s Roa Electronics, Inc., is 4 months. Cost data are as follows:

Regular-time cost per monitor $70
Overtime cost per monitor $110
Subcontract cost per monitor $120
Carrying cost per monitor per month $4

For each of the next 4 months, capacity and demand for flat-screen monitors are as follows:
Month 1 Month 2 Month 3 a Month 4
Demand 2,000 2,500 1,500 2,100
  Regular time 1,500 1,600   750 1,600
  Overtime   400   400   200   400
  Subcontract   600   600   600   600

a  Factory closes for 2 weeks of vacation.

CEO Mohan Roa expects to enter the planning period with 500 monitors in stock.
Back ordering is not permitted (meaning, for example, that monitors produced in the second month cannot be used to cover
first month’s demand). Develop a production plan that minimizes costs using the transportation method.

Sample Solution