January February March April May June TotalsBeginning Inventory 400 450 375 275 225 275Demand Forecast 1800 1500 1100 900 1100 1600 8000Number of Working Days by Month 22 19 21 21 22 20 125

CostsMaterials $100.00 $ per unitInventory holding cost $1.50 $ per unit per monthMarginal cost of stockout $5.00 $ per unit per monthMarginal cost of subcontracting $20.00 $ per unit ($120 less $100 material cost)Hiring and training cost $200.00 $ per workerLayoff cost $250.00 $ per workerLabor hours required per unit 5.0 $ per unitStraight-line cost (first eight hours each day) $4.00 $ per hourOvertime cost (time and a half) $6.00 $ per hour

Aggregate Production Planning Requirements

January February March April May JuneBeginning Inventory 400 450 375 275 225 275Demand Forecast 1,800 1,500 1,100 900 1,100 1,600

450 375 275 225 275 400Production Requirement 1,850 1,425 1,000 850 1,150 1,725Ending Inventory 450 375 275 225 275 400

Exhibits 19.4 - Costs of Four Production Plans

Production Plan 1: Exact Production; Vary WorkforceJanuary February March April May June Total

Production Requirement 1,850 1,425 1,000 850 1,150 1,725Production Hours Required 9,250 7,125 5,000 4,250 5,750 8,625Working Days per Month 22 19 21 21 22 20

176 152 168 168 176 160Workers Required 53 47 30 25 33 54New Workers Hired 0 0 0 0 8 21Hiring Cost $0 $0 $0 $0 $1,600 $4,200 $5,800Workers Laid Off 0 6 17 5 0 0

$0 $1,500 $4,250 $1,250 $0 $0 $7,000Straight Time Cost $37,000 $28,500 $20,000 $17,000 $23,000 $34,500 $160,000

Total Cost $172,800

Production Plan 2: Constant Workforce; Vary Inventory and StockoutJanuary February March April May June Total

Beginning Inventory 400 8 -276 -32 412 720Working Days per Month 22 19 21 21 22 20

7040 6080 6720 6720 7040 6400

1408 1216 1344 1344 1408 1280

1800 1500 1100 900 1100 1600

8 -276 -32 412 720 400

$0 $1,380 $160 $0 $0 $0 $1,540450 375 275 225 275 400

0 0 0 187 445 0$0 $0 $0 $281 $668 $0 $948

Straight Time Cost $28,160 $24,320 $26,880 $26,880 $28,160 $25,600 $160,000

Total Cost 162,488

Production Plan 3: Constant Low Workforce; SubcontractJanuary February March April May June Total

Production Requirement 1,850 1,425 1,000 850 1,150 1,725Working Day per Month 22 19 21 21 22 20

4,400 3,800 4,200 4,200 4,400 4,000

880 760 840 840 880 800

970 665 160 10 270 925

$19,400 $13,300 $3,200 $200 $5,400 $18,500 $60,000

Straight Time Cost $17,600 $15,200 $16,800 $16,800 $17,600 $16,000 $100,000

Total Cost $160,000

Production Plan 4: Constant Workforce; OvertimeJanuary February March April May June Total

Beginning Inventory 400 0 0 177 553 791Working Days per Month 22 19 21 21 22 20 125

6,688 5,776 6,384 6,384 6,688 6,080

1,338 1,155 1,277 1,277 1,338 1,216

1,800 1,500 1,100 900 1,100 1,600 8000

-62 -345 177 553 791 407

Units Overtime 62 345 0 0 0 0

$1,860 $10,350 $0 $0 $0 $0 $12,210

450 375 275 225 275 400

0 0 0 328 516 7

$0 $0 $0 $493 $774 $10 $1,277Straight Time Cost $26,752 $23,104 $25,536 $25,536 $26,752 $24,320 $152,000

Total Cost $165,487

Safety Stock (.25 x Demand Forecast)

Hours per Month per Worker

Layoff Cost (Workers Laid Off x $250)

Production Hours Available (Working Days per Month x 8 Hr./Day x 40 Workers)*

Actual Production (Production Hours Available/5 Hr./Unit)

Demand Forecast (From Exhibit 16.3)Ending Inventory (Beginning Inventory + Actual Production - Demand Forecast)

Shortage Cost (Units Short x $5)

Safety Stock (From Exhibit 16.4)

Units Excess (Ending Inventory - Safety Stock)

Inventory Cost (Units Excess x $1.50)

*(Sum of Production Requirement in Exhibit 16.3 x 5 hr./unit)/(Sum of Production Hours Available x 8 hr./day) = (8,000 x 5)/(125 x 8) = 40

Production Hours Available (Working Day x 8 Hrs./Day x 25 Workers)*

Actual Production (Production Hours Available/5 hr.per Unit)

Units Subcontracted (Production Requirement - Actual Production)

Subcontracting Cost (Units Subcontracted x $20)

*Minimum production requirement. In this example, April is minimum of 850 units. Number of workers required for April is (850 x 5)/(21 x 8) = 25

Production Hours Available (Working Days x 8 Hr./Day x 38 Workers)

Regular Shift Production (Production Hours Available / 5 hrs. per Unit)

Demand Forecast (From Exhibit 16.3)

Units Available before Overtime (Beginning Inventory + Regular Shift Production - Demand Forecast)

Overtime Cost (Units Overtime x $6/Hr x 5 hr./Unit)

Safety Stock (From Exhibit 16.3)Units Excessive (Units Available before Overtime - Safety Stock)

Inventory Cost (Units Excessive x $1.50)

Exhibit 19.7 Actual Demand Requirement for Full-Time Direct Employees and Full-Time-Equivalent (FTE) Part-Time Employees

Jan. Feb. Mar. Apr. May Jun Jul Aug Sep Oct Nov Dec TotalDays 22 20 21 22 21 20 21 21 21 23 18 22 252Full-time employees 66 28 130 90 195 290 325 92 45 32 29 60Full-time days* 1,452 560 2,730 1,980 4,095 5,800 6,825 1,932 945 736 522 1,320 28,897

41 75 72 68 72 302 576 72 0 68 84 27

FTE days 902 1,500 1,512 1,496 1,512 6,040 12,096 1,512 0 1,564 1,512 594 30,240

* Full-time Days are derived by multiplying the number of days in each month by the number of workers.

Monthly Requirement for Full-Time Direct-Labor Employees (Other than Key Personnel) and Full-Time-Equivalent Part-Time Employees

Exhibit 19.8 Three Possible Plans for the Parks and Recreation Department

year. Continue to use 120 full-time-equivalent (FTE) part-time employees to meet high demand periods.

Costs 116 full-time regular employees 252 233,856 $1,040,659 $176,912 $208,132 120 part-time employees 252 241,920 $974,938 $107,243 $243,734 Total cost = $2,751,619 $2,015,597 $284,155 $451,866

releasing 66 full-time regular employees. Subcontract cost, $1,100,000

Full-time-equivalent part-time employees

Alternative 1: Maintain 116 full-time regular direct workers, Schedule work during off-seasons to level workload throught the

Days per Year(Exhibit 14.8)

Hours (Employees x Days x 8 hours)

Wages(FT, $4.45; PT,

$4.03) Fringe Benefits

(FT, 17%; PT, 11%)Adm. Cost

(FT, 20%; PT, 25%)

Alternative 2: Maintain 50 full-time regular direct workers and the present 120 FTE part-time employees. Subcontract jobs

Jan. Feb. Mar. Apr. May Jun Jul Aug Sep Oct Nov Dec0

100

200

300

400

500

600

PTE part-time Full-time

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Costs 50 full-time employees 252 100,800 $448,560 $76,255 $89,712 $1,100,000 120 FTE part-time employees Subconstracting Cost 252 241,920 $974,938 $107,243 $243,734 Total Cost = $3,040,443 $1,423,498 $183,498 $333,446 $1,100,000

Subcontract all jobs previously performed by 120 full-time-equivalent part-time employees. Subcontract cost $1,850,000

Costs Subcontract Cost0 full-time employees0 part-time employeesSubcontract full-time jobs $1,600,000 Subcontract part-time jobs $1,850,000

Total Cost $3,450,000

Days per Year(Exhibit 14.8)

Hours (Employees x Days x 8 hours)

Wages(FT, $4.45; PT,

$4.03) Fringe Benefits

(FT, 17%; PT, 11%)Adm. Cost

(FT, 20%; PT, 25%)Subcontract

Cost

Alternative 3: Subcontract all jobs previously by 116 full-time regular employees. Subcontract cost $ 1,600,000.