Following are some of the information of Vinaphone Ltd.

Particulars Demand Forcast Number of working days Jan 500 22 Feb 600 19 Mar 650 21 Apr 800 21 May 900 22

Particulars Materials Inventory Holding cost Marginal cost of stockout Marginal cost of subcontracting Hiring & Training cost layoff cost Labor hours required (LHR) straightline cost (first 8 hrs/day overtime cost begining inventoryning Safety stock required

Cost $ 100/unit $ 10 /unit/month $ 20/unit/month $ 100/unit ($ 200 subcontracting cost less $ 100 material cost) $ 50/workers $ 100/worker 4/unit 12.5/hr $ 18.75/hr 200 units 0% of the months demand

What is the cost of each of the following production strategies a. Production exactly equal to demand; vary workforce, assume beginning work force equ months requirement b. Constant workforce; Vary inventory and allow shortages only (assume constant workforce of 10 c. Constant work force of 10 ; Use subcontracting

Solution
Particulars Jan Beginning inventory 200 Demand Forecast 500 Safety stock 0 Production requirement (DF+SS- 300 BI) Ending Inventory (BI+PR-DF) 0 Feb 0 600 0 600 0 Mar 0 650 0 650 0 Apr 0 800 0 800 0 May 0 900 0 900 0

Production plan 1 : Exact Production; vary workforce Particulars Production Requirements (PR) Jan 300 Feb 600 Mar 650 Apr 800 May 900

Production hrs required (PHR)= 1200 (PR* LHR/unit) Working days /month 22 Hrs/per month per worker 176 (working days * 8 hrs/days) Workers required (PHR/Hrs per 7 month per worker) New workers hired 0 Hiring cost (new workers hired* 0 $ 50) Workers laid off 0 Lay off cost (workers laid off * $ $100) Straight 12.50) times cost (PHR* $ $15,000

2400 19 152 16 9 $450 0 $$30,000

2600 21 168 15 0 $1 $100 $32,500

3200 21 168 19 4 $200 0 $$40,000

3600 22 176 20 1 $50 0 $$45,000 Total cost

Constant workforce; Vary inventory and stockout Particulars Jan Beginning Inventory 200 Working days in month (WDM) 22 Production hrs available (PHA)= 1760 ( WDM* LH/Day*Constant WF) Actual production in unit (PHA/4 440 hrs/unit) Demand forecast Ending inventory (BI+AP-DF) 500 140 Feb 140 19 1520 Mar -80 21 1680 Apr -310 21 1680 May -690 22 1760

380 600 -80 $1,600 0 0 0 19000

420 650 -310 $6,200 0 0 0 21000

420 800 -690 $13,800 0 0 0 21000

440 900 -1150 $23,000 0 0 0 22000

Shortage cost (units short* $20) $Safety stock 0 units excess (EI-SS, only positive 140 #) Inventory cost (units excess*$ $1,400 10) Straight 12.50) Total cost times cost (PHR* $ 22000

Constant workforce; Subcontract

Particulars Jan Production Requirements 300 Working days in month 22 Production hrs available (PHA)= 1760 ( WDM* LH/Day*Constant WF) Actual hrs/unit) production (PHA/4 440 0

Feb 460 19 1520

Mar 650 21 1680

Apr 800 21 1680

May 900 22 1760

380 80 $8,000 $19,000

420 230 $23,000 $21,000

420 380 $38,000 $21,000

440 460 $46,000 $22,000

Units Subcontracted (PR-AP) Subcontracting cost Subcontracted * $ 100 Straight 12.50) Total cost times cost

(Units $(PHA* $ $22,000

Jun 800 20

Total 4250 125

100 material cost)

ning work force equal to first

nstant workforce of 10)

Jun 0 800 0 800 0

Total

Jun 800

Total

3200 20 160 20 0 $0 $$40,000

$700 1 $100 $202,500 $203,300

Jun -1150 20 1600

Total

400 800 -1550 $31,000 0 0 0 20000 $75,600

0 $1,400 $125,000 $202,000

Jun 800 20 1600

Total

400 400 $40,000 $20,000 $155,000 $125,000 $280,000