Reference no: EM133153289

The Silver Star Bicycle Company will be manufacturing both men's and women's models of its Easy-Pedal bicycles during the next two months. Management wants to develop a production schedule indicating how many bicycles of each model should be produced in each month. Current demand forecasts call for 150 men's and 125 women's models to be shipped during the first month and 200 men's and 150 women's models to be shipped during the second month. Additional data are shown:

Last month the company used a total of 1000 hours of labor. The company's labor relations policy will not allow the combined total hours of labor (manufacturing plus assembly) to increase or decrease by more than 100 hours from month to month. In addition, the company charges monthly inventory at the rate of 2% of the production cost based on the inventory levels at the end of the month. The company would like to have at least 25 units of each model in inventory at the end of the two months.

a. Establish a production schedule that minimizes production and inventory costs and satisfies the labor-smoothing, demand, and inventory requirements. What inventories will be maintained, and what are the monthly labor requirements?

b. If the company changed the constraints so that monthly labor increases and decreases could not exceed 50 hours, what would happen to the production schedule? How much will the cost increase? What would you recommend?