Reference no: EM132911464

A small appliance manufacturer must meet (on time) the following demands: quarter 1, 3000 units; quarter 2, 2000 units, quarter 3, 4000 units. Each quarter, up to 2700 units can be produced with regular time labour, at $40 per unit. An unlimited number of units can be produced each quarter using overtime labour at $60 per unit. Of all units produced, 20% are unsuitable and cannot be used to meet demand. Also, at the end of each quarter, 10% of all units on hand spoil and cannot be used to meet any future demands. After each quarter's demand is satisfied and spoilage is accounted for, a cost of $15 per unit in ending inventory is incurred.

a) Determine how to minimise the total cost of meeting the demands of the next three quarters. Assume that 1000 usable units are available at the beginning of quarter one. [ 6 points] Hint: In one paragraph, explain the process and provide numbers. For instance, "the manufacturer should manufacture, in total, XXXX units in regular production, and XXXX units in overtime. This will be achieved through manufacturing XXXX units in regular time in the first quarter..." So, you need to calculate how much regular time labour and how much overtime labour to use to meet quarterly demands.

b) The company wants to know how much money it would be worth to decrease the percentage of unsuitable items and/or the percentage of items that spoil. Present a short report that provides relevant information. For each of the following scenarios, you will need to run Solver and store the results for final comparison:

i) Where the percentage of unsuitable items decreases by 5% and the percentage of items that spoil stays at 10%,

ii) Where the percentage of unsuitable items stays at 20% and the percentage of items that spoil decreases by 5%,

iii) Is the sum of the separate effects on total cost from the first two scenarios equal the combined effect from the third scenario when both percentages decrease by 5%?

Hint: Include an answer to this question in your report for each part less than a paragraph such as the following example. Something like: "Having an XX% reduction in unsuitable units would save XXXX, therefore, the manufacturers should not spend more than this amount in trying to reduce spoilage by this percentage." You only have to include one model exactly like the template provided. Just change the numbers and report outputs. Once you've completed your spreadsheet then include the following paragraph to compare the three scenarios: "Compared to reducing spoilage and unacceptable percentages separately, the total cost reduction of reducing both simultaneously was $XXXX more/less than the cost reduction of reducing one separately. This is due to the compounding effect of reducing spoiled units, which would lead to a reduction in unsuitable units." If there is no compounding effect, then change your position to no compounding effect. Please do not include screenshots of your model anywhere in question 4; you should work on the spreadsheet instead. It would be beneficial if you followed the template guidelines.