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The Austin, Texas plant of Computer Products produces disk units for personal and small business computers. Gerald Knox, the plant’s production planning director, is looking over next year’s sales forecasts for these products and will be developing an aggregate capacity plan for the plant. The quarterly sales forecasts for the disk units are as follows: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 2,430 2,610 2,700 2,520 Ample machine capacity exists to produce the forecast. Each disk unit takes an average of 20 labor-hours. In addition, you have collected the following information: a. Inventory holding cost is $100 per disk unit per quarter. The holding cost is based on the inventory at the end of the quarter. b. The plant works the same number of days in each quarter, 12 five-day weeks, 6 hours per day. c. Beginning inventory is 90 (ninety) disk units and these will be used to meet the initial demand in the first quarter and there is no holding cost associated with these units. d. In a backlog situation, the customer will wait for his order to be filled but will expect a price reduction each quarter he waits. The backlog costs are $300 per disk for the first quarter the customer waits, $700 for the second quarter the customer waits, and $900 for the third quarter the customer waits. In any quarter, if there is a backlog, this backlog will be filled before the demand for that period is filled. e. The cost of hiring a worker is $800 while the cost of laying off a worker is $950. f. The straight time labor rate is $20 per hour for the first quarter and increases to $22 per hour beginning in the fourth quarter. g. Overtime work is paid at time and a half (150%) of the straight time work. h. Outsourcing (contract work) is paid at the rate of $480 per disk unit for the labor and you provide the material. i. Demand is projected to increase this year. Demand during the fourth quarter of the prior year was 2,340 units. The demand for the first quarter of the next year (year following the year you are analyzing) is projected to be at the 2,700 unit level. a) You want to maintain a work force capable of producing 2,520 in a quarter outsourcing any disk units over this quantity. Excess units produced in a quarter would be carried over to meet demand in a subsequent quarter. Any additional demand is met through outsourcing. All workers will be fully utilized each quarter. In other words, there is no under utilization. What is the total cost of this option, excluding the material cost? Be sure to include any hiring and layoff costs. b) The company will maintain a work force capable of producing 2,340 units in a quarter. It will allow backlogs to occur until the fourth quarter when it will outsource all demand that cannot be met with its own workforce. All workers will be fully utilized each quarter. In other words, there is no under utilization. What is the total cost of this option, excluding the material cost? Be sure to include any hiring and layoff costs.
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