Problems Solving

Week 6

13.12 Southeast Soda Pop, Inc., has a new fruit drink for which it has high hopes. John Mittenthal, the production planner,has assembled the following cost data and demand forecast:

Quarter Forecast
1 1,800
2 1,100
3 1,600
4 900

Costs/Other Data

Previous quarter’s output = 1,300 casesBeginning inventory = 0 casesStockout cost = $150 per caseInventory holding cost = $40 per case at end of quarterHiring employees = $40 per caseTerminating employees = $80 per caseSubcontracting cost = $60 per caseUnit cost on regular time = $30 per caseOvertime cost = $15 extra per caseCapacity on regular time = 1,800 cases per quarter

John’s job is to develop an aggregate plan. The three initial options he wants to evaluate are:Plan A: a strategy that hires and fires personnel as necessary to meet the forecast.Plan B: a level strategy.Plan C: a level strategy that produces 1,200 cases per quarter and meets the forecast demand with inventory and subcontracting.

Which strategy is the lowest-cost plan?If you are John’s boss, the VP for operations, which plan do you implement and why? 

13.15 The production planning period for flat-screen monitors at Louisiana’s Roa Electronics, Inc., is 4 months. Cost data are as follows:

Regular-time cost per monitor $70Overtime cost per monitor $110Subcontract cost per monitor $120Carrying cost per monitor per month $4

For each of the next 4 months, capacity and demand for flat-screen monitors are as follows:PERIODMonth 1 Month 2 Month 3 a Month 4Demand 2,000 2,500 1,500 2,100Capacity  Regular time 1,500 1,600   750 1,600  Overtime   400   400   200   400  Subcontract   600   600   600   600

a  Factory closes for 2 weeks of vacation.

CEO Mohan Roa expects to enter the planning period with 500 monitors in stock.Back ordering is not permitted (meaning, for example, that monitors produced in the second month cannot be used to coverfirst month’s demand). Develop a production plan that minimizes costs using the transportation method.

Sample Solution
Problems Solving


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