AGGREGATE PLANNING

BA/MBA
LESSONS 36, 37 MANUAL
EXERCISES

1. Krajewski
The Artic Air Company produces residential air conditioners. The manufacturing
manager wants to develop a production plan for the next year based on the
following demand and capacity data (in hundreds of production units):

PERIOD
Jan- Mar- May- Jul- Sep- Nov-
Feb Apr Jun Aug Oct Dec
(1) (2) (3) (4) (5) (6)
Demand 50 60 90 120 70 40
Capacities
Regular time 65 65 65 80 80 65
Overtime 13 13 13 16 16 13
Subcontracto 10 10 10 10 10 10
r

Undertime is unpaid, and no cost is associated with unused overtime or

subcontractor capacity. Producing one air conditioning unit on regular time costs
$1,000, including $300 for labor. Producing a unit on overtime costs $1,150. a
subcontractor can produce a unit to Artic Air specifications for $1,250. Holding an
air conditioner in stock costs $60 for each two-month period, and 200 air
conditioners are currently in stock. The plan calls for 400 units to be in stock at the
end of the period 6. No backorders are allowed. Use the transportation method to
develop the aggregate plan that minimizes the cost and calculate the total cost of the
production plan.

Answer:
Production Plan

Period Regular-time Overtime Subcontracting Total

production production
1 6,500 - - 6,500
2 6,500 400 - 6,900
3 6,500 1,300 - 7,800
4 8,000 1,600 1,000 10,600
5 7,000 - - 7,000
6 4,400 - - 4,400

Anticipation Inventory

Period Beginning inventory plus Anticipation

1
 total production minus (ending inventory)
demand
1 200 + 6,500 – 5,000 1,700
2 1,700 + 6,900 – 6,000 2,600
3 2,600 + 7,800 – 9,000 1,400
4 1,400 + 10,600 – 12,000 0
5 0 + 7,000 – 7,000 0
6 0 + 4,400 – 4,000 400

The total cost of this plan is $44,287,000.

2. Russell/Taylor
Burruss Manufacturing Company uses overtime, inventory, and subcontracting to
absorb fluctuations in demand. An aggregate production plan is devised annually
and updated quarterly. Cost data, expected demand, and available capacities in
units for the next four quarters are given here. Demand must be satisfied in the
period it occurs; that is, no backordering is allowed. Use the transportation method
to design a production plan that will satisfy demand at minimum cost and find the
total cost of the plan.

Quarter Expected Regular Overtime Subcontract

demand capacity capacity capacity
1 900 1000 100 500
2 1500 1200 150 500
3 1600 1300 200 500
4 3000 1300 200 500

Regular production cost per unit = $20

Overtime production cost per unit = $25
Subcontracting cost per unit = $28
Inventory holding cost per unit per period = $3
Beginning inventory = 300 units

Answer

PRODUCTION PLAN
Period Demand Regular Overtime Subcontract Ending
production inventory
1 900 1000 100 0 500
2 1500 1200 150 250 600
3 1600 1300 200 500 1000
4 3000 1300 200 500 0
Total 7000 4800 650 1250 2100

3. Russell/Taylor

2
The Wetski Water Ski Company is the world’s largest producer of water skis. As
you might suspect, water skis exhibit a highly seasonal demand pattern, with peaks
during the summer months and valleys during the winter months. Given the
following costs and quarterly sales forecasts, use the transportation method to
design a production plan that will economically meet demand. What is the cost of
the plan?

Quarter Sales Forecast

1 50,000
2 150,000
3 200,000
4 52,000

Inventory carrying cost = $3.00 per pair of skis per quarter

Production per employee = 1000 pairs of skis per quarter
Regular workforce = 50 workers
Overtime capacity = 50,000 pairs of skis
Subcontracting capacity = 40,000 pairs of skis
Cost of regular production = $50 per pair of skis
Cost of overtime production = $75 per pair of skis
Cost of subcontracting = $85 per pair of skis

Answer: cost = $30,290,000.

4. Russell/Taylor
College Press publishes textbooks for the college market. The demand for college
textbooks is high during the beginning of each semester and then tapers off during
the semester. The unavailability of books can cause a professor to switch adoptions,
but the cost of storing books and their rapid obsolescence must also be considered.
Given the demand and cost factors shown here, use the transportation method to
design an aggregate production plan for College Press that will economically meet
demand. What is the cost of the production plan?

Months Demand forecast

Feb - April 5,000
May - July 10,000
Aug - Oct 30,000
Nov - Jan 25,000

Regular capacity per quarter = 10,000 books

Overtime capacity per quarter = 5,000 books
Subcontracting capacity per quarter = 10,000 books
Regular production rate = $20 per book
Overtime wage rate = $30 per book
Subcontracting cost = $35 per book
Holding cost = $2.00 per book per quarter

3
Answer: cost = $1,800,000

5. Russell/Taylor
Bits and Pieces uses overtime, inventory, and subcontracting to absorb fluctuations
in demand. An annual production plan is devised and updated quarterly. Expected
demand over the next four quarters is 600, 800, 1600, and 1900 units respectively.
The capacity for regular production is 1000 units per quarter with an overtime
capacity of 100 units a quarter. Subcontracting is limited to 500 units a quarter.
Regular production costs $20 per unit, overtime $25 per unit, and subcontracting
$30 per unit. Inventory holding costs are assessed at $3 per unit per period. There is
no beginning inventory. Using transportation method, design a production plan that
will satisfy demand at minimum cost. What is the cost of the production plan?

Answer: cost = $129,900

6. Narasimhan/Mc Leavey/Billington
Warren Rogers Associates produces microcomputers that have a seasonal demand
and absorbs demand fluctuations with regular capacity, overtime and
subcontracting. The expected demand for the next four quarters is 500, 800, 1700,
and 900 respectively. The available production capacities during regular time and
overtime, as well as other cost data, are as follows:

SUPPLY CAPACITY
Quarter Regular time Overtime Subcontract
1 700 250 500
2 800 250 500
3 900 250 500
4 500 250 500

Available initial inventory = 100 units

Desired final inventory = 150
Regular time cost/unit = $100/unit
Overtime cost/unit = $125/unit
Subcontract cost/unit = $150/unit
Inventory cost/unit/period = $20/unit
Cost of unused capacity during regular time = $40/unit

Using the transportation method design a production plan that will satisfy design at
minimum cost. What is the cost of the production plan?

Answer:
Production Plan

Quarter Regular Overtime Subcontract Total

1 700 - - 700

4
 2 800 250 - 1050
3 900 250 - 1150
4 500 250 300 1050

Anticipation Inventory

Quarter Beginning inventory + Ending

total production – inventory
demand
1 100 + 700 - 500 300
2 300 + 1050 - 800 550
3 550 + 1150 - 1700 0
4 0 + 1050 - 900 150

Cost of the plan = $445,750

NB: HANDOUTS KRAJEWSKI PAGE 652 - 677