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MBA solutions for 3 and 4

# MBA solutions for 3 and 4 - Solutions to MBA problems 3 and...

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Solutions to MBA problems 3 and 4. Problem 3: To eliminate the 9000 in backorders, in the third quarter, from problem 1, and to maintain level output, an additional 9000 units of output has to be scheduled during the first three quarters. This yields an increase in output of 3000 units per quarter for a new total of 25000 units per quarter. (9000 extra units needed)/ (3 quarters) = 3000 extra units/ quarter. Two solutions are shown for problem 3. One uses overtime for the extra output and the other uses the hiring of six full time people. Either solution is fine. In a real situation, you would have additional information that would help you to decide which approach was better. Using subcontracting or part time output would also work, but these alternatives would cost more. As we discussed in class, the problem with this solution is the very high levels of inventory both during the year and at the end of the year. Problem 4: This is a chase plan. This means that output is set equal to the forecast in every quarter. In this particular problem, you are also directed to drive inventory to zero in the first quarter, and to leave it there for the rest of the year. In practice, no business would operate with no inventory; in using a chase approach, a company would decide on a minimum level of inventory to accommodate short term demand variation (safety stock, which we’ll discuss later in the course) and then set output equal to forecast after the desired inventory level is achieved.

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