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Unformatted text preview: Versus Inventory Building Method with cost per unit Cost idle per unit = $400/unit Cost inventory = $125/unit/mo # months Cost idle Cost Inv. 1 $400 $ 125* 2 $800 $ 375* 3 $1,200 $750* 4 $1,600 $1,250* 5 $2,000 $1,875* 6 $2,400* $2,625 More than 5 months, Idle is preferable Idle time versus firing and hiring: – Idle cost = $20/hr
– F and H = $1,250 1,250/20 = 62.5 hrs F and H is better if an employee has to stay idle for more than 62.5 hours.
For idle time to be preferable, the number of hrs we keep an employee idle has to be less than 62.5 hrs Inventory building versus firing and hiring
Inventory building Inv. cost =$125/unit = $1,000/month’s prod
F and H cost = $1,250
# months F/H Inventory cost 1 $1,250 $1,000 2
$1,250 $3,000 It is better to F and then H an employee when needed, if he has to be kept building inventory for more than 1 month. Overtime versus subcontracting
– OT cost = $600/unit – SC cost = $650/unit OT is always better Overtime versus backlogs – OT cost = $600/unit
– BL cost = $250 + $400 = $650/unit OT is always better Overtime versus hiring and firing
Overtime OT at $30/hr vs H an emp. at $20/hr when needed than F him later on. – Incremental overtime cost = $30/hr $20/hr = $10/hr
– H and F cost = $1,250
– 1,250/10 = 125 hrs It is better to H and F if more than 125 hrs of OT are needed
For OT to be preferable, the number of hrs of OT has to be less than 125 hrs Subcontracting versus backlogs
Subcontracting SC to produce one unit vs BL by allowing BO (orders are taken in one period and deliveries in the next month)
SC cost = $650/unit
BL cost = $250 + $400 = $650/unit Neither is better than the other Subcontracting versus hiring and firing
Subcontracting SC to produce one unit vs H an employee to produce that unit and F him later
o H and F cost = $1,250
The cost to produce one unit using RT is $400/unit, thus o Incremental cost of SC = $650$400 = $250/unit o 1,250/250 = 5 units It is better to H and F if more than 5 units have to be SC Backlog versus hiring and firing
Backlog BL to meet unsatisfied D by allowing BO for a given month vs H someone during that month and F him later on
– BL cost = $250/unit = $2,000/month’s prod
– H and F cos...
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This document was uploaded on 02/10/2014.
- Winter '14