# Or1000mo prodemp eachemployeeproduces8unitspermonth

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Unformatted text preview: mployee idle for a month Cost is one month salary: \$20/hr × 8hr/day × 20day/month = \$3200/month – One employee idle for an hour \$20/hour – One employee idle for the production of one unit Cost is: 20hr/unit × \$20/hr = \$400/unit Inventory cost : \$125/unit/mo. or \$1,000/mo/ prod./emp. – Each employee produces 8 units per month : (8hr/day × 20day/month)/20 hr/unit = 8 unit/mo./emp. 20day/month)/20 hr/unit = 8 unit/mo./emp. 125 × 8 = \$1000 8 = \$1000 Firing and Hiring: \$1,250 (\$1,250 ­ \$3,200/mo./emp.) – F+H = \$500/emp. +\$750/emp. = \$1250/emp. – One month Salary is \$3200/mo./emp. – Firing means saving one month salary, thus one way to look at F and H Cost is: (\$1,250 ­ \$3,200/mo./emp.) Hiring and Firing: \$1,250 (\$1,250 + \$3,200/mo./emp.) – Hiring means paying one month salary as well, which is an additional \$3200/month Overtime cost : \$600/unit – 20hr/unit × \$30/hr = \$600/unit Sub­contracting cost : \$650/unit Backlog cost : \$250/unit/mo. or \$2,000/month’s production/emp. – Each employee produces 8 units per month 8 unit/emp. × \$250/unit/mo. = = \$2000/mo. Prod./emp. PREFERENCE THRESHOLDS : PREFERENCE THRESHOLDS : COMPARING BETWEEN TWO OPTIONS Idle Time Versus Inventory Building Idle cost: \$3,200/month Inventory cost: \$1,000/month’s production – The cost of one employee building inventory for one month is \$125 × 8 = \$1000 8 = \$1000 – the cost of one employee building inventory for two months is \$125× 8× ( 1 + 2) = \$1000× ( 1 + 2); (1 2) = \$1000 (1 2); – the cost of one employee building inventory for n months is \$125× 8× (1 + 2 + ... + n) = \$1000× (1 + 2+...+ n); 2 + ... + n) = \$1000 – for idle time to be preferable, the number n of months we have one employee working to build it has to be such that \$3200 × n ≤ \$1000 × ( 1 + 2 + ... + n) n 2 + ... + n) Idle Time Versus Inventory Building Idle Time Cost Salary = \$3,200/mo./emp. Inv. Cost = \$1,000/month’s prod./emp. # months 1 2 3 4 5 6 Idle cost \$3,200 \$6,400 \$9,600 \$12,800 \$16,000 \$19,200* Inventory cost \$1,000* \$3,000* \$6,000* \$10,000* \$15,000* \$21,000 Idle time is preferable if an employee has to build up inventory for more than 5 months Idle Time...
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