Or1000mo prodemp eachemployeeproduces8unitspermonth

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

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...
View Full Document

This document was uploaded on 02/10/2014.

Ask a homework question - tutors are online