The beginning inventory is zero engines Overtime 3 Period 1 2 3 4 5 6 7 8 Total

# The beginning inventory is zero engines overtime 3

This preview shows page 2 - 6 out of 6 pages.

The beginning inventory is zero engines. Overtime
3 Period 1 2 3 4 5 6 7 8 Total Forecast 120 135 140 120 125 125 140 135 1,040 Output Regular 120 130 130 120 125 125 130 130 1,010 Overtime 5 10 10 5 30 Subcontract Output - Forecast 0 (5) (10) 0 0 0 (10) (5) a normal capacity of 130 engines per month >130 <130 No 5/640 Costs: 1 2 3 4 5 6 7 8 Total Regular @ 60 120*60= \$7,200 120*130= 7,800 7,800 7,200 7,500 7,500 7,800 7,800 \$60,600 Overtime @ 90 90*5=450 90*10=900 900 450 2,700 Subcontract Inventory @ 5 Backorder Total 7,200 8,250 8,700 7,200 7,500 7,500 8,700 8,250 \$63,300
4 b. Compare the costs to a level plan that uses inventory to absorb fluctuations. Inventory carrying cost is \$2 per engine per month. Blacklog cost is \$90 per engine per month Page 619 Level capacity strategy: Maintaining a steady rate of regular-time output while meeting variations in demand by a combination of options: inventories, overtime, part-time workers, subcontracting, and back orders No 5/640 Average inventory= (Beginning inventory +Ending inventory)/2
5 Period 1 2 3 4 5 6 7 8 Forecast 120 135 140 120 125 125 140 135 Regular 130 130 130 130 130 130 130 130 Output - Forecast Inventory Beginning Ending Average Backlog +10 0 10 5 0 10 130-135=- 5 10-5=5 7.5 0 5 -10 5-5=0 -10+5=5 2.5 +10 0 10-5=5 2.5 0 5 +5 10 7.5 0 +5 10 5+10=15 12.5 0 -10 15 5 10 0 5 -5 0 2.5 0 Average inventory= (Beginning inventory +Ending inventory)/2 Costs: 1 2 3 4 5 6 7 8 Total Output Regular @ 60 130*60=\$7,800 7,800 7,800 7,800 7,800 7,800 7,800 7,800 \$62,400 Overtime Subcontract @ 50 Inventory @ \$2 2*5=10 15 5 5 15 25 20 5 100 90*5=450 450 Total \$7,810 7,815 8,255 7,805 7,815 7,825 7,820 7,805 \$62,950 P. 619 Level capacity strategy:

#### You've reached the end of your free preview.

Want to read all 6 pages?

• Spring '12
• CharoenR.
• Management, Harshad number
Stuck? We have tutors online 24/7 who can help you get unstuck.
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes