Chapter 13 problems 13.3: The president of Hill Enterprises, Terri Hill, projects the firm’s aggregate demand requirements over the next 8 months as follows: Her operations manager is considering a new plan, which begins in January with 200 units on hand. Stockout cost of lost sales is $100 per unit. Inventory holding cost is $20 per unit per month. Ignore any idle-time costs. The plan is called plan A. Plan A: Vary the workforce level to execute a “chase” strategy by producing the quantity demanded in the prior month. The December demand and rate of production are both 1,600 units per month. The cost of hiring additional workers is $5,000 per 100 units. The cost of laying off workers is $7,500 per 100 units. Evaluate this plan. Ans: Stock on Hand 200 unit Month Demand Dec Production Hire Layoff Cost 400 $30,000 1600 Jan 1400 1200 Feb 1600 1600 400 $20,000 Mar 1800 1800 200 $10,000 Apr 1800 1800 May 2200 2200 Jun 2200 2200 Jul 1800 1800 400 $30,000 Aug 1400 1400 400 $30,000 $0 400 $20,000 $0 $140,000 Total cost for the plan ‘A’ works out to be $140,000. 500 Jun 2200 1775 0 150 $15.000 Jul 1800 1775 0 25 $2.5: Hill is now considering plan C.500 . and holding costs are provided in Problem 13. and dividing the result by 8 months to find 1.3: a) Plan C: Keep a stable workforce by maintaining a constant production rate equal to the average requirements and allow varying inventory levels.775 units per month.500 Feb 1600 1775 750 $15. Stock-out Cost 200 Jan 1400 1775 575 $11.000 Mar 1800 1775 725 $14. Month Demand Production Dec Ending Inv.500 $85.500 Aug 1400 1775 375 $7. Ans: The average requirement is found by summing the total demand from January through August.500 Apr 1800 1775 700 $14. stockout costs. Beginning inventory.000 May 2200 1775 275 $5.Chapter 13 problems 13. 200 1. has received the following estimates of demand requirements: July Aug. evaluate these two plans on an incremental cost basis: • Plan A: Produce at a steady rate (equal to minimum requirements) of 1. b) Plot the demand with a graph that also shows average requirements.000 1.500. Sept.800 1. which performs at a current production level of 1. 1. Demand Chart Average Requirement We we can see that the demand from January till February is below the average requirement and then from March till July the demand is above the the average requirement and then in the month of August. The cost of hiring additional workers is $3. inventory carrying costs of $25 per unit per month. The cost of layoffs is $6.300 units per month.9: Mary Rhodes. We would recommend plan C over plan A. Ans: . Nov. operations manager at Kansas Furniture. Dec.000 per 100 units produced.000 units per month and subcontract additional units at a $60 per unit premium cost.Total cost for the plan is $85. and zero beginning and ending inventory. Chapter 13 problems 13.400 1. the demand goes below the average requirement. Conduct your analysis for January through August.800 1. Oct.000 per 100 units cut back. • Plan B: Vary the workforce.600 a) Assuming stockout costs for lost sales of $100 per unit. Plan A Month Dema nd June Producti on End of period Inventory Sub Contract Units Invent ory Cost Subcontra ct Cost 1000 July 1000 1000 0 0 0 0 August 1200 1000 0 200 0 12000 Septemb er 1400 1000 0 400 0 24000 October 1800 1000 0 800 0 48000 Novemb er 1800 1000 0 800 0 48000 Decemb er 1600 1000 0 600 0 36000 Total Cost Plan B $ 168000 . we find that Plan B is better. The demand for billable hours for the firm over the next 6 months is estimated below: Month Estimate of Billable .) Cohen strongly discourages any CPA from working (billing) more than 240 hours in any given month. When Cohen or another accountant bills more than 160 hours per month. he or she gets an additional “overtime” pay of $62.000 salary each draws during the month. Chapter 13 problems 13.Month Dema nd June Producti on Hire Hire Cost Layof Layof Cost 1300 July 1000 1000 0 300 0 18000 August 1200 1200 200 0 6000 0 Septemb er 1400 1400 200 0 6000 0 October 1800 1800 400 0 12000 0 Novembe r 1800 1800 0 0 0 0 Decembe r 1600 1600 0 200 0 12000 24000 30000 Total Cost Total Cost in Plan B = 30000+24000 = $ 54000 b) Which plan is best and why? Ans: Comparing both the plan.50 for each of the extra hours: This is above and beyond the $5.21: Forrester and Cohen is a small accounting firm. (Cohen draws the same base pay as his employees. Cohen and his 3 CPAs can together bill 640 hours per month. managed by Joseph Cohen since the retirement in December of his partner Brad Forrester. The same regular time. for an hourly fee of $125. In planning for next year.20. as business dictates. Refer to the CPA firm in Problem 13. a) Develop the new aggregate plan and compute its costs. overtime.e. Cohen will not even consider laying off one of his colleagues in the case of a slow economy. Cohen estimates that billable hours will increase by 10% in each of the 6 months. however. hire another CPA at the same salary. Forrester) costs still apply. his former partner. Ans: Cost with the 1st plan of 4 CPA’s and using Forrester as outside consultant (Previous aggregate plan) Month Estimate of Billable Hours Capacit y Extra Hours Regular Cost Overtim e Forreste r Total Cost Jan 600 640 -40 20000 0 0 20000 Feb 500 640 -140 20000 0 0 20000 Mar 1000 640 360 20000 20000 5000 45000 Apr 1200 640 560 20000 20000 30000 70000 . He could. He therefore proceeds to hire a fifth CPA. if needed.Hours Jan 600 Feb 500 Mar 1000 Apr 1200 May 650 Jun 590 Cohen has an agreement with Forrester. to help out during the busy tax season. and outside consultant (i.. So.May 650 640 10 20000 625 0 20625 Jun 590 640 -50 20000 0 0 20000 Total Cost 19562 5 Cost with the 2nd plan of 5 CPA’s and using Forrester as outside consultant with increased billable hours (New aggregate plan) Month Estimate of Billable Hours Capaci ty Extra Hours Regular Cost Overtim e Forrest er Total Cost Jan 660 800 -140 25000 0 0 25000 Feb 550 800 -250 25000 0 0 25000 Mar 1100 800 300 25000 18750 0 43750 Apr 1320 800 520 25000 25000 15000 65000 May 715 800 -85 25000 0 0 25000 Jun 649 800 -151 25000 0 0 25000 Total Cost 20875 0 b) Comment on the staffing level with five accountants. I don’t think that it was a good decision to hire the additional accountant. the total cost is higher compared to the 1st plan of 4 CPA’s. . Was it a good decision to hire the additional accountant? Ans: With five accountants.