Op 472

OPERATIONS MANAGEMENT (MGCR-472-061)

AGGREGATE PLANNING AND MATERIAL REQUIREMENTS PLANNING PRACTICE QUESTIONS Problem 1. Leather-All produces a line of handmade leather products. At the present time, the company is producing only belts, handbags, and attaché cases. The predicted demand for the three products over a six-month planning horizon is as follows: DEMAND MONTH 1 2 3 4 5 6 WORK DAYS 22 20 20 24 21 17 BELTS 2,000 2,800 2,500 3,400 3,000 2,600 BAGS 1,250 780 1,425 745 635 475 CASES 240 380 210 75 126 145

The belts require an average of 2 hours to produce, the handbags 3 hours, and the attaché cases 6 hours. All of the workers have the skill to work any product. Leather-All has currently 35 regular time workers who each have a share in the firm and cannot be fired. There are an additional 25 locals that are available and can be hired for short periods at higher cost. Regular employees earn a base monthly salary calculated on the basis of the regular working hours for the month at $8.5 per hour (even if they need to work less). They, in addition, receive an overtime salary calculated on the basis of the monthly overtime hours they work at $14 per hour. Regular time comprises a 7-hour workday and due to union contracts, regular time workers can work at most 2 hours per day on overtime. The additional temporary workers are hired for $11 per hour and are kept on the payroll for at least one full month. The cost of hiring and firing of these workers is negligible. Temporary workers do not work overtime. Leather-All also recognizes that in certain months it can manufacture more than what is needed, in order to accumulate inventory for future months. The accountant of the company estimates that 1 worker-hour worth of inventory has a cost of $1 per month. Likewise, Leather-All recognizes that some demand can be backordered. The estimated cost of backordering 1 worker-hour worth of demand is $10 per month. The production chief of Leather-All is totally confused and...