Ex 4.2
For the next six month the Surestep Company must meet
the following demands for pairs of shoes: 3000 in month1; 5000 in month 2; 2000
in month 3; and 1000 in month 4. At the
beginning of the month 1, 5000 pairs of shoes are on hand, and Surestep has 100
workers. A worker is paid $1500 per
month. Each worker can work up to 20
hrs. of overtime per month and is paid $13 per hr for overtime labor. It takes 4 hours of labor and $15 of raw
material to produce a pair of shoes. In
the beginning of each month, workers are either hired or fired. For every hired worker it cost $1600, and
each fired worker cost $2000. A holding
cost of $3 per pair of shoes is incurred at the end of each month. Surestep wants to determine its optimal
production schedule and labor policy.
|
Initial
Inventoryof shoes |
500 |
|
Initial
Number of Workers |
100 |
|
Regular
Hours/Worker/Month |
160 |
|
Maximum
Overtime Hours/Worker/Month |
20 |
|
Hiring
Cost/Worker |
1600 |
|
Firing
Cost/Worker |
2000 |
|
Regualr
Wages/Worker/Month |
1500 |
|
Overtime
Wage Rate/ Hour |
13 |
|
Labor
Hours/Pair of Shoes |
4 |
|
Raw
Material Cost/Pair of Shoes |
15 |
|
Holding
Cost/Pair of Shoes in Inventory/Month |
3 |
This
model The objective of was to determine Surestep’s optimal production schedule
and labor policy. Some of issued with
the model are as follows: Hiring cost include training cost as well as the cost
of decreased productivity due to the fact that a new worker must learn his or
her job. Also firing cost include
severance costs and cost due to loss of morale.
Also beyond a certain point the cost of suing extra hours of overtime
labor does increase because workers are becoming less efficient.
|
Worker
Plan |
Month 1 |
Month 2 |
Month 3 |
Month 4 |
|
|
Workers
from previous month |
100 |
94 |
93 |
38 |
|
|
Workers
hired |
0 |
0 |
0 |
0 |
|
|
Workers
fired |
6 |
1 |
55 |
0 |
|
|
Workers
available after hiring and firing |
94 |
93 |
38 |
38 |
|
|
|
|
|
|
|
|
|
Regular-time
hours available |
15040 |
14880 |
6080 |
6080 |
|
|
Overtime
labor hours used |
0 |
80 |
0 |
0 |
|
|
|
|
|
|
|
|
|
Maximum
overtime labor hours available |
1880 |
1860 |
760 |
760 |
|
|
|
|
|
|
|
|
|
Total
Hours for production |
15040 |
14960 |
6080 |
6080 |
|
|
|
|
|
|
|
|
|
Production
Plan |
Month 1 |
Month 2 |
Month 3 |
Month 4 |
|
|
Shoes
Produced |
3760 |
3740 |
1520 |
1500 |
|
|
|
|
|
|
|
|
|
Production
Capacity |
3760 |
3740 |
1520 |
1520 |
|
|
|
|
|
|
|
|
|
Inventory
after production |
4260 |
5000 |
1500 |
1000 |
|
|
|
|
|
|
|
|
|
Demand |
3000 |
5000 |
2000 |
1000 |
|
|
|
|
|
|
|
|
|
Excess |
1260 |
0 |
0 |
0 |
|
|
Shortage |
0 |
20 |
500 |
0 |
|
|
Net(excess
minus shortage) |
1260 |
-20 |
-500 |
0 |
|
|
|
|
|
|
|
|
|
Ending
Inventory |
1260 |
-20 |
-500 |
0 |
|
|
|
|
|
|
|
|
|
Summary
of Cost |
Month 1 |
Month 2 |
Month 3 |
Month 4 |
Totals |
|
Hiring
Cost |
$ - |
$ - |
$ - |
$ - |
$ - |
|
Firing
Cost |
$
12,000 |
$
2,000 |
$
110,000 |
$ - |
$
124,000 |
|
Regular-time
wages |
$
141,000 |
$
139,500 |
$
57,000 |
$
57,000 |
$
394,500 |
|
Overtime
Wages |
$ - |
|
$ - |
$ - |
$ - |
|
Raw
Material Cost |
$
56,400 |
$
55,800 |
$
22,800 |
$
22,500 |
$
157,500 |
|
Holding
Cost |
$
3,780 |
$ - |
$ - |
$ - |
$
3,780 |
|
Shortage
Cost |
$ - |
$ 400 |
$
10,000 |
$ - |
$
10,400 |
|
Totals |
$
213,180 |
$
197,700 |
$
199,800 |
$
79,500 |
$
690,180 |
|
Sensitivity
of shortages in the first three months and total cost to unit shortage cost |
||||
|
Unit Shortage Cost |
Shortage
1 |
Shortage
2 |
Shortage
3 |
TotalCost |
|
|
$B$40 |
$C$40 |
$D$40 |
$F$53 |
|
0 |
0 |
2280 |
1640 |
621,740 |
|
5 |
0 |
2220 |
1580 |
640,920 |
|
10 |
0 |
2220 |
1580 |
659,920 |
|
15 |
0 |
2220 |
1580 |
678,920 |
|
20 |
0 |
20 |
500 |
690,180 |
|
25 |
0 |
20 |
20 |
692,780 |
|
30 |
0 |
0 |
0 |
692,820 |
|
35 |
0 |
0 |
0 |
692,820 |
The model that I have designed would be useful for
anyone that has use for it. It has been
designed for those business users who are trying to understand how there
company operates on a day-to-day basis.