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Bic is an international company based in France that manufactures and sells disposable consumer products such as lighters, razors and pens around the world
Bic is an international company based in France that manufactures and sells disposable consumer products such as lighters, razors and pens around the world. The factory in Spain wants to set an aggregate plan for the next year. The following is the relevant data given by the company: Beginning Workers 60 Regular prod. cost $30/unit Hiring cost $1,000/worker Units/worker 50 Overtime cost $50/unit Firing cost $3,500/worker Overtime capacity 1200 Sub-contracting cost $120/unit Inventory cost $9/unit/month Subcontract capacity 4000 Backordering cost $400/unit Beginning Inv. 600 units Help the company in developing an aggregate plan by selecting one of the following two strategies: a. (35 points) Keeping a steady workforce of 45 workers and use overtime and subcontract as needed, fill the following table: Month Demand Reg. O.T. Subk Inv. W H F Jan 2000 Feb 3000 Mar 3500 Apr 1250 May 3500 Jun 4950
Jul 5450 Aug 7000 Sep 3000 Oct 2000 Nov 1000 Dec 3800 TOTAL a. (5 points) What is the total cost of this plan? Final answer =
Expert Solution
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The Question has asked to populate an production metrix wherein a steady workforce of 45 workers would be deployed which can produce 50 units each (total regular production of 2250 units). Regular production would not be stopped as there are fixed cost associated to workers employed and inventory cost is lower than production cost through overtime / subcontracting, making it rational to produce regular units and store it for use in the succeeding months.
Overtime and subcontracting shall be utilized on need basis as their cost is higher than regular production cost and inventory maintenance cost. overtime and subcontracting can be undertaken for a maximum of 1200 units and 4000 units as per information available.
Further existing inventory of 600 units shall be accumulated in January (as regular units produced are higher than demand in this month) and existing workforce of 60 workers would be reduced to 45 workers (15 workers would be fired in the first month).
Production plan is mentioned in the below table (as per reasoning provided above)
Month demand Regular production overtime Sub contracting Inventory working Hiring Firing Opening inventory 600 Jan 2000 2250 0 0 850 45 0 15 Feb 3000 2250 0 0 100 45 0 0 Mar 3500 2250 1150 0 0 45 0 0 Apr 1250 2250 0 0 1000 45 0 0 May 3500 2250 250 0 0 Jun 4950 2250 1200 1500 0 45 0 0 Jul 5450 2250 1200 2000 0 45 0 0 Aug 7000 2250 1200 3550 0 45 0 0 Sept 3000 2250 750 0 0 45 0 0 Oct 2000 2250 0 0 250 45 0 0 Nov 1000 2250 0 0 1500 45 0 0 Dec 3800 2250 50 0 0 45 0 0 Total 40450 27000 5800 7050 Cost of each units (as provided in the question) is mentioned in below table:
Month demand Regular production overtime Sub contracting Inventory working Hiring Firing Cost - 30 / unit 50 / unit 120 / unit 9 / unit / month - 1000 / worker 3500 / worker Inventory has been utilized in the following months - February, March, June and December.
Details of the cost is provided in the table below (multiplying units in table 1 with cost in table 2 respectively):
Month Regular production overtime Sub contracting Inventory working Hiring Firing Jan 67500 0 0 7650 0 0 52500 Feb 67500 0 0 900 0 0 0 Mar 67500 57500 0 0 0 0 0 Apr 67500 0 0 9000 0 0 0 May 67500 12500 0 0 0 0 0 Jun 67500 60000 180000 0 0 0 0 Jul 67500 60000 240000 0 0 0 0 Aug 67500 60000 426000 0 0 0 0 Sept 67500 37500 0 0 0 0 0 Oct 67500 0 0 2250 0 0 0 Nov 67500 0 0 13500 0 0 0 Dec 67500 2500 0 0 0 0 0 Total 810000 290000 846000 33300 0 0 52500 Total cost is 2,031,800 (for a cumulative production of 39850 units and opening inventory of 600 units)
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