PLAN 2 FOR THE ROOFING SUPPLIER—USE OF SUBCONTRACTORS WITHIN A CONSTANT WORKFORCE. ANALYSIS OF PLAN 2 APPROACH Although a constant workforce is also maintained in plan 2, it is set low enough to meet demand only in March, the lowest demand-per-day month. To produce 38 units per day (800/21)

Question

PLAN 2 FOR THE ROOFING SUPPLIER—USE OF SUBCONTRACTORS WITHIN A CONSTANT WORKFORCE.

ANALYSIS OF PLAN 2 APPROACH [latex]\blacktriangleright[/latex] Although a constant workforce is also maintained in plan 2, it is set low enough to meet demand only in March, the lowest demand-per-day month. To produce 38 units per day (800/21) in-house, 7.6 workers are needed. (You can think of this as 7 full-time workers and 1 part-timer.) All other demand is met by subcontracting. Subcontracting is thus required in every other month. No inventory holding costs are incurred in plan 2.

Accepted Answer

SOLUTION [latex]\blacktriangleright[/latex] Because 6,200 units are required during the aggregate plan period, we must compute how many can be made by the firm and how many must be subcontracted:
In-house production = 38 units per day × 124 production days = 4,712 units
Subcontract units = 6,200 - 4,712 = 1,488 units
The costs of plan 2 are computed as follows:

COST		CALCULATIONS
Regular-time labor	$ 75,392	(= 7.6 workers × $80 per day × 124 days)
Subcontracting	29,760	(= 1,488 units × $20 per unit)
Total cost	$105,152

INSIGHT [latex]\blacktriangleright[/latex] Note the lower cost of regular labor but the added subcontracting cost.
LEARNING EXERCISE [latex]\blacktriangleright[/latex] If demand for June increases to 1,200 (from 1,100), what is the change in cost? [Answer: Subcontracting requirements increase to 1,588 at $20 per unit, for a subcontracting cost of $31,760 and a total cost of $107,152.]
RELATED PROBLEMS [latex]\blacktriangleright[/latex] 13.2–13.12, 13.19 (13.23 is available in MyOMLab)

Question 13.EX.3: PLAN 2 FOR THE ROOFING SUPPLIER—USE OF SUBCONTRACTORS WITHIN...

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