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Chapter 13 problems 13.

3:
The president of Hill Enterprises, Terri Hill, projects the firms 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.

Chapter 13 problems 13.5:


Hill is now considering plan C. Beginning inventory, stockout costs, and holding costs are
provided in Problem 13.3:
a) Plan C: Keep a stable workforce by maintaining a constant production rate equal to the
average requirements and allow varying inventory levels.

Ans:
The average requirement is found by summing the total demand from January through
August, and dividing the result by 8 months to find 1,775 units per month.

Month

Demand

Production

Dec

Ending Inv.

Stock-out

Cost

200

Jan

1400

1775

575

$11,500

Feb

1600

1775

750

$15,000

Mar

1800

1775

725

$14,500

Apr

1800

1775

700

$14,000

May

2200

1775

275

$5,500

Jun

2200

1775

150

$15,000

Jul

1800

1775

25

$2,500

Aug

1400

1775

375

$7,500
$85,500

Total cost for the plan is $85,500. We would recommend plan C over plan A.

b) Plot the demand with a graph that also shows average requirements. Conduct your analysis
for January through August.

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 demand goes below the average requirement.
Chapter 13 problems 13.9:
Mary Rhodes, operations manager at Kansas Furniture, has received the following estimates
of demand requirements:
July
Aug.
Sept.
Oct.
Nov.
Dec.
1,000
1,200
1,400
1,800
1,800
1,600
a) Assuming stockout costs for lost sales of $100 per unit, inventory carrying costs of $25 per
unit per month, and zero beginning and ending inventory, evaluate these two plans on an
incremental cost basis:
Plan A: Produce at a steady rate (equal to minimum requirements) of 1,000 units per month
and subcontract additional units at a $60 per unit premium cost.
Plan B: Vary the workforce, which performs at a current production level of 1,300 units per
month. The cost of hiring additional workers is $3,000 per 100 units produced. The cost of
layoffs is $6,000 per 100 units cut back.
Ans:

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

August

1200

1000

200

12000

Septemb
er

1400

1000

400

24000

October

1800

1000

800

48000

Novemb
er

1800

1000

800

48000

Decemb
er

1600

1000

600

36000

Total
Cost

Plan B

$ 168000

Month

Dema
nd

June

Producti
on

Hire

Hire
Cost

Layof

Layof
Cost

1300

July

1000

1000

300

18000

August

1200

1200

200

6000

Septemb
er

1400

1400

200

6000

October

1800

1800

400

12000

Novembe
r

1800

1800

Decembe
r

1600

1600

200

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, we find that Plan B is better.
Chapter 13 problems 13.21:
Forrester and Cohen is a small accounting firm, managed by Joseph Cohen since the
retirement in December of his partner Brad Forrester. Cohen and his 3 CPAs can together bill
640 hours per month. When Cohen or another accountant bills more than 160 hours per
month, he or she gets an additional overtime pay of $62.50 for each of the extra hours: This
is above and beyond the $5,000 salary each draws during the month. (Cohen draws the same
base pay as his employees.) Cohen strongly discourages any CPA from working (billing)
more than 240 hours in any given month. The demand for billable hours for the firm over the
next 6 months is estimated below:
Month

Estimate of Billable

Hours

Jan

600

Feb

500

Mar

1000

Apr

1200

May

650

Jun

590

Cohen has an agreement with Forrester, his former partner, to help out during the busy tax
season, if needed, for an hourly fee of $125. Cohen will not even consider laying off one of
his colleagues in the case of a slow economy. He could, however, hire another CPA at the
same salary, as business dictates.
Refer to the CPA firm in Problem 13.20. In planning for next year, Cohen estimates that
billable hours will increase by 10% in each of the 6 months. He therefore proceeds to hire a
fifth CPA. The same regular time, overtime, and outside consultant (i.e., Forrester) costs still
apply.
a) Develop the new aggregate plan and compute its costs.
Ans:
Cost with the 1st plan of 4 CPAs 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

20000

Feb

500

640

-140

20000

20000

Mar

1000

640

360

20000

20000

5000

45000

Apr

1200

640

560

20000

20000

30000

70000

May

650

640

10

20000

625

20625

Jun

590

640

-50

20000

20000

Total
Cost

19562
5

Cost with the 2nd plan of 5 CPAs 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

25000

Feb

550

800

-250

25000

25000

Mar

1100

800

300

25000

18750

43750

Apr

1320

800

520

25000

25000

15000

65000

May

715

800

-85

25000

25000

Jun

649

800

-151

25000

25000

Total
Cost

20875
0

b) Comment on the staffing level with five accountants. Was it a good decision to hire the
additional accountant?
Ans:
With five accountants, the total cost is higher compared to the 1st plan of 4 CPAs. So, I dont
think that it was a good decision to hire the additional accountant.