
Challenging problems
A company has the following demand forecast next year, expressed in six bimonthly (2month) periods:
Forecast Demand:
Period 1 = 400 units
Period 2 = 380 units
Period 3 = 470 units
Period 4 = 530 units
Period 4 = 610 units
Period 4 = 500 units
The following costing data have been obtained:
*Each employee works 160 regular working hours per month.
*Each unit requires 20 standard hours to produce.
*The labour costs are $6 per normal hour and $9 per overtime hour.
*It costs $3 per month to hold an item in inventory.
a) How many employees will be needed during the peak demand of 610 units in period 5 if no
overtime production is to be scheduled? (Note: round up the number of employees)
b) What will be the average labour cost for each unit if the company maintains for the entire year
sufficient staff to meet the peak demand without overtime?
c) What percentage above the standardhour cost is the company’s average labour cost per unit in
this year due to the company’s decision to maintain stable employment sufficient to serve the peak
demand period without overtime?
d)The company is considering using overtime subject to a maximum of 25 percent of regulartime
hours.
What is the average cost per unit if the work force is maintained at a level so that overtime can be
used to the maximum of 25% of regular hours during the peak period in period 5?
Note: round up the number of employees.