Question

Drew's company. Ace High sells customized sets of poker chips. he is developing a plan for next year on a quarterly basis. the expected demand is 600 700 600 and 700 set of chips, respectively for quarters one through four. he currently has 50 sets on hand that can be used to meet next year's demand. he can produce 150 units per month (or 450 per quarter) at the regular rate of $50 per set. His team will work overtime when needed and available. producing up to 300 units in Q1, 150 in Q2. none in Q3 and 200 in Q4. Sets produced via overtime cost a total of $75 per set. he can leverage a competitor firm and outsource production at the cost of $85 per set with a capacity of 300 units per quarter. Storage costs are $7 per set per quarter. Drew has determined that he cannot have lost sales. and that backlogging is not allowed. What is the optimal cost for Drew? Base on the optimal solution: How many total units would be produced via regular time? How many total units would be produced via overtime? How many units would be produced via subcontracting? How many units of excess capacity are there?

Answer 1

a) it will first use overtime production and then, subcontract competitor

b) It will produce 650 units during overtime

c) it will purchase 100 units via subcontracting

d) considering the outsource production, the company could be able to produce and sale 1,100 extra units As the subcontractor can produce up to 300 sets per uarter giving a capacity of 1,200 per year and we only use 100 sets.

Step-by-step explanation:

The company will operate at full capacity thus, producing 450 per uqarter now we need to check if it is better to do overtime or to outsource:

$50 cost of set produced in overtime.

storage cost $7

Total: $57 dollars

outsource $85

It is better to produce and store rather than outsource.

Q1 600- 450 = 150 units

The company will produce his overtime of 300 units

150 - 300 = 150 set are stored to next quarter.

Q2 700 - 450 = 350 units

350 units - 150 stored - 150 overtime = 50 outsource

Q3 600 - 450 = 150 units

there is no store and no overtime available thus, all are outstource

Q4 700 - 450 = 250 units

250 - 200 overtime = 50 outsource