Managing Operations

Managing Operations

Question 1 a) How many employees will be needed during the peak demand of 6500 units in period 4 if no overtime production is to be scheduled? The employees required for the peak demand for 6500 units are: 6500 units * 2hrs per unit = 13000 hrs are required during the peak season for the whole month. Each employee works 160 hours per month. The total employees required are 13000 hrs / 160 hrs = 81 employees are required. (Drucker, 1999) b) What will be the average labor cost for each unit if the company maintains for the entire year Sufficient staff to meet the peak demand without overtime? Total labor cost without overtime but with permanent employees Total units produced in one year are 29400. Each unit requires 2 hours = 58800 hours. Each employee can work 160 normal hours = 58800/160 hrs per employee The total employees = 367.5 = 368 employees Each employee works 160 hours @ 20 = $3200 per employee. The total employees are 368 @ $3200= $1177600 which is the total standard cost without overtime for the whole year. The average cost per unit = $1177600/29400 (total units produced for the whole year) = 40.054 = $40. c) What percentage above the standard-hour cost is the company’s average labor 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? Total labor cost inclusive of overtime at standard cost; Total units produced in one year are 29400. Each unit requires 2 hours = 58800 hours. Each employee can work 160 normal hours + 32 extra hours (20% of 160) = 58800/192 hrs per employee. Total employees are 58800/192 = 306.25 = 306 employees = Each employee works (160 @ $20) + (32 hours @ 27) = $3200 + $864 = $4064 per employee. The total numbers of employees are 306. The total labor cost = 306 employees @ $4064 = $1243584. Total labor cost without overtime but with permanent employees = $1243584/29400 (total units produced for the whole year) = 42.298 = $42 Total labor cost without overtime but with permanent employees Total units produced in one year are 29400. Each unit requires 2 hours = 58800 hours. Each employee can work 160 normal hours = 58800/160 hrs per employee The total employees = 367.5 = 368 employees Each employee works 160 hours @ 20 = $3200 per employee. The total employees are 368 @ $3200= $1177600 which is the total standard cost without overtime for the whole year. The average cost per unit = $1177600/29400 (total units produced for the whole year) = 40.054 = $40. The percentage above standard labor cost = ($42 – $40/$40) * 100 = 5% d) What is the total cost of this option (including labor and inventory cost?) The total labor cost including the payroll expenses = $1321584 (from excel files) + (29400 * $4) (inventory costs) = $1439184 Question 2 The company is considering using overtime subject to a maximum of 20 percent of regular-time hours. a) 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 20% of regular hours during the peak period in period 4? In period four, they focused demand is 6500 units. Each unit requires two hours to produce i.e. it requires 13000 hours to produce 6500 units. Maximum overtime hours is 20% of 13000 hours i.e. 2167 hours @ $27 and 10833 @ 20 = 58509 + 216660 = 275169/6500 = $42 b) What is the total cost of this option (including labor and inventory cost)? Labor cost = $42 per unit and inventory cost per each unit is $4 = $42 + $4 = $46. Question 3 a) Find the employment level for each bimonthly period. prd units hrs * 2 empl/192 No. of empl 1 4500 9000 47 47 2 3000 6000 31 31 3 4800 9600 50 50 4 6500 13000 68 68 5 5100 10200 53 53 6 5500 11000 57 57 Total employees 306 b) Find the total payroll-related costs for the year. prd units hrs * 2 empl/192 No. of empl RQD empl 25 pymt normal o/t added employee Total pymts 1 4500 9000 47 47 22 150400 40608 11000 202008 2 3000 6000 31 31 6 99200 26784 3000 128984 3 4800 9600 50 50 25 160000 43200 12500 215700 4 6500 13000 68 68 43 217600 58752 21500 297852 5 5100 10200 53 53 28 169600 45792 14000 229392 6 5500 11000 57 57 32 182400 49248 16000 247648 Total payroll costs 1321584 For period 1, the total number of labor hours required to produce 4500 units are 9000 hours. A total of 47 employees are required to work a total of 192 hours to produce 4500 units for period the period, i.e. 160 hours normal hours plus 32 extra overtime hours. (Maximum of 20% of normal hours) The total employees required are 47, each working a maximum of 192 hours i.e. 160 normal hours each $20 = $3200 + 32 hours each $27 = $3200 + $864 = $4064 for each employee. The extra employees added were 22, the additional labor cost incurred i.e. 22 each 500 = 11000. The total payroll costs for period 1 was therefore $4064 @ 47 = $191008 + $11000 = $202008 (Garrison, Noreen, Brewer, 2009) The other periods have been calculated in the same way and the workings are in the excel files which have a similar formula for each period as in the table above. c) What cost per unit results from these payroll-related costs? The total cost for the six periods are $1321584 and the total units produced for the six periods are 29400. The cost per unit = $1321584/ 29400 = $45 per unit. What is the total cost of this option (including labor and inventory cost)? The total cost per unit = $45 + $4 = $49 (Stevenson, 2005) Question 4 The company plans to maintain a constant production rate, begin and end the year with the same inventory level, and absorb all demand fluctuation by accumulating and depleting inventory. The number of employees will be set at a level so that no overtime will be required. a) What is the average cost per unit due to the cost of labor and the additional inventory held during the year? The total units to be produced are 29400 plus 500 units of end year stock = 29900. i.e. the totals of all the six periods plus 500, closing stock for the year. Each unit requires two hours to produce i.e. 29900 units will require 59800 hours to produce them. Each hour costs $20 without overtime. These totals are 59800 multiplied by 20 = $1196000. The average cost per unit = $1196000/29400 = $41 per unit. d)What is the total cost of this option (including labor and inventory cost)? The average cost per unit = $1196000/29400 = $41 per unit. Add $4 for ware house storage = $45 Question 5 Assume the company decides to produce 3000 units per period in-house and outsource the rest. The number of employees will be set at a level so that no overtime will be required. The sub-contractor produces rest of the demand and charges the company $45 per unit. a) What is the average cost per unit due to the cost of outsourcing, labor and the additional inventory held during the year? The company produces 3000 units multiplied by the six periods which equals to 18000 units. The balance is 29400 – 18000 = 11400 units. To produce 18000 units each needs. Total cost of two labor hours which equals to 36000 hours. Total cost of 36000 hrs = 36000 hours multiplied by $20 = 720,000/18000 units = $40 per unit. If additional closing stock is added then the total units are 18400 and the number of hours totals to 36800 hours and the total cost is 36800 multiplied by $20 = 736000/18400 = $40 per unit. b) b) What is the total cost of this option (including outsourcing, labor and inventory cost)? The outsourced processes cost $45 and the others from the normal processes cost $40. The total cost equals to 40 + 45 = 85/2 = 42.5 which is $43 per unit plus $4 for warehouse expenses hence the total cost per unit = 43 + 4 = $47. (Kaplan and Bruns, 1987). c) Compare this option with previously discussed production plans and discuss benefits and challenges of this decision. In order to answer this question, browse the available literature on outsourcing and support your discussion with related references. Outsourcing is actually the allocation of certain business functions or processes to a more specialized person or organization or any external provider of such service. Outsourcing is common in organizations that cannot perform all its aspects of management operations. Some of these functions maybe outsourced temporarily or permanently. Outsourcing has a lot of advantages just as much as the difficulties it may present if it’s done wrongly. The major advantage is that the outsourced vendors have more specialized machinery and personnel who have technical expertise who in most cases are more experienced than the outsourcing company. This makes it convenient for the outsourcing company as the given tasks are performed faster, efficiently and to the satisfaction of the outsourcing company. In the case above the manufacture of 11200 units were manufactured at a rate of $45 per unit which is slightly higher than the average cost of production by the company. The company can concentrate on the production of the required number of calculated units as per their budget and outsource the other amounts as per the requirement and demand of the market. When a company outsources its noncore operations it finds enough time to concentrate on its core functions in its management operations. The company also shifts some responsibilities to the vendor responsible for the outsourcing contract. This promotes the mitigating effects of the company as the outsourcing vendor is a specialist in that area. When operations of a company are outsourced, the company’s operational and recruitment expenses are greatly reduced or minimized. Instead of recruiting specialized and highly trained staff at each tier of the production process, when in some instances such functions are occasional and are not regularly needed in normal operations of the company. The major disadvantage is that some operations when outsourced like that payroll and Human resources department provide an avenue where organizations secrets may leak out. Confidential information may find its way into the wrong hands and risk the company’s reputation. When the outsourced vendors are not supervised appropriately or adequately, their chances that some products may be of substandard quality or poor quality which can damage the image of the company. (Tas & Sunder, 2004) Outsourcing also results in extra costs for the company as the vendors of the outsourcing products or services also input extra profits for their operations. (Heshmati, 2003) Finally, outsourcing plays a big role in business processes and it should be encouraged. The advantages of outsourcing clearly outweigh the disadvantages but every situation should be analyzed and all the factors considered separately. However, the advantages and the disadvantages of outsourcing should be carefully analyzed before the outsourcing exercise is embarked on. References Drucker, F. (1999). Management. Challenges of the 21st Century. New York: Harper Business, Garrison, H., Noreen, E., Brewer, P. (2009) Managerial Accounting. McGraw-Hill Irwin. Kaplan, R. and Bruns, W. (1987). Accounting and Management: A Field Study Perspective Harvard Business School Press, Heshmati, A., (2003). “Productivity Growth, Efficiency and Outsourcing in Manufacturing and Service Industries.”Journal of Economic Surveys Tas, J. & Sunder, S. (2004), Financial Services Business Process Outscourcing, Communications of the ACM, Vol 47, No. 5 Stevenson, W. J. (2005) Operation’s management. Boston; McGraw-Hill/irwin

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