2) The Austin, Texas plant of Computer Products produces external hard drives for personal and small business computers.  Gerald Knox, the plant's production planning director, is looking over next year's sales forecasts for these products and will be developing an aggregate capacity plan for the plant.  The quarterly sales forecasts for the external hard drives are as follows:

Ample machine capacity exists to produce the forecast.  Each external hard drive takes an average of 20 labor-hours.  In addition, you have collected the following information:

a.       Inventory carrying cost is $100 per external hard drive per quarter.  The cost is applied to all units in inventory at the end of a quarter.

b.      The plant works the same number of days in each quarter, 12 five-day weeks, 6 hours per day.

c.       For several reasons, there is a shortage of 270 units carried over from last year and these units must be provided during the first quarter.  There is no holding or backlog costs associated with these 270 units.

d.      In a backlog situation, the customer will wait for his order to be filled but will expect a price reduction each quarter he waits.  The backlog costs are $300 per external hard drive for the first quarter the customer waits, $700 for the second quarter the customer waits, and $900 for the third quarter the customer waits.  In any quarter, if there is a backlog, this backlog will be filled before the demand for that period is filled.

e.       The cost of hiring a worker is $800 while the cost of laying off a worker is $950.

f.       The straight time labor rate is $20 per hour for the first quarter and increases to $22 per hour in the fourth quarter.

g.      Overtime work is paid at time and a half (150%) of the straight time work.

h.      Outsourcing (contract work) is paid at the rate of $475 per external hard drive for the labor and you provide the material.

i.        Demand is projected to increase this year.  Demand during the fourth quarter of the prior year was 2,340 units.  The demand for the first quarter of the next year (year following the year you are analyzing) is projected to be at the 2,700 unit level.

j.        Because of an extensive training program, individuals hired in a quarter will provide only 50% of the normal quarter production during the first quarter when they are working and being trained.  Then in subsequent quarters, they will be at 100% production.

a) You want to maintain a work force capable of producing 2,520 in a quarter and outsourcing any disk units over this quantity.  The workforce for this 2,520 goal is assuming that the workers are working at 100% production.  Excess units produced in a quarter would be carried over to meet demand in a subsequent quarter.  Any additional demand is met through outsourcing.  There is no underutilization as the worker are either producing units or completing training during the first quarter of employment.  What is the total cost of this option, excluding the material cost? 

b) The company has now improved its training so workers hired in a quarter will be able to produce 100% of the normal production even during the first quarter that they work and are also being trained.  Use a matching demand strategy not to exceed production capacity of 2,610 external hard drives per quarter with overtime for any production above this to ensure that all production requirements are met during each quarter.  What is the total cost of this option, excluding the material cost?