Chapter 13Resource Management

TRUE/FALSE
1. Resource management deals primarily with managing inventories in a value chain.
ANS: F

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2. Aggregate planning and disaggregation methods in goods-producing industries involve fewer levels of
planning than service-providing organizations, because service organizations deal with more than just
materials.
ANS: F

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3. Service firms frequently take their aggregate plans and disaggregate them down to the execution level
as detailed front-line staff and resources schedules, job sequences and service encounter execution.
ANS: T

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4. An example of aggregation would be an ice cream manufacturer developing targets for the number of
gallons of each flavor to produce along with purchasing requirements for specific ingredients.
ANS: F

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5. "Level 3" planning represents aggregate planning at higher management levels of an organization.
ANS: F

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6. Short-term changes in facilities and equipment are seldom used in traditional aggregate planning
methods because of the capital costs involved.
ANS: T

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7. Increasing the output rate without changing existing resources is an example of demand management.
ANS: F

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8. The lower the skill requirements of the workforce, the more feasible it is to change workforce levels as
an aggregate planning option.
ANS: T

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9. Good solutions to aggregate planning situations can be found using spreadsheets and trial-and-error.
ANS: T

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10. A level production strategy maintains constant inventory levels over the planning horizon.
ANS: F

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11. When demand is seasonal, inventory cannot be used to stabilize production and employment rates.
ANS: F

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12. A chase demand aggregate planning strategy may result in substantial overtime, undertime, and ratechange costs.
ANS: T

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13. The MPS is developed in the same manner, no matter the type of industry (make-to-stock vs. make-toorder) and the number of items produced (few or many).
ANS: F

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14. The purpose of the master schedule is to translate the aggregate plan into a separate plan for individual
finished goods.
ANS: T

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15. After a master production schedule is created for finished goods, the demand for all materials and
components necessary can be calculated, not forecasted.
ANS: T

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16. End items in a master production schedule or final assembly schedule must be forecast.
ANS: T

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17. In a bill of materials, each component is comprised of one or more parent items.
ANS: F

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18. A bill of materials characterizes the structure of dependent demand among all items that comprise a
finished good.
ANS: T

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19. In MRP, it is essential that all dependent demand requirements be ordered at the beginning of the
planning period.
ANS: F

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20. A scheduled receipt for an outside vendor is called a purchase order.

ANS: T

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21. Lot sizing is the process of using dependent demand logic to calculate the quantity and timing of
orders for all subassemblies and components that support the production of end items.
ANS: F

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22. A POQ for a one-week time period is equivalent to LFL lot sizing.
ANS: T
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23. Lot sizing rules on a parent item do not affect the gross requirements of all lower level component
items.
ANS: F

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24. Dependent demand does not occur in the service business.

ANS: F

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25. Work center load reports are used in capacity requirements planning.
ANS: T

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26. Resources include materials, equipment, facilities, information, technical knowledge and skills, and
people.
ANS: T

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27. A service facility like a hospital cannot use material requirements planning concepts and methods such
as bills of labor and the concept of dependent demand.
ANS: F

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MULTIPLE CHOICE
1. The purpose of aggregate planning is to
a. Minimize the work force size
b. Maximize the production rate
c. Minimize the cost of meeting demand
d. Optimize the inventory level
ANS: C

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2. The words "product family," "budget allocation" and "long-term" fit best with which level of the
generic framework for resource planning?
a. Aggregate planning - Level 1
b. Disaggregation - Level 2
c. Execution - Level 3
d. Capacity requirements planning
ANS: A

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3. If forecast demand exceeds the total factory or supply capacity, managers might simply decide not to
meet forecast demand. This decision would most likely be made at which planning level?
a. Aggregate planning - Level 1
b. Disaggregation - Level 2
c. Execution - Level 3
d. Capacity requirements planning
ANS: A

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4. Assigning people to tasks, setting priorities for jobs and scheduling equipment fits best with which
level of the generic framework for resource planning?
a. Aggregate planning - Level 1
b. Disaggregation - Level 2
c. Execution - Level 3
d. Capacity requirements planning
ANS: C

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5. Setting order sizes and schedules for individual subassemblies and resources by week or day fits best
with which level of the generic framework for resource planning?
a. Aggregate planning - Level 1
b. Disaggregation - Level 2
c. Execution - Level 3
d. Capacity requirements planning
ANS: B

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6. Which of the following is not an aggregate planning decision option?

a. Pricing and promotions
b. Subcontracting
c. Layoffs
d. Building a new plant
ANS: D

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7. Promotion of weekly discount airfares by an airline would be an example of ____.

a. Demand management
b. Production rate changes
c. Inventory changes
d. Facility, equipment, and transportation changes
ANS: A

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8. Which aggregate planning strategy generally would result in the least amount of inventory?
a. Level production
b. Chase demand
c. Mixed
d. Period-Order-Quantity (POQ)
ANS: B

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9. Which of the following is not correct regarding aggregate planning?

a. Large number of alternatives
b. Good solutions by trial-and-error method
c. Seasonal fluctuations in demand
d. Costs are sunk and irrelevant
ANS: D

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10. A(n) ____ is a statement of how many finished items are to be produced and when they are to be
produced.
a. Aggregate Plan
b. Master Production Schedule
c. Material Requirements Plan
d. Capacity Requirements Plan
ANS: B

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11. The direct inputs to material requirements planning include all of the following except
a. Master Production Schedule
b. Inventory, SKU, and Transaction files
c. Bills of Material
d. Capacity Requirements Plan
ANS: D

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12. The primary output of an MRP system is a time-phased report that gives all of the following except
a. The facilities managers a detailed schedule for acquiring additional factory space
b. The accounting and financial functions production information that drives cash flow,
budgets, and financial needs
c. The production managers a detailed schedule for manufacturing the product and
controlling manufacturing inventories
d. The purchasing department a schedule for obtaining raw material and purchased items
ANS: A

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13. An inventory item can be

a. Only a parent
b. Only a component
c. Both a parent and a component
d. Either a parent or a component, but not both
ANS: C

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14. ____ are the total demand for an item derived from all of its parents.
a. Planned order releases
b. Gross requirements
c. Scheduled receipts
d. Planned order receipts
ANS: B

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15. The Lot-for-Lot (LFL) rule

a. Minimizes purchase or setup costs
b. Allows the firm to take advantage of quantity discounts (price breaks) by suppliers
c. Is best applied when inventory carrying costs are high and setup/order costs are low
d. Masks the true nature of dependent demand
ANS: C

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16. Which lot sizing rule might base the order quantity on a standard-size container or pallet load?
a. Lot-for-Lot (LFL)
b. Fixed order quantity (FOQ)
c. Periodic order quantity (POQ)
d. Gross Requirements (GR)
ANS: B

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17. Which lot sizing rule is best when inventory carrying costs are high and setup/order costs are low?
a. Lot for Lot (LFL)
b. Fixed order quantity (FOQ)
c. Periodic order quantity (POQ)
d. Gross Requirements (GR)
ANS: A

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18. Which lot sizing rule might use the EOQ calculation?
a. Lot for Lot (LFL)
b. Fixed order quantity (FOQ)
c. Periodic order quantity (POQ)
d. FOQ and POQ
ANS: D

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19. Capacity requirements are computed by multiplying the number of units scheduled for production at a
work center by
a. The unit resource requirements minus the setup time
b. The unit resource requirements plus the setup time
c. The unit resource requirements and then adding in the setup time
d. The unit resource requirements and then subtracting the setup time
ANS: C

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20. If a work center load report indicates insufficient capacity, options for correcting the problem include
all of the following except
a. Revise the Bill-of-Materials
b. Change the Master Product Schedule
c. Subcontract
d. Transfer personnel between work centers
ANS: A

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SHORT ANSWER
1. Define resource management and list its key objectives.
ANS:
Resource management deals with the planning, execution, and control of all the resources that are
used to produce goods or provide services in a value chain. Resources include materials, equipment,
facilities, information, technical knowledge and skills, and of course, people. Typical objectives of
resource management are to (1) maximize profits and customer satisfaction; (2) minimize costs; or (3)
for not-for-profit organizations such as government and churches, maximize benefits to their
stakeholders.

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2. Explain the three levels of resource planning.
ANS:
Level 1 is aggregate planning, which is the development of a long-term output and resource plan in
aggregate units of measure. Aggregate plans define output levels over a planning horizon of one to two
years, usually in monthly or quarterly time buckets. They normally focus on product families or total
capacity requirements rather than individual products or specific capacity allocations. Aggregate plans
also help to define budget allocations and associated resource requirements.
Level 2 planning is called disaggregation. Disaggregation is the process of translating aggregate plans
into short-term operational plans that provide the basis for weekly and daily schedules and detailed
resource requirements. To disaggregate means to break up or separate into more detailed pieces.
Disaggregation specifies more-detailed plans for the creation of individual goods and services or the
allocation of capacity to specific time periods. For goods-producing firms, disaggregation takes Level
1 aggregate planning decisions and breaks them down into such details as order sizes and schedules for
individual subassemblies and resources by week and day.
Level 3 focuses on executing the detailed plans made at Level 2, creating detailed resource schedules
and job sequences. Execution refers to moving work from one workstation to another, assigning
people to tasks, setting priorities for jobs, scheduling equipment, and controlling processes. Level 3
planning and execution in manufacturing is sometimes called shop floor control.
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3. Describe the options that managers have for developing aggregate plans to respond to fluctuating
demand.
ANS:
Demand Management: Marketing strategies can be used to influence demand and to help create more
feasible aggregate plans. For example, pricing and promotions can increase or decrease demand or
shift it to other time periods.
Production-Rate Changes: One means of increasing the output rate without changing existing
resources is through planned overtime. Alternatively, hours can be reduced during slow periods
through planned undertime.
Workforce Changes: Changing the size of the workforce is usually accomplished through hiring and
layoffs.
Inventory Changes: In planning for fluctuating demand, inventory is often built up during slack
periods and held for peak periods.
Facilities, Equipment, and Transportation: Facilities, equipment, and transportation generally
represent long-term capital investments. Short-term changes in facilities and equipment are seldom
used in traditional aggregate planning methods because of the capital costs involved. However, in
some cases, it might be possible to rent additional equipment such as industrial forklifts, small
machines, trucks, or warehouse space to accommodate periods of high demand.
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4. Differentiate between a level production strategy and a chase demand strategy.

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ANS:
A level production strategy plans for the same production rate in each time period. A level strategy
avoids changes in the production rate working within normal capacity restrictions. Labor and
equipment schedules are stable and repetitive making it easier to execute the plan.
A chase demand strategy sets the production rate equal to the demand in each time period. While
inventories will be reduced and lost sales eliminated, many production rate changes will dramatically
change resource levels, i.e., the number of employees, machines, etc.
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5. Define a Master Production Schedule (MPS) and explain how it differs from a final assembly
schedule.
ANS:
A Master Production Schedule (MPS) is a statement of how many finished items are to be produced
and when they are to be produced. The purpose of the MPS is to translate the aggregate plan into a
separate plan for individual finished goods. It also provides a means for evaluating alternative
schedules in terms of capacity requirements, provides input to the MRP system, and helps managers
generate priorities for scheduling by setting due dates for the production of individual items. A Final
Assembly Schedule (FAS) defines the quantity and timing for assembling subassemblies and
component parts into a final finished good.
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6. Define Material Requirements Planning (MRP) and how it can benefit an organization.
ANS:
Material Requirements Planning (MRP) is a forward-looking, demand-based approach for planning
the production of manufactured goods and ordering materials and components to minimize
unnecessary inventories and reduce costs. MRP projects the requirements for the individual parts or
subassemblies based on the demand for the finished goods as specified by the MPS. The primary
output of an MRP system is a time-phased report that gives
1.
Purchasing department a schedule for obtaining raw materials and purchased parts.
2.
Production managers a detailed schedule for manufacturing the product and controlling
manufacturing inventories.
3.
Accounting and financial functions production information that drives cash flow,
budgets and financial needs.
MRP depends on understanding three basic concepts (1) the concept of dependent demand, (2) the
concept of time-phasing, and (3) lot sizing to gain economies of scale.
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7. Explain a bill of materials (BOM), bill of labor (BOL), and bill of resources (BOR) relate.
ANS:
A bill of materials (BOM) defines the hierarchical relationships between all items that comprise a
finished goods such as subassemblies, purchased parts and manufactured in-house parts. Some firms
call the BOM the product structure.
For labor-intensive services, the analogy to the BOM is a bill of labor (BOL). A bill of labor (BOL) is
a hierarchical record analogous to a BOM that defines labor inputs necessary to create a good or
service.

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A broader concept is a bill of resources (BOR) where the labor, services, equipment, tools, and parts
are all defined in a BOM format to support each type of service.
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8. What are the components of an MRP record?
ANS:
Gross requirements (GR) are the total demand for an item derived from all of its parents.
Scheduled or planned receipts (S/PR) are orders that are due or planned to be delivered.
Planned order receipt (PORec) specifies the quantity and time an order is to be received.
Planned order release (PORel) specifies the planned quantity and time an order is to be released to
the factory or a supplier. It is a planned order receipt offset by the item's lead time.
Projected on-hand inventory (POH) is the expected amount of inventory on hand at the beginning of
the time period considering on-hand inventory from the previous period plus scheduled receipts or
planned order receipts minus the gross requirements.
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9. Explain the three lot-sizing methods, and under what circumstances each work best:
a.
Lot-for-Lot (LFL)
b.
Fixed Order Quantity (FOQ)
c.
Periodic Order Quantity (POQ)
ANS:
An ordering schedule that covers the gross requirements for each week is called Lot-for-Lot (LFL).
The LFL rule minimizes the amount of inventory that need be carried. However, it ignores the costs
associated with purchase orders or production setups. Thus, this rule is best applied when inventory
carrying costs are high and setup/order costs are low.
The Fixed Order Quantity (FOQ) rule uses a fixed order size for every order or production run. The
rationale for the FOQ approach is that large lot-sizes result in fewer shipments, which are usually more
expensive than full truck loads, and production economies of scale. However, this creates larger
average inventory levels that must be held at a cost and it can distort the true dependent demand gross
requirements for lower-level components. Thus, the FOQ model is best applied when inventory
carrying costs are low and setup/order costs are high.
The Periodic Order Quantity (POQ) orders a quantity equal to the gross requirement quantity in one
or more predetermined time periods minus the projected on-hand quantity of the previous time period.
The POQ approach results in moderate average inventory levels compared to FOQ because it matches
order quantities to time buckets. Furthermore, it is easy to implement because inventory levels can be
reviewed according to a fixed schedule. However, POQ creates high average inventory levels if the
POQ becomes too long, and it can distort true dependent demand gross requirements for lower level
components. An economic based POQ model is best applied when inventory carrying costs and
setup/order costs are moderate.
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10. What is capacity requirements planning (CRP)?

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ANS:
Capacity requirements planning (CRP) is the process of determining the amount of labor and
machine resources required to accomplish the tasks of production on a more detailed level, taking into
account all component parts and end-items in the materials plan. Capacity requirements are computed
by multiplying the number of units scheduled for production at a work center by the unit resource
requirements and then adding in the setup time. These requirements are then summarized by time
period and work center.
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PROBLEM
1. A company currently has no items in inventory. The demand for the next four months is 200, 400, 250
and 350 units. Determine the level production rate if a level strategy is selected with the goal of ending
Period 4 with 100 units in inventory.
ANS:
Total demand = 200 + 400 + 250 + 350 = 1200. To have an ending inventory of 100 requires an
average of (1200 + 100)/4 = 325 units/month to be produced
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2. A company currently has no items in inventory. The demand for the next four months is 200, 400, 250
and 350 units. Assuming a level production rate of 250 units per month, determine the month in which
a backorder will materialize.
ANS:
Month
1
2
3
4

Production
250
250
250
250

Demand
200
400
250
350

Ending Inventory
50
-100
-100
-200

Backorders will occur in month 2, carried through month 3, and an additional 100 units will be
backordered in month 4 if no additional production is authorized.
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3. The Academic Company mixes and bottles a high-energy beverage in various container types and sizes
for college students. The aggregate forecast for the next four quarters (1 year) in thousands of gallons
is as follows:
Quarter
1
2
3
4
Total

Forecast Demand
per 1,000 Gallons
400
700
850
650
2,600

Academic's management makes the following assumptions:

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Each employee works 550 standard hours of regular time each quarter.
On average, it takes 27 hours to produce and package 1 unit (1,000 gallons).
Regular-time labor costs $6.00/hour; overtime labor costs $9.00/hour.
Inventory holding cost is approximately $4.50/unit (1,000 gallons) per quarter based upon
the ending inventory per quarter.
Because of extremely hot weather, there is no beginning inventory available to start
Quarter 1.
Management wants a constant work force (no hiring or firing).
Managers have also decided to always round up the number of employees needed to the
next whole integer, i.e., 37.2 yields 38 employees.

a. Determine how many employees would be needed to meet the peak required in Quarter 3.
b. Determine the annual inventory holding cost if Academic decides to use a level production rate of
650 units per quarter.
c. Using a level schedule of 650 units per quarter, what will be the annual employee costs?
d. Using a level schedule of 650 units per quarter, what will be the annual employee costs if only 30
employees are available and overtime is used?
e. If management decides on a chase demand strategy, with production last quarter of 600 units and a
rate change cost of $3.00/1000 gallons, determine the total rate change cost.
ANS:
a. (850 units)(27 hours/unit) = 22950 hours
(22950 hours)/(550 hours/employee) = 41.7 or 42 employees
b.
Quarter
1
2
3
4

Demand
400
700
850
650

Production Rate
650
650
650
650

Quarter
1
2
3
4

Demand
400
700
850
650

Production Rate
650
650
650
650

Quarter
1
2
3
4

Demand
400
700
850
650

Production
Rate
650
650
650
650

Ending Inventory
250
200
0
0
Total

Inventory Cost
$ 1,125.00
$ 900.00
$
0
$
0
$ 2,025.00

c.
Hours
Required
17550
17550
17550
17550

Number of
Employees
32
32
32
32
Total

Labor Cost
$ 105,600.00
$ 105,600.00
$ 105,600.00
$ 105,600.00
$ 422,400.00

d.
Hours
Required
17550
17550
17550
17550

Number of
Employees
30
30
30
30

Overtime
Hours
1050
1050
1050
1050
Total

Labor Cost
$ 108,450.00
$ 108,450.00
$ 108,450.00
$ 108,450.00
$ 433,800.00

e.
Quarter
1
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Demand
400

Production Rate
400
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Rate Change Cost

$ 600.00
11

2
3
4

700
850
650

700
850
650

$ 900.00
$ 450.00
$ 600.00
$ 2,550.00

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4. A paint company has the following aggregate demand requirements and cost data for the upcoming
year by quarter.
Quarter
1
2
3
4
Total

Forecast Demand (units)

1,200
1,500
1,900
1,000
5,600

Previous quarter's production:

Beginning inventory:
Backorder costs:
Inventory holding cost
(on ending inventory):
Hiring employees:
Firing employees:

900 units
0 units
$60/unit
$12/unit/quarter
$30/unit increase
$70/unit decrease

a. Determine the change in workforce costs (hiring and firing employees) if the paint company
decides to use a chase demand strategy.
b. Determine the inventory holding and backorder costs for the year if the paint company wants to
use a level production strategy, ending Quarter 4 with no inventory.
ANS:
a.
Quarter
1
2
3
4

Demand
1200
1500
1900
1000

Production Rate
1200
1500
1900
1000
Total

Rate Change Cost

$ 9,000.00
$ 9,000.00
$ 12,000.00
$ 63,000.00
$ 93,000.00

Demand
1200
1500
1900
1000

Production Rate
1400
1400
1400
1400

Ending Inventory
200
100
(400)
0
Total

b.
Quarter
1
2
3
4

Inventory/Backorder Cost
$ 2,400.00
$ 1,200.00
$ 24,000.00
$
0
$ 27,600.00

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5. The bill of material for end item A is shown below:

a. If A has a gross requirement to build 250 units and an on-hand inventory for A of 40, determine the
net requirement for D if its current on-hand inventory balance for D is 20 (all other components
have no current inventory).
b. Determine the net requirement for F if the gross requirement for A is still 250 and current on-hand
inventory balance for A is 40, D is 20 and F is 60.
ANS:
a.
Item
A
C
D

On Hand
40
0
20

Item
A
C
D
F

On Hand
40
0
20
60

Dependent Demand Calculation

250 40 = 210
210(4) 0 = 840
840 20 = 820

b.
Dependent Demand Calculation
250 40 = 210
210(4) 0 = 840
840 20 = 820
820(2) 60 = 1580

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6. The BOM for Product X is shown below, followed by a table of inventory data. The master production
schedule quantity calls for the completion of 300 Xs in Week 7. The lead-time for production of X is 2
weeks and there are currently no units of X available.

Data Category
Lot Sizing Rule
Lead-Time
Scheduled Receipts
Beginning (On-Hand Inventory)

C
FOQ = 700
2 weeks
0
200

D
LFL
1 week
0
200

a. When and what quantity will be the planned order release for Item C?
b. Determine the week and the quantity of the planned order release for Item D.
ANS:
a. The planned order release for 300 units of X will be in week 5 because of the lead time. Therefore,
the planned order release for C will be 2 weeks earlier, in week 3. We will need 300(2) = 600 units
of C to be produced. However, since the lot sizing rule is fixed order quantity, the planned order
release must be for 700 units.
b. The planned order release for 300 units of X will be in week 5 because of the lead time. Therefore,
the planned order release for D will be 1 week earlier, in week 4. We will need 300(3) 200 = 700
units of D to be produced.
PTS: 1
7. Given the information below, complete the MRP record and explain what it tells the inventory analyst
to do.
Lot Size Rule: Fixed Q = 200 units
Lead Time = 2 weeks

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Week
Gross Requirement
Scheduled Receipts
Projected On Hand 100
Planned Receipts
Planned Order Release

1
50

2
100
200

ANS:
Lot Size Rule: Fixed Q = 200 units
Lead Time = 2 weeks
Week
Gross Requirement
Scheduled Receipts
Projected On Hand 100
Planned Receipts
Planned Order Release

1
50
50

3
60

4
00

5
50

6
90

7
200

Safety Stock: 0 units

Current On-Hand Quantity = 100 units
2
100
200
150

3
60

4
00

5
50

6
90

7
200

90

90

90

40

150
200

150
200

200

200

POH1 = OH0 + S/PR 1 GR 1 = 100 + 0 50 = 50

POH2 = OH1 + S/PR 2 GR 2 = 50 + 200 100 = 150
POH3 = OH2 + S/PR 3 GR 3 = 150 + 0 60 = 90
POH4 = OH3 + S/PR 4 GR 4 = 90 + 0 0 = 90
POH5 = OH4 + S/PR 5 GR 5 = 90 + 0 0 = 90
POH6 = OH5 + S/PR 6 GR 6 = 90 + 0 50 = 40
POH7 = OH6 + S/PR 7 GR 7 = 40 + 200 90 = 150.
POH8 = OH7 + S/PR 8 GR 8 = 150 + 200 200 = 150.
PTS: 1
8. A manufacturing company is interested in making a product structure tree for one of its major
products. They know that product A is made up of assemblies B, C, and D. Each B assembly is made
up of one raw material F, and 2 E parts. Each C assembly is composed of 2 G parts and one H
subassembly. Each H sub-assembly is made up of 2 F raw materials, 2 1 parts and 2 J parts.

a. How many units of part G are needed to make one unit of product A?
b. How many units of raw material F are needed to make up one unit of product A?
ANS:
a. 2 parts G are in 1 assembly C which is in 1 product A

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b. 1 raw material F is in 1 assembly B which is in 1 product A, plus two raw materials F is in 1

subassembly H which is in 1 assembly C which is in 1 product A, for a total of 3 units of raw
material F
PTS: 1
9. A company makes traffic signals for downtown streets. They are interested in developing a product
structure tree for one of their traffic signal models. Each traffic signal is composed of a housing and
bracket assembly. Each housing assembly is composed of optical and casing sub-assemblies. Each
bracket assembly is composed of a hanger part and a wire outlet part. The optical sub-assembly is
composed of 4 wire lead sub-assemblies, 3 lens parts, 3 bulbs, and 3 socket parts. Each casing
sub-assembly is composed of 3 plastic molds and 3 hardware sub-assemblies. Each wire lead
sub-assembly is made up of 1 conductor part, 1 insulation part, and 4 spade connector parts. Each
hardware subassembly is made up of 4 nuts, 4 bolts, and 8 washers.

a. How many spade connectors are needed to make one traffic signal?
b. How many bolts are needed to make one traffic signal?
ANS:
a. 4 connectors are in 1 wire lead and 4 wire leads are in 1 optical subassembly which are in 1
housing assembly which is in 1 traffic signal, for a total of 16 spade connectors
b. 4 bolts are in 1 hardware subassembly and 3 hardware subassemblies are in 1 casing subassembly
which is in I housing assembly which is in 1 traffic signal, for a total of 12 bolts
PTS:

10. A hardware company is interested in developing a net requirement schedule for one of its products, a
claw hammer. The beginning inventory for the product is 1500 units and the safety stock is 300 units.
The weekly demand over a six-week planning horizon is 400, 850, 560, 900, 600, and 700 units.
a. What would the net requirements be for week 2?
b. What is the ending inventory in week 4?
ANS:
a. 50
b. 300

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16

Week
Estimated Demand
Beg. Inventory
Net Requirements
End. Inventory

1
400
1500
0
1100

2
850
1100
50
300

3
560
300
560
300

4
900
300
900
300

5
600
300
600
300

6
700
300
700
300

11. The Eugene plant of Basic Computers Inc. (BCI) wants to develop a net requirements schedule for one
model of microcomputers. The beginning inventory is 500 units and they like to carry 50 units as
safety stock. The estimated demand for the next 6 weeks is 200, 250, 300, 375, 400, and 600 units.
a. What would the net requirements be for week 3?
b. What is the beginning inventory in week 5?
ANS:
a. 300
b. 50
Week
Estimated Demand
Beg. Inventory
Net Requirements
End. Inventory
PTS:

1
200
500
0
300

2
250
300
0
50

3
300
50
300
50

4
375
50
375
50

5
400
50
400
50

6
600
50
600
50

12. An electronics company wants to develop an MRP schedule for one of its key components, a
specialized chip. The lot size is 600, the lead time is 2 weeks, there are 900 units on hand with 300 of
those as safety stock and 500 already allocated. There are gross requirements for 2000 units in week 3
and 1500 units in week 5. There are 600 units scheduled to be received in week 1.
a. What is the number of units available in week 3?
b. What is the planned order receipt for week 5?
ANS:
a. 700
b. 1200
Week
Gross Requirements
Scheduled Receipts
Available
Net Requirements
Plan Order Receipt
Plan Order Release
PTS:

3
2000

5
1500

600
700

700

700
1300
1800
1200

500

500
1000
1200

1800

13. A company that makes inkjet printers is trying to determine a MRP schedule for the print cartridges it
needs in its newest model of printer. They have gross requirements of 1000 units in week 2 and 900
units in week 4. The minimum lot size is 500 units and the lead time is 1 week. They currently have
300 units on hand that includes a safety stock of 150 and another 100 units already allocated. They
have 500 units scheduled for receipt in week 1.
a. What is the number of units available in week 1?
b. What is the planned order release in week 3?
OM3 Test Bank

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17

ANS:
a. 550
b. 850
Week
Gross Requirements
Schedule Receipts
Projected OH Inv.
Net Requirements
Plan Order Receipts
Plan Order Releases
PTS:

2
1000

500
550

550
450
500

500

4
900
50

50
850
850

850

14. A manufacturing company is trying to determine the best lot-sizing approach to take when developing
an MRP schedule: lot-for-lot (LFL), fixed order quantity (FOQ) using the EOQ, or period order
quantity (POQ). The ordering cost is $504 per order, the inventory carrying cost is $1 per week per
unit, and the annual demand for the product is 15,000 units. They are using a work schedule for a 50week work year. They are disregarding the effects of initial inventory and safety stock at the present
time. The estimated net requirements for their product for the next six weeks are:
Week
Net Requirements
a.
b.
c.
d.
e.
f.
g.
h.

1
100

2
400

3
200

4
350

5
600

6
50

Using LFL, what is the size of the production lot in week 3?

Using LFL, what is the total cost for this method?
What is the EOQ needed?
What is the beginning inventory in week 4 using FOQ method?
What is the total cost for using the FOQ approach?
What is the POQ size for production lots?
What is the ending inventory for week 5 using POQ method?
What is the total cost for using the POQ approach?

ANS:
a. Lot-for-lot (LFL):
Week
Net Requirements
Beg. Inventory
Production Lots
End. Inventory

1
100

2
400

3
200

4
350

5
600

6
50

100

400

200

350

600

50

b.
Set-up costs (6 x $504) =
Carrying costs
Total cost

$3024
=
$0
=
$3024

c.
Fixed Order Quantity (FOQ):
Annual demand = 15,000 units
Annual carrying costs
50 x $1 = $50 per unit per year
FOQ = Sq. Root of 2DS/C = Sq. Root of [(2)(15000)(504)/50] = 549.9 = 550 units

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18

d.
Week
Net Requirements
Beg. Inventory
Production Lots
End. Inventory

1
100
0
550
550

2
400
450
0
0

3
200
50
550
550

4
350
400
0
0

5
600
50
550
550

6
50
0
550
550

e.
Ordering costs = 4 x $504 = $2016
Carrying costs = $1 x 1450 = $1450
Total costs
= $3466
f.
Period order quantity (POQ):
EOQ = 550
POQ = # weeks per year/(D/EOQ) = 50/(15,000/550) = 1.83 = 2
g.
Week
Net Requirements
Beg. Inventory
Production Lots
End. Inventory

1
100
0
500
400

2
400
400
0
0

3
200
0
550
350

4
350
350
0
0

5
600
0
650
50

6
50
50
0
0

h.
Ordering costs = 3 x $504
Carrying costs = $1 x 800
Total costs
PTS:

= $1512
= $ 800
= $2312

15. A company that makes construction equipment is exploring different lot sizing approaches to its MRP
schedule: lot for-lot (LFL), fixed order quantity (FOQ) using the EOQ, and period order quantity
(POQ). It costs $100 to set up the production line to produce hydraulic jacks and the carrying cost per
unit per week is $1. Annual demand is expected to be 1550 jacks. For planning purposes, the company
uses a 50-week work year and disregards the effects of initial inventory and safety stock. The net
requirements for hydraulic jacks for the next six weeks are:
Week
Net Requirements
a.
b.
c.
d.
e.
f.
g.
h.

1
35

2
30

3
40

4
10

5
40

6
30

Using a LFL approach, what is the lot size in week 3?

What is the total cost for the LFL method?
What is the Fixed order quantity (FOQ) using the EOQ approach?
What is the beginning inventory for week 5 using the FOQ approach?
What is the total cost using the FOQ method?
What is the period order quantity?
What is the ending inventory for week 4 using the POQ method?
What is the total cost using the POQ approach?

ANS:
a.

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19

Lot-for-lot (LFL):
Week
Net Requirements
Beg. Inventory
Production Lots
End. Inventory

1
35

2
30

3
40

4
10

5
40

6
30

35

30

40

10

40

30

b.
Set-up costs
6 x $100
Carrying costs
Total costs

$600
$ 0
$600

c.
Economic order quantity (EOQ):
Annual demand = 1550
Annual carrying costs = 50 x $1 = $50 per unit per year
EOQ = Sq. Root of 2DS/C = Sq. Root of [(2)(1550)(100)/50]= 78.74 = 79
d.
Net Requirements
Beg. Inventory
Production Lots
End. Inventory

1
35
0
79
44

2
30
44
0
14

3
40
14
79
53

4
10
53
0
43

5
40
43
0
3

6
30
3
79
52

e.
Ordering costs = 3 x $100 = $300
Carrying costs = $1 x 209 = $209
Total costs
= $509
f.
Period order quantity (POQ):
EOQ = 79
POQ = # weeks per year/(D/EOQ) = 50/(1550/79) = 2.55 = 3
g.
Week
Net Requirements
Beg. Inventory
Production Lots
End. Inventory

1
35
0
105
70

2
30
70
0
40

3
40
40
0
0

4
10
0
80
70

5
40
70
0
30

6
30
30
0
0

h.
Ordering costs = 2 x $100 = $200
Carrying costs = $1 x 210 = $210
Total costs
= $410
PTS:

16. A company assembles microcomputers for sale to computer stores. They are trying to decide which lot
sizing approach to use for developing their MRP schedules: lot-for-lot (LFL), fixed order quantity
(FOQ) using the EOQ approach, or period order quantity (POQ). The set-up cost is $1000 per order,

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20

the inventory carrying cost is $2.50 per week per unit and the annual demand for the computers is
10,000 units. The company is using a 50-week work year and disregarding the effects of initial
inventory and safety stock. The estimated net requirements for the microcomputers for the next six
weeks are:
Week
Net Requirements
a.
b.
c.
d.
e.
f.
g.
h.

1
150

2
200

3
50

4
300

5
250

6
100

Using the LFL method, what is the size of the production lot for week 2?
What is the total cost using the LFL method?
What is the economic order quantity (EOQ)?
What is the ending inventory in week 3 using the EOQ approach?
What is the total cost using the EOQ method?
What is the period order quantity (POQ)?
What is the beginning inventory in week 4 using the POQ approach?
What is the total cost using the POQ method?

ANS:
a.
Lot-for-lot (LFL):
Week
Net Requirements
Beg. Inventory
Production Lots
End. Inventory

1
150

2
200

3
50

4
300

5
250

6
100

150

200

50

300

250

100

b.
Set-up costs =
Carrying costs
Total cost

6x $1000

=
=
=

$6000
$0___
$6000

c.
Fixed order quantity (EOQ):
Annual demand = 10,000 Units
Annual carrying costs = 50 x $2.50 = $125 per unit per year
FOQ = Sq. Root of 2DS/C = Sq. Root of [(2)(10000)(1000)/125] = 400
d.
Net Requirements
Beg. Inventory
Production Lots
End. Inventory

1
150
0
400
250

2
200
250
0
50

Week
3
4
50
300
50
0
0
400
0
100

5
250
100
400
250

6
100
250
0
150

e.
Ordering costs = 3 x $1000
Carrying costs = $2.50 x 800
Total costs

= $3000
= $2000
= $5000

f.
Period order quantity (POQ):

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21

EOQ = 400
POQ = # weeks per year/(D/EOQ) = 50/(10,000/400) = 2
g.
Week
Net Requirements
Beg. Inventory
Production Lots
End. Inventory

1
150
0
350
200

2
200
200
0
0

3
50
0
350
300

4
300
300
0
0

5
250
0
350
100

6
100
100
0
0

h.
Ordering costs = 3 x $1000
= $3000
Carrying costs = $2.50 x 600 = $1500
Total costs
= $4500
PTS:

17. It is time for a company to do its MRP schedule, but they aren't sure which lot sizing approach to use:
lot-for-lot (LFL), fixed order quantity (FOQ) using the EOQ approach, or period order quantity (POQ).
They have the following information regarding the product they wish to produce:
Week
Net Requirements

1
50

2
40

3
60

4
30

5
50

6
30

Carrying costs = $1 per unit per week

Set-up costs = $125
Annual demand = 2000 units
Work year = 50 weeks
a.
b.
c.
d.
e.
f.
g.
h.

What is the production lot size for week 2 using the LFL method?
What is the total cost using the LFL approach?
What is the fixed order quantity (EOQ) using the EOQ approach?
What is the beginning inventory in week 3 using the FOQ approach?
What is the total cost using the FOQ method?
What is the period order quantity (POQ)?
What is the ending inventory in week 4 using the POQ approach?
What is the total cost using the POQ method?

ANS:
a.
Lot-for-lot (LFL):
Week
Net Requirements
Beg. Inventory
Production Lots
End. Inventory

1
50

2
40

3
60

4
30

5
50

6
30

50

40

60

30

50

30

b.
Set-up costs
Carrying costs
Total costs

OM3 Test Bank

= $750
=$ 0
= $750

Chapter 13

22

c.
Fixed order quantity (EOQ):
Annual demand = 2000
Annual carrying costs = 50 x $1 = $50 per unit per year
FOQ = Sq. Root of 2DS/C = Sq. Root of [(2)(2000)(125)/50]= 100
d.
Week
Net Requirements
Beg. Inventory
Production Lots
End. Inventory

1
50
0
50
50

2
40
50
40
10

3
60
10
60
50

4
30
50
30
20

5
50
20
50
70

6
30
70
30
40

e.
Ordering costs = 3 x $125 = $375
Carrying costs = $1 x 240 = $240
Total costs = $615
f.
Period order quantity (POQ):
POQ = 100
POQ = # weeks per year/(D/EOQ) = 50/(2000/100) = 2.5 = 3
g.
Week
Net Requirements
Beg. Inventory
Production Lots
End. Inventory

1
50
0
150
100

2
40
100
0
60

3
60
60
0
0

4
30
0
110
80

5
50
80
0
30

6
30
30
0
0

h.
Ordering costs = 2 x $125 = $250
Carrying costs = $1 x 270 = $270
Total costs = $520
PTS:

18. A sheet metal company has developed the following six-month production schedule (in thousands of
square yards):
Week
Metal

1
150

2
100

3
175

4
200

5
160

6
160

In addition, their monthly labor and machine capacities (in hours) available, and the production
standards (in hours per square yard) are:

Capacity Available
Production
Standard

OM3 Test Bank

Labor
16,000
.10

Machine
20,000
.18

Chapter 13

23

a. What is the percent utilization of the labor capacity in month 4?

b. What is the percent utilization of the machine capacity in month 3?
c. In how many weeks are the labor requirements over capacity?
ANS:
a.
Labor utilization:
Required capacity = Metal x Labor production standard = (200,000)(.10) = 20,000

Mont
h
1
2
3
4
5
6

Capacity
16,000
16,000
16,000
16,000
16,000
16,000

Required
MPS
Capacity
15,000
10,000
17,500
20,000
16,000
16,000

Percent
Utilization
93.8
62.5
109.4
125.0
100.0
100.0

b.
Machine utilization:
Required capacity = Metal x Machine production standard = (175,000)(.18) = 31,500

Mont
h
1
2
3
4
5
6

Capacity

Required
MPS Capacity

Percent
Utilization

20,000
20,000
20,000
20,000
20,000
20,000

27,000
18,000
31,500
36,000
28,800
28,800

135.0
90.0
157.5
180.0
144.0
144.0

c.
Labor requirements are over capacity in weeks 3 and 4
19. A special project in a manufacturing company has the following master production schedule (MPS) for
the next eight weeks:

Week
Units

1
750

2
625

3
800

4
925

5
1000

6
900

7
675

8
675

The weekly fabrication and welding capacity (in hours) available and production standards (in hours
per unit) are:

Capacity Available
Production Standard

Fabrication
7,500
8

Welding
10,000
11

a. What is the percent utilization of the fabrication capacity in week 5?

b. What is the percent utilization of the welding capacity in week 2?

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24

c. In how many weeks are the welding area requirements over capacity?
ANS:
a.
Fabrication utilization:
Required capacity = Units x Fabrication production standard = (1000)(8) = 8,000

Mont
h
1
2
3
4
5
6
7
8

Capacity
7,500
7,500
7,500
7,500
7,500
7,500
7,500
7,500

Required
MPS
Capacity
6,000
5,000
6,400
7,400
8,000
7,200
5,400
5,400

Percent
Utilization
80.0
66.7
85.3
98.7
106.7
96.0
72.0
72.0

b.
Welding utilization:
Required capacity = Units x Welding production standard = (625)(11) = 6, 875

Mont
h
1
2
3
4
5
6
7
8

Capacity
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000

Required
MPS
Capacity
8,250
6,875
8,800
10,175
11,000
9,900
7,425
7,425

Percent
Utilization
82.5
68.8
88.0
101.8
110.0
99.0
74.3
74.3

c.
Welding requirements over capacity in weeks 4 and 5
PTS: 1
20. The Pacific Chemical Company produces high quality paint in Oregon for sale throughout the western
U.S. The company ships paint in gallon containers. The production manager has developed the
following master production schedule (MPS) for the next six months (data is in thousands of gallons):

Month
Paint

1
130

2
150

3
170

4
160

5
160

6
120

The company's monthly labor and machine capacity available (in hours) and its production standards
(in hours per gallon) are:

Capacity available

OM3 Test Bank

Labor
15,000

Machine
23,000

Chapter 13

25

Production Standard

.09

.12

a. What is the percent utilization of the labor capacity in week 4?

b. What is the percent utilization of the machine capacity in week 2?
c. In how many weeks are the machine requirements over capacity?
ANS:
a.
Labor utilization:
Required capacity = Paint x Labor production standard = (160,000)(.09) = 14,400

Mont
h
1
2
3
4
5
6

Capacity
15,000
15,000
15,000
15,000
15,000
15,000

Required
MPS
Capacity
11,700
13,500
15,300
14,400
14,400
10,800

Percent
Utilization
78.0
90.0
102.0
96.0
96.0
72.0

b.
Machine utilization:
Required capacity = Paint x Machine production standard = (150,000)(.12) = 18,000

Mont
h
1
2
3
4
5
6

Capacity
23,000
23,000
23,000
23,000
23,000
23,000

Required
MPS
Capacity
15,600
18,000
20,400
19,200
19,200
14,400

Percent
Utilization
67.8
78.3
88.7
83.5
83.5
62.6

c. Machine requirements are never over capacity

21. A company is interested in developing a quarterly aggregate production plan but they aren't sure if
level capacity or matching demand would be better. They have the following information available
regarding their production operation:
Number of working days per quarter = 65 days
Number of hours per day per person = 8 hours
Labor standard to produce one unit = 3 hours
Demand for four quarters respectively:
40,000, 42,000, 41,000, and 44,000 units
a.
b.
c.
d.
e.

Using a level capacity plan, how many workers would be needed each quarter?
For a level capacity plan, what is the beginning inventory in quarter 2?
Using a level capacity plan, in how many quarters are the machine requirements over capacity?
Using a matching demand plan, how many workers are needed for quarter 1?
How many additional workers are needed in quarter 2 under a matching demand plan?

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26

ANS:
a. Level Capacity:
Output
(40000 + 42000 + 41000 + 44000)/4 = 41750
Workers
41750/[(65)(8)/(3)] = 241
b. -250 units
Quarte
r
1
2
3
4

Deman
d
40000
42000
41000
44000

Output

Workers
Needed

+ or -

Inventory
Beg.
End.

41750
41750
41750
41750

241
241
241
241

1750
-250
750
-2250

0
1750
1500
2250

Output

Workers
Needed

Workers
Hired

Workers
Laid Off

40000
42000
41000
44000

231
243
237
254

1750
1500
2250
0

c. 2 quarters: Quarter 2 and 4

d. Matching Demand
Workers = 40000/173.33 = 231
Quarte
r
1
2
3
4

Deman
d
40000
42000
41000
44000

0
12
0
17

23
0
6
0

e. 12 workers
PTS:

22. A local company makes athletic clothing and they are preparing aggregate production plans on a
quarterly basis for the coming year for their line of women's wear. They have the following
information available to develop a level capacity and a matching demand plan:
Number of working days per quarter = 65 days
Number of hours per day per person = 8 hours
Labor standard to produce one unit = 5 hours
Demand for four quarters respectively:
12,300, 12,500, 12,200, 13,000 units
Cost of hiring a worker = $800
Cost of laying off a worker = $500
Inventory carrying cost per unit per year = $60
a.
b.
c.
d.

Using a level capacity plan, how many workers are needed each quarter?
For a matching demand plan, how many workers are needed each quarter respectively?
What is the inventory carrying cost using a level capacity plan?
What is the total cost to hire workers under a matching demand plan?

ANS:
a. Level Capacity:

OM3 Test Bank

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27

Output =(12300 + 12500 + 12200 + 13000)/4 = 12500

Workers = 12500/[(65)(8)/(5)] = 121
Quarte
r
1
2
3
4

Deman
d
12300
12500
12200
13000

Output

Workers
Needed

12500
12500
12500
12500

121
121
121
121

+ or -

Inventory
Beg.
End.

200
0
300
-500

0
200
200
500

200
200
500
0

b. Matching Demand:
Q1 Workers = 12300/[(65)(8)/5] = 119
Quarte
r
1
2
3
4

Deman
d
12300
12500
12200
13000

Output

Workers
Needed

12300
12500
12200
13000

119
121
118
125

Workers
Hired

Workers
Laid Off

0
2
0
7

6
0
3
0

c. Level Capacity Costs:

Average ending inventory = (0 + 200 + 200 + 500)/4 = 225
Inventory carrying cost = (225)($60) = $13,500
d. Matching Demand Costs:
Hiring costs = (9)($800) = $7,200
Firing costs = (9)($500) = $4,500
PTS:

23. Pacific Chemical Products, Inc. produces a liquid laundry detergent and is currently in the process of
developing an aggregate plan for the upcoming year. They don't know whether to use a level capacity
or a matching demand approach. The costs that they are concerned with are the cost of hiring more
workers, the cost of laying off workers, and the cost of carrying inventory. Currently at Pacific it costs
$200 to hire a new worker, the cost of laying off one worker is $250, and the inventory carrying cost
per unit per quarter is $4. The company has 65 working days per quarter and each person works only
an 8 hour day. The labor standard for each gallon of detergent is 1.5 hours and the forecasted demand
for the next four quarters is 30,000, 35,000, 47,000, 43,000 gallons.
a.
b.
c.
d.
e.

Using a level capacity plan, how many workers are needed each quarter?
What is the average inventory level under the level capacity plan?
What is the total annual inventory cost under a level capacity plan?
Under a matching demand plan, how many workers are needed in the second quarter?
What is the total hiring and firing costs using a matching demand plan?

ANS:
a. Level Capacity:
Output = (30000 + 35000 + 47000 + 43000)/4 = 38750
Workers = 38750/[(65)(8)/(1.5)]= 112
Workers

OM3 Test Bank

Chapter 13

Inventory

28

Quarte
r
1
2
3
4

Deman
d
30000
35000
47000
43000

Output

Needed

+ or -

Beg.

End.

38750
38750
38750
38750

112
112
112
112

8750
3750
-8250
-4250

0
8750
12500
4250

8750
12500
4250
0

b. Average inventory = (0 + 8750 +12500 + 4250)/4 = 6375

c. Total inventory costs = (6375)($4)(4) = $102,000
d. Matching Demand:
Workers = 35000/100.96 = 101
Quarte
r
1
2
3
4
e.

Deman
d
30000
35000
47000
43000

Output

Workers
Needed

30000
35000
47000
43000

87
101
136
124

Workers
Hired

Workers
Laid Off

0
14
35
0

37
0
0
12

Hiring costs = (49)($200) = $9,800

Firing costs = (49)($250) = $12,250
Matching total costs = $9,800 + $12,250 = $22,050

24. A cement company is considering how to expand its capacity and they are examining the use of
overtime or subcontracting on a quarterly basis as possible options. They have the following
information about their operation:
Aggregate demand = 30,000; 25,000; 27,000; and 31,000
Maximum capacity = 25,000 units
Labor standard = 2.45 hours/unit
Cost of overtime = $10.50/hour
Cost of subcontracting = $25.00/unit
a. What is the cost of overtime in quarter 1?
b. What is the total cost of subcontracting over four quarters?
ANS:
a. Costs of overtime and subcontracting:
Overtime = (5000)(2.45)($10.50) = $128,625
Subcontracting = (5000)($25.00) = $125,000

Quarter
1
2
3
4
Total Costs

OM3 Test Bank

Deman
d
30000
25000
27000
31000

Units
Short

Cost of
Overtime

5000
0
2000
6000

$128,625
0
$ 51,450
$154,350
$334,425

Chapter 13

Cost of
Subcontractin
g
$125,000
0
$ 50,000
$150,000
$325,000

29

b. Subcontracting cost = $325,000.

PTS:

25. A metal shop currently has a work force of 20 people and is considering hiring four more people for
the next three weeks only. The cost of hiring and training one person is $200 and the cost of
terminating one person is $100. Each employee can produce 40 units/week on regular time and four
units/week on overtime, and each person must be paid to produce 40 units even if the demand is not
sufficient enough to keep everyone busy. The cost of producing one unit on regular time is $20 while
on overtime it is $30. The cost of subcontracting one unit is $40. Demand for the next three weeks is
800 units, 1200 units, and 1000 units. Because there is no storage available the shop has a policy that
no inventory is to be carried over from week to week.
a.
b.
c.
d.

What is the total cost for week 1 if there are only 20 workers?
What is the total cost for all three weeks using only 20 workers?
What is the total cost for week 1 if the company uses 24 workers?
What is the total cost for all three weeks using all 24 workers?

ANS:
a. 20 workers:
Number of units produced:

Week

Demand

# Units
Reg Time

1
2
3

800
1200
1000

800
800
800

# Units
Overtime
0
80
80

# Units
Subcontracte
d
0
320
120

b. $70,400
Costs involved:

Week
1
2
3

Cost of
Regular Time
($20)(800)
($20)(800)
($20)(800)

Cost of
Overtime
($30)(0)
($30)(80)
($30)(80)

Cost of
Subcontracting
($40)(0)
($40)(320)
($40)(120)
Total Cost =

Total Cost
Per Week
$16,000
$31,200
$23,200
$70,400

c. $19,200
24 workers:
Number of units produced:

Week

Demand

1
2
3

800
1200
1000

OM3 Test Bank

# Units
Regular
Time
800
960
960

#Units
Overtime

#Units
Subcontracted

0
96
40

0
144
0

Chapter 13

30

Week
1
2
3

Cost of
Regular
Time
($20)(960)
($20)(960)
($20)(960)

Cost of
Overtime

Cost of
Subcontractin
g
($40)(0)
($40)(144)
($40)(0)
Weekly Cost
=

($30)(0)
($30)(96)
($30)(40)

Total Cost
Per Week
$19,200
$27,840
$20,400
$67,440

Cost of hiring and layoff = ($300)(4) = + $1,200

Total Cost =
$67,440 + $1,200 = $68,640
d. $68,640
PTS:

26. A company is seeking to develop a master production schedule for its product. Their beginning
inventory is 1000 units and they want to maintain a safety stock level of 1000 units. They produce the
product in a fixed lot size of 1200 units. Information regarding weekly demand is shown below:
Week
Deman
d

1
1000

2
1100

3
1300

4
900

5
500

6
1000

a. What is the ending inventory level for week 2?

b. What is the production quantity for week 4?
ANS:
a. 1300
Master Production Schedule:
Week
Demand
Beg. Inventory
Production
End. Inventory

1
1000
1000
1200
1200

2
1100
1200
1200
1300

3
1300
1300
1200
1200

4
900
1200
1200
1500

5
500
1500
0
1000

6
1000
1000
1200
1200

b. 1200
27. A firm produces one product on a produce-to-stock basis and is trying to develop a master production
schedule for production. The safety stock level for this product is 30 units and the fixed lot size is 50
units. The beginning inventory is given as 50 units. The demand for this product comes from four
different sources and the demand estimates for the next four weeks are given as:

Source
Intra-company orders
Warehouse Orders
R & D Orders
Customer Orders
Total Weekly Demand
OM3 Test Bank

1
10
0
10
30
50

Week
2
3
0
0
20
0
0
10
25
15
45
25
Chapter 13

4
20
10
0
30
60
31

a. What is the production quantity for week 2?

b. What is the beginning inventory for week 4?
ANS:
a. 50
Master Production Schedule:

Week
Demand
Beg. Inventory
Production
End. Inventory

1
50
50
50
50

2
45
50
50
55

3
25
55
0
30

4
60
30
100
70

b. 30 units
PTS:

28. A firm produces two models of pagers, products A and B, on a produce-to-stock basis and is trying to
develop a master production schedule for its operation. Safety stock is 30 for product A and 20 for
product B. Fixed lot sizes are 70 for product A and 40 for product B. The beginning inventories are 30
for A and 30 for B. The demand for these products comes from many different sources, but the total
weekly demand for each of the next six weeks is given as follows:

Week
Produc
t
A
B
a.
b.
c.
d.

60
50

30
20

50
40

60
30

70
30

60
40

What is the production quantity for Product A for week 3?

What is the ending inventory for Product A for week 3?
What is the production quantity for Product B for week 5?
What is the beginning inventory for Product B for week 5?

ANS:
a. 0
Master Production Schedule for Product A:

Week
Demand
Beg. Inventory
Production
End. Inventory

1
60
30
70
40

2
30
40
70
80

3
50
80
0
30

4
60
30
70
40

5
70
40
70
40

6
60
40
70
50

b. 30
c. 0

OM3 Test Bank

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32

Master Production Schedule for Product B:

Week
Demand
Beg. Inventory
Production
End. Inventory

1
50
30
40
20

2
20
20
40
40

3
40
40
40
40

4
30
40
40
50

5
30
50
0
20

6
40
20
40
20

d. 50 units
PTS:

29. A company produces two end-items: products A and B. They are concerned about the loading on their
Finish Shop and are trying to develop a rough-cut capacity plan. To finish product A two hours are
required and for product B one hour. Total hours available in the Finish Shop are 100. They have the
following weekly production information:

Week
End Item
A
B

1
40
0

2
0
30

3
40
0

4
0
0

5
40
30

6
0
30

a. What is the total hourly load on the Finish Shop in week 3?

b. In what week is the Finish Shop overloaded?
ANS:
a. Rough-cut Capacity Plan:

End Item
A

Production
Finish hours
Production
Finish hours

B
Total Production Load
Total Finish Load

1
40
80
0
0
40
80

2
0
0
30
30
30
30

Week
3
4
40
0
80
0
0
0
0
0
40
0
80
0

5
40
80
30
30
70
110

6
0
0
30
30
30
30

b. Week 5
PTS: 1
30. A furniture company produces two types of wooden chairs: products A and B. They are interested in
developing a rough-cut capacity plan to prevent overloading their assembly facility. Assembly time
required for product A is 2 hours and for product B it is 3 hours. Total assembly time available is 100
hours/week. They have the following weekly production information available:

End Item
A
B

OM3 Test Bank

1
10
20

2
20
20

Week
3
4
20
10
20
10

Chapter 13

5
30
20

6
10
30

33

a. What is the total hourly load on the assembly facility in week 4?

b. In how many weeks is the assembly facility overloaded?
ANS:
a. 50
Rough-cut Capacity Plan:

End Item
A

1
10
20
20
60
30
80

Production
Assembly
Production
Assembly

B
Total Production load
Total Assembly load

Week
3
4
20
10
40
20
20
10
60
30
40
20
100
50

2
20
40
20
60
40
100

5
30
60
20
60
50
120

6
10
20
30
90
40
110

b. 2 weeks (Weeks 5 and 6)

PTS:

31. A local manufacturer produces two different products on the same production line. Product A requires .
5 hours of labor while product B requires .8 hours of labor. The total labor available in any one week is
600 hours. The production manager has just developed the following weekly production schedule and
has asked you to check and see if there is any week in this schedule where the production system will
be overloaded or underloaded.

End Item
A
B

1
900
175

Week
3
4
800
900
300
200

2
500
150

5
600
375

6
600
375

a. What is the total hourly load on the line in week 2?

b. In what week(s) is the line overloaded?
ANS:
a. 370
Rough-cut Capacity Plan:

Week
End Item
A
B

Production
Hours Required
Production
Hours Required
Total Hours Required

1
900
450
175
140
590

2
500
250
150
120
370

3
800
400
300
240
640

4
900
450
200
160
610

5
600
300
375
300
600

6
600
300
375
300
600

b. Weeks 3 and 4
PTS:

OM3 Test Bank

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34

OM3 Test Bank

Chapter 13

35