Question: South Bend Company produces small lathes for job shops. The plant’s production planning director, is looking over next year’s sales forecasts for lathes and will be developing an aggregate capacity plan for the plant. The quarterly sales forecasts for the floppy disk units are as follows:

Ample machine capacity exists to produce the forecast. Each lathe unit takes an average of 200 labor-hours. In addition, you have collected the following information:

1. Inventory carrying cost is $500 per lathe unit per quarter.
2. The plant works the same number of days in each quarter, 12 five-day weeks, 6 hours per day.
3. Beginning inventory is 5 lathes.
4. 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 lathe for the first quarter the customer waits, $700 for the second quarter the customer waits, and $900 for the third quarter the customer waits.
5. The cost of hiring a worker is $1200 while the cost of layoff is $1850 per worker.
6. The regular time labor rate is $20 per hour
7. Overtime work is paid at time and a half (150%) of the straight time work.
8. Outsourcing (contract work) is paid at the rate of $5200 per lathe for the labor and you provide the material
9. Demand is projected to increase this year. Demand during the fourth quarter of the prior year was 160 units. The demand for the first quarter of the next year (year following the year you are analyzing) is projected to be at the 245 unit level.

1. South Bendis considering the "chasing" demand aggregate planning model for meeting the lathe production. Ignoring the material cost, what is the total cost to produce the Lathes for the year?
2. As an alternative, the company could work overtime for any demand over 170 in a quarter. What is the total cost of this option, excluding the material cost?

Be sure to include any hiring and layoff costs.

Price: $2.99

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