Houma Containers, Inc A How Many Units Will Be Produced on Regular Time

question 144

Essay

Houma Containers, Inc., makes industrial fibreglass tanks that are used on offshore oil platforms. Demand for the next four months and capacities of the plant are shown in the table below. Unit cost on regular time is $400. Overtime cost is 150% of regular time cost. Subcontracting is available in substantial quantity but at a very high cost, $1100 per unit. Holding costs are $200 per tank per month; back orders cost the firm $1000 per unit per month. Houma's management believes that the transportation algorithm can be used to optimize this scheduling problem. The firm has no beginning inventory and anticipates no ending inventory.
$$\begin{array} { | l | c | c | c | c | } \hline & \text { March } & \text { April } & \text { May } & \text { June } \\\hline \text { Demand } & 300 & 500 & 300 & 350 \\\hline \text { Regular capacity } & 200 & 200 & 250 & 250 \\\hline \text { Overtime capacity } & 50 & 50 & 50 & 50 \\\hline \text { Subcontract cap. } & 150 & 100 & 100 & 150 \\\hline\end{array}$$ a. How many units will be produced on regular time in June?
b. How many units will be produced by subcontracting over the four-month period?
c. What will be the inventory at the end of April?
d. What will be total production from all sources in April?
e. What will be the total cost of the optimum solution?
f. Does the firm utilize the expensive options of subcontracting and back ordering? When; why?

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Definitions:

Daily Balance

A method of calculating interest where the amount owed or due is recalculated each day, based on the balance of the account at the end of each day.

Borrowed

Refers to money or goods taken on loan with the obligation to return it or pay it back, usually with interest, within a specified period.

Amount Owed

The total sum of money that is due or required to be paid to another party.

Interest Rate

The fraction of a monetary sum levied for the privilege of utilizing it, often indicated as a percentage per annum.