Minimizes production and inventory costs

Reference no: EM131017691

The Silver Star Bicycle Company will be manufacturing both men's and women's models for its Easy Pedal 10-speed bicycles during the next two months. Management wants to develop a production schedule indicating how many bicycles of each model should be produced in each month. Current demand forecasts call for 150 men's and 125 women's models to be shipped during the first month and 200 men's and 150 women's models to be shipped during the second month. Additional data are shown.

Model	Production Costs	Labor Requirements (hours)	Current Inventory
Men's	$40	manufacture(10) assmebly(3)	20
Women's	$30	manufacture(8) assembly(2)	30

Last month the company used a total of 4000 hours of labor. The company's labor relations policy will not allow the total hours of labor to increase or decrease by more than 500 hours from month to month, i.e. labor usage should follow a smooth pattern between consecutive months. In addition, the company charges monthly inventory at the rate of 2% of the production cost based on the inventory levels at the end of the month. The company would like to have at least 25 units of each model in inventory at the end of the two months.

Establish a production schedule that minimizes production and inventory costs and satisfies the labor-smoothing, demand, and inventory requirements. What inventories will be maintained, and what are the monthly labor requirements?
If the company changed the constraints so that monthly labor increases and decreases could not exceed 250 hours, what would happen to the production schedule? How much would the cost increase? What would you recommend?

Reference no: EM131017691

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