06 Jul THE COST ASSOCIATED WITH MANUFACTURING AN ATV IS DEPENDENT UPON WHETHER THE UNITS WERE MADE IN REGULAR
A company that makes ATVs is planning production of its popular mountain bike for the next six
months. The company estimates that they will need both regular and overtime to fulfil the order.
However, there are limits on how much regular and overtime is available in a given month. Below,
you will see Table 1, which outlines the maximum regular time, and maximum overtime that is
allowed in a given month. In addition, you will also find the demand that the company needs to
fulfil.
Table 1: Production and Demand Table
May June July August September October
Maximum Regular Time Production 155 155 155 155 155 155
Maximum Over Time Production 90 90 90 90 90 90
Demand 157 175 183 143 163 176
The cost associated with manufacturing an ATV is dependent upon whether the units were made in
regular or overtime and the month in which they are produced. A summary of the costs is shown in
Table 2.
Table 2: Cost Table
May June July August September October
Regular Time Production Cost
per Unit $120.00 $120.00 $120.00 $120.00 $120.00 $120.00
Over Time Production Cost per
Unit $142.00 $142.00 $142.00 $142.00 $142.00 $142.00
Table 3 specifies the starting inventory, the minimum safety stock (i.e. minimum ending inventory),
and the inventory hold cost per unit.
Table 3: Inventory Table
Starting Inventory (May) 65
Minimum Safety Stock 25
Inventory Holding Cost per Unit $18
Develop a model to determine the number of units to be produced on regular time and overtime to
minimize total cost during the six-month horizon.
Comments and Hints
• Monthly Holding Cost is the inventory holding cost per unit times the average inventory for
each month
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