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##### Planning strategies at Kangaroo P/L Case study

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Planning strategies at Kangaroo P/L Case study.;Kangaroo P/L has the following demand forecast next year, expressed in six bimonthly (2-month) periods;Period;1;2;3;4;5;6;Forecast Demand;(Standard U nits;of Work);400;380;470;530;610;500;The following costing data have been obtained;?;?;?;?;Each employee works 176 regular working hours per month;Each unit requires 20 standard hours to produce;The labour costs are $6 per normal hour and $9 per overtime hour;It costs $3 per month to hold an item in inventory;The company has 22 employees at the end of the current year (i.e. at the beginning of period 1 of the;following year which is being planned), and wants to end period 6 of the planning year with the same;number of employees, i.e. 22 employees. It costs $400 to hire and $500 to lay off an employee. The;company begins the planning year with no inventory.;Question 1;a) How many employees will be needed during the peak demand of 610 units in period 5 if no overtime production is to be scheduled? (round up the number of employees);b) What will be the average labour cost for each unit if the company maintains for the entire year sufficient staff to meet the peak demand without overtime?;c) What percentage above the standard-hour cost is the company?s average labour cost per unit in this year due to the company?s decision to maintain stable employment sufficient to serve the peak demand period without overtime?;Question 2;The company is considering using overtime subject to a maximum of 25 percent of;regular-time hours.;What is the average cost per unit if the work force is maintained at a level so that;overtime can be used to the maximum of 25% of regular hours during the peak;period in period 5?;Note: round up the number of employees;Question 3;The company wants to determine the cost of meeting the demand by using a mixed strategy which;involves changes in the number of employees and the use of overtime work. To keep from adding too;many temporary employees during the peak demand period, the company will use overtime equal to;up to 25 percent of the regular-time hours available.;If at least 50% of a new employee?s regular-time capacity could be utilized during the current period;as well as the next period, it will add an employee, otherwise overtime will be used. An example is;shown below;Period 1;period 2;20.5;Period 2;Period 3;Period 4;19.3;21.5;23;round down to 20 employees as the extra 50% cannot be used in & extra time is used to cover for the 50% round down to 19 plus overtime round up to 22 employees as the extra 50% can be used in period 4;The company will continue to add employees as required until the maximum employment level as;dictated by the constraint of using overtime subject to a maximum of 25 percent of regulartime hours during the peak period, i.e. period 5 (see question 2). Once the maximum employment level is reached, overtime will be used and no more employees are added.;a)Find the employment level for each bimonthly period.;b) Find the total payroll-related costs for the year.;c)What cost per unit results from these payroll-related costs? (Ans. $126 per unit);Notes: Use the following rules in rounding off the number of employees;? If the decimal is 0.5 or more, round up, e.g. round 22.6 to 27;? If the decimal is less than 0.5, round down if the number of employees is decreasing, i.e. lower than the previous period.;? If the decimal is less than 0.5, round up if the number of employees is increasing, i.e. higher than the previous period.;Question 4;The company plans to maintain a constant production rate, begin and end the year with the same inventory level, and absorb all demand fluctuation by accumulating and depleting inventory. The;number of employees will be set at a level so that no overtime will be required.;What will be the average cost per unit due to the cost of labour and the additional inventory held during the year?;Note: round up the number of employees

Paper#28466 | Written in 18-Jul-2015

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