RSM1240
Term 4, 2024
Written Assignment: Athletic Knit
Due March 24, 11:59 pm on Quercus.
All assignment submissions must be in pdf format.
Athletic Knit (AK) is considering how it should use its operations to compete in the
marketplace in FY2011. The fiscal year is divided into the following periods:
Period
1
Dates
December 1 to July 14
2
3
4
July 15 to August 14
August 15 to October 31
November 1 to November 30
Number of weeks
31
(AK is shut Dec. 25-Jan. 7)
4
11
4
% of Total Demand
36%
10%
44%
10%
(Assume it is December 1, 2010, and we have to plan for all of FY2011. The case indicates it
is April 2011, but let’s ignore that to simplify the analysis.)
Daniel and David are contemplating two production schedules:
1) A level production plan, as has been used in previous years, where the planned
production rate is kept constant over the course of the year.
2) A chasing demand plan where there is a lower production per week in periods 1
and 2 and a higher production rate is planned for periods 3 and 4.
Details of the plans are below. Your assignment is to analyze the two plans and then
suggest a plan for AK going forward.
In order to analyze the plans, we first need to find several values. Data necessary to support
the analysis can be found in the case and in the Appendix below. If there are
inconsistencies in the data, please use the numbers given in the Appendix – they correct
typos in the case.
A. Expected Demand
i.
Estimate the expected annual demand based on a 3% increase in the
demand from 2010. Use Table A (linked and below).1
ii.
Estimate the demand per week in each of the four periods.2
B. Capacity
i.
What is the capacity per knitting machine in units per week if no setup is
needed?
ii.
What is the process time per unit in hours if no setup is needed?
For the remainder of the questions assume production occurs in batches of 360
units and a setup is required after each batch.
iii.
What is the capacity per knitting machine in units per week?
Note that the “Annual Demand” given in Exhibit 4 is not the customer demand but the annual
production quantities for the products.
2 Recall that the firm is closed for 2 weeks from December 25 through January 7, so that all
production and demand data are based on 50 weeks a year.
1
RSM1240
Term 4, 2024
iv.
v.
What is the weekly implied utilization in each of the four periods according to
the demand rate in Part A ii and the capacity rate in Part B iii?
How much overtime capacity can a knitting machine provide per workday?
How about per Saturday?
C. Estimate the cost of inventory based on the 2010 production and demand.
i.
What was the cost to manufacture a unit last year?
ii.
What was the cost of the obsolete (disposed) inventory?
iii.
Consider an annual inventory cost rate percentage of 25%. What is the
weekly inventory costs per unit?
Consider the following plans:
1. David thinks that they should use a level production plan for FY2011, i.e., a plan
where the production each week is the same for all 50 weeks. Assume they want to
finish with 14,500 units in inventory.
a. How much must be produced each week to meet the expected demand?
b. How much does the inventory increase or decrease each week in period 1?
2? 3? 4?
c. Draw a graph of the expected inventory held each week. (Include the 14,500
units of remaining inventory from FY2010 in your diagram.)
d. What is the total cost of the inventory held over the course of the year?
e. What are the advantages and disadvantages of this production plan?
2. Daniel thinks that they should chase the demand by producing a lower quantity
each week until August 15 and then produce a higher quantity during the peak
periods 3 and 4. This will lower their overall inventory. In doing so, AK would use its
capacity in the peak period to respond to the demand. He thinks they should
produce 50% of the total expected demand during periods 1 and 2 and 50% during
periods 3 and 4. He recognizes this would likely require the use of overtime and
possibly production on Saturdays in the latter two periods. Assume they want to finish
with 14,500 units in inventory.
a. How much will be produced each week in periods 1 and 2? How much each
week in periods 3 and 4?
b. Draw a graph of the expected inventory held each week. (Include the
remaining inventory from 2010 in your diagram.)
c. What is the total cost of the inventory held over the course of the year?
d. Assume all fifteen employees are required if overtime is used. What is the total
cost of overtime in this plan?
e. What are the advantages and disadvantages of this production plan?
3. MAIN QUESTION: Develop your own production plan. How does it support the
business strategy? What is the annual cost of your plan? What trade-offs are you
making, and how do you address any disadvantages of your plan?
RSM1240
Term 4, 2024
Prepare a 1-2 page Executive Action Summary on the Main Issue: What should be
Athletic Knit’s production plan?
Assignments will be marked both objectively for the numerical parts of the assignment and
subjectively based on your answer to the MAIN question in the case. Your answers to the
MAIN question will be graded based on the following:
▪
Relevant: Are your answers linked to the case questions?
▪
Fact-based: Have you used specific data or analyses to support your assertions?
▪
Specific: Are you making specific points rather than being vague?
▪
Logical: Is your reasoning consistent and logical?
▪
Insightful: Do your answers merely restate the facts, or do they provide new insights?
Appendix: CASE DATA
Annual demand:
Demand in 2010 was 76,978 units from a total of 7,815 orders. (Table A, below, gives the
production quantity and demand by SKU.) The average order was 9.85 units. Total demand
is expected to rise by 3% in FY2011.
In 2010, the total production was 85,168 units. The ending inventory on November 30 was
18,500 units. Approximately 4000 units were disposed of as obsolete, leaving approximately
14,500 units in inventory, with most SKUs having roughly 9 weeks of inventory in stock.
Revenue and cost:
The average sales price per unit is $30. Sales reps receive a 15% commission. There are
fifteen employees working in production and fulfillment (including the three in the knitting
department). Material costs and labor rates are as given in the case. You may assume SGA
(not including commissions) was $125,000. Assume a cost of capital of 10%.
RSM1240
Term 4, 2024
Table A.
SKU
200
210
220
230
240
250
270
290
300
310
320
330
340
350
380
400
410
440
450
460
490
500
520
540
550
580
600
620
630
660
680
720
740
750
770
810
820
830
870
880
Athletic Knit Annual Production and Demand by SKU
Production (units)
# of Orders
Demand (units)
1438
62
625
1152
88
1041
2286
200
2065
3415
380
3314
415
43
312
1474
64
663
7275
771
7144
1832
110
1125
1595
151
1322
2324
202
2207
2027
182
1899
2798
306
2675
3352
349
3035
748
93
815
1115
85
987
1524
95
1215
2211
182
2111
2648
284
2544
1525
122
1587
439
47
410
2957
288
3022
3258
319
2911
1200
137
1169
456
38
451
743
10
115
1490
117
1078
1337
144
1258
6912
675
7018
1002
83
959
728
47
625
462
63
460
5535
594
5725
1111
23
225
4262
412
4125
2315
245
2412
1472
51
575
738
91
725
4587
436
4415
1477
111
1273
1533
115
1341
Est. Std. Dev.
100
167
207
331
84
106
714
180
212
221
304
268
304
220
158
194
211
254
254
111
302
291
187
122
31
172
201
702
259
169
124
573
36
413
241
92
196
442
204
215