CHAPTER 4
Solution
1. ELM COMPANY
Completed Table
Elm Co. Sales and Operations Planning Spreadsheet
Sales
Forecast
Actual
Diff: Month
Cumulative
(in Million $)
(in units)
(in units)
History
October
0.80
800
826
26
Operations
Plan
(in units)
(in # employees)
Number Working Days/Mo.
Actual
(in units)
Diff: Month
Cumulative
Inventory
Plan
(in units)
(in 000 $)
Actual
(in units)
Days of Supply
800
6
23
798
-2
-2
800
8
19
802
+2
0
800
8
19
800
0
0
150
105
100
70
0
0
122
73
1.6
-76
-1.5
3.4
4-1
November December
0.85
0.90
850
900
851
949
1
49
27
76
2. TRAPPER LAWN EQUIPMENT COMPANY
Revised plan:
Trapper Lawn Equipment Company Sales and Op's Planning Spreadsheet - Riding Mowers
Product Group (Make-to-Stock)
Sales
Forecast
(M$)
(units)
(units)
Actual
Diff: Month
Cumulative
Operations
Plan
(units)
(# employ)
# Work Days/Mo.
Actual
(units)
Diff: Month
Cumulative
Inventory
Plan
History
Oct
12.50
5000
4384
-616
Plan
Nov
10.00
4000
3626
-374
-990
Dec
16.25
6500
6065
-435
-1425
Jan
5.00
2000
Feb
5.00
2000
Mar
7.50
3000
4000
70
19
4091
91
740
Target DOS Inv:
6500
114
19
7279
779
1519
5
0
0
20
556
9
21
3250
47
23
500
500
750
5000
72
23
5649
649
(units)
(000$)
1270
2223
1270
2223
1270
2223
1944
3402
500
875
750
1313
Actual
(units)
Days of Supply
2265
10
2730
15
3944
13
19
5
5
a) Target inventory levels for the three months based on 5 days of supply:
January = 5 x 2000 / 20 = 500; February = 5 x 2000 / 20 = 500;
March = 5 x 3000 / 20 = 750
Planned build for each month required to achieve the target accounting for the forecast demand
and the inventory in the previous period:
Build plan = forecast demand + target inventory – previous month inventory
January planned build is zero since 3944 units remain in inventory at the end of December.
February planed build = 2000 + 500 – 1944 = 556
March planned build = 3000 +750 – 500 = 3250
4-2
b) Qualitative factors:
The plan indicates no production in January and very light production in February.
This could be implemented as a plant shutdown that may be very disruptive to work force
moral and cause an employee retention problem.
It can also have quality and productivity issues as more problems are likely at shutdown
and start-up. Key skills are not practiced.
A better alternative might be to maintain some production below customer demand and
gradually reduce inventory levels.
Consider going to a 4 day or other form of shorten workweek. Restrict the use of
overtime. Consider the use of a planned shutdown during the summer vacation season or
force the use of accrued vacation time to reduce the number of workers available.
3. TRAPPER LAWN EQUIPMENT COMPANY REVISITED
a) The average forecast error is calculated as the difference between the total forecast and actual
demand divided by the total forecast. In this case, since the 3 month cumulative error is given in
the table:
Forecast error % = -1425 / (5000 + 4000 + 6500) x 100 = -9.2%
Reducing each of the forecast values by 9.2% for January to June yields the projected values
units sales and resulting inventory levels and days of supply shown in the table below.
4-3
Trapper Lawn Equipment Company Sales and Operations Planning Spreadsheet
Riding Mowers Product Group (Make-to-Stock)
History
Plan
Sales
Oct
Nov
Dec
Jan
Forecast
(M$)
12.50
10.00
16.25
5.00
(units)
5000
4000
6500
2000
Actual / Projected (units)
1816
4384
3626
6065
Diff: Month
-616
-374
-435
Cumulative
-990
-1425
Avg % Error
-9.2%
Operations
Plan
(units)
5000
4000
6500
2000
(# employ)
72
70
114
33
# Work Days/Mo.
23
19
19
20
Actual
(units)
5649
4091
7279
Diff: Month
649
91
779
Cumulative
740
1519
Inventory
Plan / Projected
(units)
(000$)
Actual
(units)
Days of Supply / Projected
Target DOS Inv:
1270
1270
2223
2223
2265
10
2730
15
Feb
5.00
2000
1816
Mar
7.50
3000
2724
Apr
10.00
4000
3632
May
12.50
5000
4540
Jun
17.50
7000
6356
2000
32
21
3000
43
23
4000
67
20
5000
76
22
7000
106
22
5
1270
2223
500
4128
7224
500
4312
7546
750
4588
8028
1000
4956
8672
1250
5416
9476
1750
6060
10602
3944
13
46
50
39
27
26
21
b) Options for consideration
Change the forecast. This would require the marketing and production mangers coming to
agreement on what the new forecast should be.
Adjust the production plan to compensate for the fact that the forecast seems to have a relatively
consistent negative bias. This option has little risk in the near term since inventory levels are
relatively high.
4-4
4. SKI & SEA, INC.
a. Level Plan
Aggregating the forecast
Quarter
Jet Skis
Snowmobiles
Total
1
10,000
9,000
19,000
2
15,000
7,000
22,000
3
16,000
19,000
35,000
4
3,000
10,000
13,000
Total
44,000
45,000
89,000
Determining the production rate:
(Total forecast - beginning inventory) / 4 quarters
(89,000 - 1,000) / 4 = 22,000 units per quarter
The Plan and its costs:
Quarter
1
2
3
Demand
19,000 22,000 35,000
Production
22,000 22,000 22,000
Beginning Inventory
1,000
4,000
4,000
Ending Inventory
4,000
4,000
0
Average Inventory*
2,500
4,000
2,000
Backorders
0
0
9,000
*(beginning inventory + ending inventory) / 2
Costs
Regular time
Inventory
Backorders
Total
$15.00 
$ 3.00 
$24.00 
Consequences:
Low levels of inventory
Substantial back order in quarter 3
b. Cumulative Chart
4-5
88,000
8,500
9,000
4
13,000
22,000
0
0
0
0
Total
= $ 1,320,000
=$
25,500
= $ 216,000
$ 1,561,500
Total
89,000
88,000
8500
9000
100,000
Cum. production and demand in units
Cumulative Forecast
80,000
Cumulative Output
60,000
40,000
20,000
Quarter 1
Quarter 2
Quarter 3
Quarters
c. Inventory Space = 20 cubic feet x 4000 = 80,000 cubic feet
d. Investment = $ 600.00 x 4,000 = $ 2,400,000
4-6
Quarter 4
5. IVAR JORGENSON
a. Overtime
Quarter
1
2
3
4
Total
Jet Skis
10,000 15,000 16,000
3,000
44,000
Snowmobiles
11,000
7,000 19,000 10,000
47,000
Total
21,000 22,000 35,000 13,000
91,000
Production rate = (91,000 - 1,000) / 4 = 22,500 units per quarter
Quarter
1
2
3
Demand
21,000 22,000 35,000
Overtime
500
500
500
Regular
22,000 22,000 22,000
Output
22,500 22,500 22,500
Beginning Inventory
1,000
2,500
3,000
Ending Inventory
2,500
3,000
0
Average Inventory*
1,750
2,750
1,500
Backorders
0
0
9,500
*(beginning inventory + ending inventory) / 2
Costs
Regular time
Overtime
Inventory
Backorders
Total
b.
c.
$15.00 
$22.50 
$ 3.00 
$24.00 
88,000
2,000
6,000
9,500
Subcontracting
Subcontracting Cost
Overtime Cost
Net Increase/(Decrease)
New Total Cost
Hiring a New Worker
Hiring
Regular
Overtime Cost
Net Increase/Decrease
New Total Cost
$ 30.00 
$ 22.50 
$ 300.00 
$ 15.00 
22.5 
4-7
4
13,000
500
22,000
22,500
0
0
0
0
91,000
2,000
88,000
90,000
6000
9500
Total
= $ 1,320,000
=$
45,000
=$
18,000
= $ 228,000
$ 1,611,000
2,000
2,000
1
2,000
2000
=$
60,000
=$
45,000
$
15,000
$ 1,626,000
=$
300
=$
30,000
=$
45,000
$ (14,700)
$ 1,596,300
10. JOAN'S JOYOUS NATURE FOOD
a. Joan should produce 135 units each month. [(120 + 160 - 10)/2 = 135]
Cum. production and demand in units
600
500
Cumulative Output
400
300
Cumulative Demand
200
100
Month 1
Month 2
Month 3
Month 4
Months
b. The ending inventory for month 4 is 180 units. [(10 + (4  135) - 370) = 180]
c. Joan should produce 90 units each month.
[(120 + 160 + 20 + 70 - 10) / 4 = 90]
d.
Month:
1
2
Beginning Inventory
10
0
Production
90
90
Demand
120
160
Ending inventory
0
0
Average inventory
5
0
Carrying cost
$25
$0
Backorders (cumulative)
20
90
Backorder cost
$160
$720
Total Inventory Cost = $5  5 = $25
Total Backorder Cost = $8  130 = $1040
4-8
3
0
90
20
0
0
$0
20
$160
4
0
90
70
0
0
$0
0
$0
11. ORO DEL MAR CO.
Cum. demand and prod. in 1,000 pounds
a.
400
Cumulative Output
300
200
Cumulative Demand
100
January
February
March
Months
b. A production rate of 100 units per month is required in order to avoid backorders and result
in no ending inventory in March. [(100 + 300 - 100) / 3]
4-9
18. GENERAL AVIONICS AGAIN
Chase Sales Plan
Quarter
2
3
4
Ending
Overtime
Sales
Production
Workforce
Inventory
Production
8,000
7,000
70
1,000
6,400
6,400
64
1,000
1,600
1,600
16
1,000
16,000
15,000
150
3,000
Cost Item
Inventory Carrying Cost (3000 x $2)
Overtime Cost
Firing Cost (54 x $400)
Hiring Cost (20 x $200)
Regular Payroll Cost (150 x $1,200)
Total Cost
0
0
0
0
Cost
$ 6,000
0
21,600
4,000
180,000
$211,600
Level Production Plan
Quarter
2
3
4
Sales
8,000
6,400
1,600
16,000
Production
7,000
6,400
5, 000
18,400
Workforce
50
50
50
150
Ending
Inventory
1,000
1,000
3,400
5,400
Cost Item
Inventory Carrying Cost ($2 x 5,400)
Overtime Cost ($14* x 3,400)
Firing Cost
Hiring Cost
Regular Payroll Cost(150 x $1,200)
Total Cost
*$14 = $12 for regular + $2 overtime premium
4-10
Cost
$ 10,800
47,600
0
0
180,000
$238,400
Overtime
Production
2,000
1,400
0
3,400