An Introduction to Management Science 13th Edition by David Anderson,Dennis Sweeney ,Thomas Williams ,Jeffrey Camm, Kipp Martin

Exercise 16

Filtron Corporation produces filtration containers used in water treatment system. Al a though business has been growing, the demand each month varies considerably. As a result, the company utilizes a mix of part-time and full-time employee to meet production demands. Although this approach provides Filtron with great flexibility, it has resulted in increased costs and morale problems among employee. For instance, if Filtron needs to increase production from one month to the next, additional part-time employees have to be hired and trained, and costs go up. If Filtron has to decrease production, the workforce has to be reduced and Filtron incurs additional costs in terms of unemployment benefit and decreased morale. Best estimates are that increasing the number of units produced from one month to the next will increase production costs by $1.25 per unit, and that decreasing the number of units produced will increase production costs by $1.00 per units. In February Filtron produced 10,000 filtration containers but only sold 7500 units; 2500 units are currently in inventory. The sales forecasts for March, April, and May arc for 12,000 units, 8000 units, and 15,000 units, respectively. In addition, Filtron has the capacity to store up to 3000 filtration containers at the end of any month. Management would like to determine the number of units to be produced in March, April, and May that will minimize the total cost of the monthly production increases and decreases.