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Chapter 13—Resource Management
Multiple Choice
Problem A for Questions #1 & #2
The bill of materials (BOM) for end item A is shown below:
A
C (4)
B (2)
D
(3)
E
D
(1)
F
(2)
_____________________________________________________________________________
____
1. If A has a gross requirement to build 250 units and an on-hand inventory for A of 40,
determine the net requirement for D if its current on-hand inventory balance for D is 200 (all
other components have no (zero) current inventory).
a.
Less than or equal to 1,000 units
b.
Greater than 1,000 but less than or equal to 1,500 units
c.
Greater than 1,500 but less than or equal to 2,000 units
d.
Greater than 2,000 but less than or equal to 2,500 units
2. Determine the net requirement for E if the gross requirement for A is still 250, and current
on-hand inventory balance for A is 40, D is 200, E is 300, and F is 600.
a.
Less than or equal to 1,000 units
b.
Greater than 1,000 but less than or equal to 1,500 units
c.
Greater than 1,500 but less than or equal to 2,000 units
d.
Greater than 2,000 but less than or equal to 2,500 units
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Problem B for Questions #3 & #4 (same BOM as for #1 & #2)
3. If A has a gross requirement to build 200 units and an on-hand inventory for A of 60,
determine the net requirement for D if its current on-hand inventory balance for D is 200 (all
other components have no (zero) current inventory).
a.
Less than or equal to 1,000 units
b.
Greater than 1,000 but less than or equal to 1,500 units
c.
Greater than 1,500 but less than or equal to 2,000 units
d.
Greater than 2,000 but less than or equal to 2,500 units
4. Determine the net requirement for E if the gross requirement for A is still 200 and current
on-hand inventory balance for A is 60, D is 200, E is 100, and F is 600.
a.
Less than or equal to 1,000 units
b.
Greater than 1,000 but less than or equal to 1,500 units
c.
Greater than 1,500 but less than or equal to 2,000 units
d.
Greater than 2,000 but less than or equal to 2,500 units
5. A company currently has no items in inventory. The demand for the next four months is 200,
400, 250, and 350 units. Determine the level production rate if a level strategy is selected with
the goal of ending Period 4 with 100 units in inventory.
a. 300
b. 325
c. 450
d. 350
6. A company currently has no items in inventory. The demand for the next four months is 200,
400, 250, and 350 units. Assuming a level production rate of 250 units per month, determine the
months in which backorders or stockouts will materialize.
a. Only in month 1
b. In months 2 and 4
c. In months 2, 3, and 4
d. In months 2 and 3
Problem C for Questions #7 to #11
The Academic Company mixes and bottles a high-energy beverage in various container types
and sizes for college students. The aggregate forecast for the next four quarters (1 year) in
thousands of gallons is as follows:
Table 1
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QUARTER
FORECAST DEMAND PER
1,000 GALLONS
1
400
2
700
3
850
4
650
TOTAL:
2,600
Academic’s management makes the following assumptions:
• Each employee works 550 standard hours of regular time each quarter.
• On average, it takes 27 hours to produce and package 1 unit (1,000 gallons).
• Regular-time labor costs $6.00/hour; overtime labor costs $9.00/hour.
• Inventory-holding cost is approximately $4.50/unit (1,000 gallons) per quarter based upon
the ending inventory per quarter.
• Because of extremely hot weather, there is no beginning inventory available to start
Quarter 1.
• Management wants a constant work force (no hiring or firing).
• Managers have also decided to always round up the number of employees needed to the
next whole integer, i.e., 37.2 yields 38 employees.
_____________________________________________________________________________
_
7. Using the data in Table 1, if management will allow a maximum of 30 percent overtime, how
many workers are needed for Quarter 3?
a. 29
b. 33
c. 35
d. 40
8. Using the data in Table 1, determine the annual inventory-holding cost if Academic decides
to use a level production rate of 650 units per quarter.
a. $2,925.00
b. $1,012.50
c. $2,025.00
d. $4,500.00
9. Using the data in Table 1 and a level schedule of 650 units per quarter, what will be the
annual employee costs?
a. $105,600
b. $554,400
c. $421,200
d. $369,600
10. Using the data in Table 1, if management decides on a chase strategy, with production in
the last quarter of 600 units and a rate change cost of $3.00/1000 gallons, determine the yearly
cost of rate change (hiring and firing).
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a. $2,550
b. $1,950
c. $7,800
d. $3,900
11. Using the information given in Table 1, determine how many employees would be needed
to meet the peak demand in Quarter 3.
a. 32
b. 21
c. 50
d. 42
Problem C for Questions #12 to #14
A paint company has the following aggregate demand requirements and cost data for the
upcoming year by quarter.
Table 2
QUARTER
FORECAST DEMAND
(UNITS)
1
1,200
2
1,500
3
1,900
4
1,000
TOTAL:
5,600
Previous quarter’s production:
900 units
Beginning inventory:
0
Backorder costs:
$60/unit
Inventory-holding cost
(on ending inventory):
$12/unit/quarter
Hiring employees:
$30/unit increase
Firing employees:
$70/unit decrease
Unit cost:
$45/unit
Overtime cost:
$67.50/unit
____________________________________________________________________
12. Using the information in Table 2, determine the change in workforce costs (hiring and firing
employees) if the paint company decides to use a chase strategy.
a. $93,000
b. $84,000
c. $280,000
d. $30,000
13. Using the data in Table 2, determine the inventory holding and backorder costs for the year
if the paint company wants to use a pure level strategy, ending Quarter 4 with no inventory.
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a. $8,400
b. $32,400
c. $28,500
d. $27,600
14. Using the data in Table 2 and assuming the level strategy, determine the change in
production costs for the year.
a. $0 (none)
b. $35,000
c. $15,000
d. $27,600
Problem D for Questions #15 to #18
The bill of material (BOM) for Products A and B are shown below followed by a table of
inventory data (called Exhibit 1). The master production scheduling (MPS) for A calls for 150
units of A to be completed in Week 4 and another 225 units to be completed in Week 5. End
item A has a two-week lead time. The MPS calls for 400 units of B to be completed in Week 6.
End item B has a one-week lead time.
A
C (3)
E (2)
E (2)
C (2)
D (4)
B
E (2)
Exhibit 1
DATA CATEGORY
C
D
E
Lot Sizing Rule
FOQ = 800
LFL
POQ = 4
Lead Time
1 week
2 weeks
1 week
Scheduled Receipt
400 (Week 1)
80 (Week 1)
None
Beginning Inventory
80
60
100
____________________________________________________________________
15. Using the data in Exhibit 1, determine the timing and amount of the first planned order
receipt for Item C.
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a. Week 3; 800 units
b. Week 3; 645 units
c. Week 3; 1,600 units
d. Week 2; 800 units
16. Using the data given in Exhibit 1, determine the projected on-hand inventory for Item C,
beginning in Week 8.
a. 800 units
b. 645 units
c. 155 units
d. 0 units
17. Using the data given in Exhibit 1, determine the gross requirements for Item E in Week 2.
a. 450
b. 300
c. 1,600
d. 1,900
18. Using the data given in Exhibit 1, determine the timing and amount of the planned order
receipt for Item E.
a. Week 1; 1,800 units
b. Week 3; 1,900 units
c. Week 2; 2,250 units
d, Week 2; 3,850 units
19. Which of the following is least likely to be found in service organizations?
a.
Intermediate levels in aggregate planning
b.
Bills of labor (BOL)
c.
Bills of resources and forecasting
d.
Dependent demand
20. Aggregate planning:
a.
is not driven by forecasts.
b.
includes detailed staff schedules.
c.
defines budget and associated resource requirements.
d.
is used to develop detailed short-term plans and establish shop floor control.
21. The words “product family,” “budget allocation,” and “long-term” fit best with which level
of the generic framework for resource planning?
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a.
Aggregate planning—Level 1
b.
Disaggregation—Level 2
c.
Execution—Level 3
d.
Shop floor controlling—Level 4
22. If forecast demand exceeds the total factory or supply capacity, managers might simply
decide not to meet forecast demand. This decision would most likely be made at which planning
level?
a.
Aggregate planning—Level 1
b.
Disaggregation—Level 2
c.
Execution—Level 3
d.
Shop floor controlling—Level 4
23. Assigning people to tasks, setting priorities for jobs, and scheduling equipment fits best
with which level of the generic framework for resource planning?
a.
Aggregate planning—Level 1
b.
Disaggregation—Level 2
c.
Execution—Level 3
d.
Market forecasting—Level 4
24. Setting order sizes and schedules for individual subassemblies and resources by week or
day fits best with which level of the generic framework for resource planning?
a.
Aggregate planning—Level 1
b.
Disaggregation—Level 2
c.
Execution—Level 3
d.
Shop floor controlling—Level 4
25. Which of the following is an aggregate planning decision option?
a.
Staff schedules
b.
Disaggregation
c.
Shop floor control
d.
Market forecasts
26. Promotion of weekly discount airfares by an airline would be an example of _____.
a.
demand management
b.
production-rate changes
c.
inventory changes
d.
facility, equipment, and transportation changes
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27. Which of the following is NOT an aggregate planning decision option?
a.
Promotion and advertising
b.
Subcontracting
c.
Layoffs
d.
Staff schedules
28. Which aggregate planning strategy generally would result in the least amount of inventory?
a.
Level production strategy
b.
Chase demand strategy
c.
Fixed-order-quantity rule
d.
Lot-for-lot (LFL) rule
29. Which aggregate planning strategy sets production rate equal to the demand?
a.
Level production strategy
b.
Chase demand strategy
c.
Lot-for-lot (LFL) rule
d.
Periodic-order-quantity (POQ) rule
30. Which of the following is NOT TRUE regarding aggregate planning?
a.
Large number of alternatives can be developed.
b.
Good solutions using spreadsheets can be found by trial-and-error method.
c.
Seasonal fluctuations in demand can be accommodated.
d.
Costs are sunk and irrelevant.
31. A _____ is a statement of how many finished items are to be produced and when they are to
be produced.
a.
capacity requirements plan (CRP)
b.
master production schedule (MPS)
c.
material requirements plan (MRP)
d.
shop floor control
32. All of the following statements are true regarding dependent demand EXCEPT:
a.
it is one of the underlying concepts of materials requirements planning (MRP).
b.
its concept can be understood by examining the bill of materials.
c.
it can be calculated only by forecasting.
d.
it is directly related to the demands of other stock-keeping units (SKUs).
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33. _____ are the total demand for an item derived from all of its parents.
a.
Explosions
b.
Gross requirements
c.
Scheduled receipts
d.
Planned order receipts
34. Time buckets:
a.
are the same as planning horizons.
b.
can be set at a day for longer-term planning.
c.
are usually one week in length.
d.
are computed based on gross requirements.
35. Lot-for-lot (LFL):
a.
minimizes purchase or setup costs.
b.
maximizes the amount of inventory that need to be carried.
c.
ignores the cost associated with purchase orders.
d.
masks the true nature of dependent demand.
36. In the disaggregation framework, the direct inputs to material requirements planning (MRP)
include all of the following EXCEPT:
a.
master production schedule (MPS).
b.
transaction files.
c.
bills of materials (BOM).
d.
capacity requirements plan (CRP).
37. The primary output of a materials requirements planning (MRP) system is a time-phased
report that gives all of the following EXCEPT:
a.
the facilities managers a detailed schedule for acquiring additional factory space.
b.
the accounting and financial functions production information that drives cash flow,
budgets, and financial needs.
c.
the production managers a detailed schedule for manufacturing the product and
controlling manufacturing inventories.
d.
the purchasing department a schedule for obtaining raw material and purchased
items.
38. An inventory item can be:
a.
only a parent.
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b.
only a component.
c.
both a parent and a component.
d.
either a parent or a component, but not both.
39. Which lot sizing rule bases the order quantity on a standard-size container or pallet load?
a.
Lot-for-lot (LFL) rule
b.
Fixed-order quantity (FOQ) rule
c.
Periodic-order quantity (POQ) rule
d.
Gross requirements (GR) rule
40. Which lot sizing rule is best when inventory carrying costs are high and setup/order costs
are low?
a.
Lot-for-lot (LFL)
b.
Fixed-order quantity (FOQ)
c.
Periodic-order quantity (POQ)
d.
Gross requirements (GR)
41. Which lot sizing rule uses the economic order quantity (EOQ) calculation?
a.
Both lot-for-lot (LFL) and periodic-order quantity (POQ) rules
b.
Only fixed-order quantity (FOQ) rule
c.
Only periodic-order quantity (POQ) rule
d.
Both fixed-order quantity (FOQ) and periodic-order quantity (POQ) rules
42. Which is the most comprehensive solution for a firm if a load report shows not enough
capacity is available?
a.
Revise the bill of materials (BOM) and increase capacity.
b.
Change the action bucket.
c.
Change the master production schedule (MPS) and add capacity.
d.
Rerun materials requirements planning (MRP).
43. Capacity requirements are computed by multiplying the number of units scheduled for
production at a work center by:
a.
the setup time and then subtracting the unit resource requirements.
b.
the setup time and then adding the unit resource requirements.
c.
the unit resource requirements and then adding in the setup time.
d.
the unit resource requirements and then subtracting the setup time.
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44. A(n) _____ is a process of determining the amount of labor and machines required to
accomplish the tasks of production on a more detailed level.
a.
action schedule (AS)
b.
master production schedule (MPS)
c.
material requirements plan (MRP)
d.
capacity requirements plan (CRP)
45. If a work center load report indicates insufficient capacity, options for correcting the
problem include all of the following EXCEPT:
a.
revising the bill of materials.
b.
changing the master product schedule.
c.
subcontracting.
d.
transferring personnel between work centers.
True/False Questions
1. Resource management deals primarily with managing inventories in a value chain.
2. Resources include materials, equipment, facilities, information, technical knowledge and
skills, and people.
3. An example of aggregation would be an ice cream manufacturer developing targets to produce
a number of gallons of each flavor along with the purchasing requirements for specific
ingredients for a one-week period.
4. Aggregate planning and disaggregation methods in goods-producing industries involve fewer
levels of planning than service-providing organizations, because service organizations deal with
more than just materials.
5. Service firms frequently take their aggregate plans and disaggregate them down to the
execution level as detailed frontline staff and resource schedules, job sequences, and service-
encounter execution.
6. Level 3 planning, i.e. detailed planning and execution, represents aggregate planning at higher
management levels of an organization.
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7. Increasing the output rate without changing existing resources is an example of demand
management.
8. The lower the skill requirements of the workforce, the more feasible it is to change workforce
levels as an aggregate planning option.
9. Short-term changes in facilities and equipment are seldom used in traditional aggregate
planning methods because of the capital costs involved.
10. Good solutions to aggregate planning situations using spreadsheets can be found by trial-
and-error approaches.
11. A level production strategy maintains constant inventory levels over the planning horizon.
12. When demand is seasonal, inventory cannot be used to stabilize production and employment
rates.
13. A chase demand aggregate planning strategy may result in substantial overtime, undertime,
and rate-change costs.
14. The master production schedule (MPS) is developed in the same manner, no matter the type
of industry (make-to-stock vs. make-to-order) and the number of items produced (few or many).
15. The purpose of the master schedule is to translate the aggregate plan into a separate plan for
individual finished goods.
16. After a master production schedule (MPS) is created for finished goods, the demand for all
materials and components necessary can be calculated, not forecasted.
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17. End items in a master production schedule (MPS) or final assembly schedule must be
forecast.
18. In a bill of materials (BOM), each component is comprised of one or more parent items.
19. A bill of materials (BOM) characterizes the structure of dependent demand among all items
that comprise a finished good.
20. In materials requirements planning (MRP), it is essential that all dependent demand
requirements be ordered at the beginning of the planning period.
21. A scheduled receipt for an outside vendor is called a purchase order.
22. Lot sizing is the process of translating aggregate plans into short-term operational plans that
provide the basis for weekly and daily schedules.
23. A periodic-order quantity (POQ) for a one-week time period is equivalent to lot-for-lot
(LFL) sizing.
24. Lot sizing rules on a parent item do not affect the gross requirements of all lower level
component items.
25. Dependent demand does not occur in the service business.
26. A service facility like a hospital cannot use material requirements planning concepts and
methods such as bills of labor (BOL) and the concept of dependent demand.
27. Work center load reports are used in capacity requirements planning (CRP).
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Case Study Questions (To reward students who attend class, listen and learn, and take
good class notes on the case discussion and/or student team presentation.)
1. Which one of the following statements is TRUE regarding the Greyhound Frequent Flyer Call
Center case?
a. In the four step analysis procedure described in the case, Step 1 uses equation “Utilization =
Demand Rate/[(Service Rate)*(Number of Servers)].”
b. The “travel advice” category of calls was the lowest priority relative to the other three
categories of calls.
c. True demand in the case included the number of calls rerouted to different customer service
representative (CSR) specialists.
d. The analysis of the case data revealed no scheduling problem with the current customer
service representative (CSR) staff schedule.
Problems for Manual Grading, Take-Home Exams and Partial Credit (Also, review the
OM Instructor’s Manual for end-of-chapter questions/problems)
1. Define resource management and list its key objectives.
2. Explain the three levels of resource planning.
3. Describe the options that managers have for developing aggregate plans to respond to
fluctuating demand.
4. Differentiate between a level production strategy and a chase demand strategy.
5. Define a master production schedule (MPS) and explain how it differs from a final assembly
schedule.
6. Define material requirements planning (MRP) and how it can benefit an organization.
7. Explain how a bill of materials (BOM), bill of labor (BOL), and bill of resources (BOR)
relate.
8. What are the components of a materials requirements planning (MRP) record?
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9. Explain the three lot sizing methods, and under what circumstances each works best:
a.
Lot-for-lot (LFL)
b.
Fixed-order quantity (FOQ)
c.
Periodic-order quantity (POQ)
10. What is capacity requirements planning (CRP)?
PROBLEMS
11. A cement company is considering how to expand its capacity, and they are examining the
use of overtime or subcontracting on a quarterly basis as possible options. They have the
following information about their operation:
Aggregate demand = 30,000; 25,000; 27,000; and 31,000
Maximum capacity = 25,000 units
Labor standard = 2.45 hours/unit
Cost of overtime = $10.50/hour
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Cost of subcontracting = $25.00/unit
a.
What is the cost of overtime in quarter 1?
b.
What is the total cost of subcontracting over four quarters?
a.
Costs of overtime and subcontracting:
$128,625
Units
Cost of
Cost of
Quarter
Demand
Short
Overtime
Subcontracting
1
30000
5000
$128,625
$125,000
2
25000
0
0
0
3
27000
2000
$ 51,450
$ 50,000
4
31000
6000
$154,350
$150,000
Total Costs
$334,425
$325,000
b.
Subcontracting cost = $325,000.
12. A metal shop currently has a work force of 20 people and is considering hiring four more
people for the next three weeks only. The cost of hiring and training one person is $200, and the
cost of terminating one person is $100. Each employee can produce 40 units/week on regular
time and four units/week on overtime, and each person must be paid to produce 40 units even if
the demand is not sufficient enough to keep everyone busy. The cost of producing one unit on
regular time is $20, while on overtime it is $30. The cost of subcontracting one unit is $40.
Demand for the next three weeks is 800 units, 1200 units, and 1000 units. Because there is no
storage available, the shop has a policy that no inventory is to be carried over from week to
week.
a.
What is the total cost for week 1 if there are only 20 workers?
b.
What is the total cost for all three weeks using only 20 workers?
c.
What is the total cost for week 1 if the company uses 24 workers?
d.
What is the total cost for all three weeks using all 24 workers?
a.
($20)(800) + 0 + 0 = $16,000
b.
$70,400
Costs involved:
Cost of
Cost of
Total Cost
Week
Regular Time
Overtime
Subcontracting
Per Week
1
($20)(800)
($30)(0)
($40)(0)
$16,000
2
($20)(800)
($30)(80)
($40)(320)
$31,200
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13. A company currently has no items in inventory. The demand for the next four months is 200,
400, 250, and 350 units. Determine the level production rate if a level strategy is selected with
the goal of ending Period 4 with 100 units in inventory.
14. A company currently has no items in inventory. The demand for the next four months is 200,
400, 250, and 350 units. Assuming a level production rate of 250 units per month, determine the
month in which a backorder will materialize.
15. A paint company has the following aggregate demand requirements and cost data for the
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upcoming year by quarter.
Quarter
Forecast Demand (units)
1
1,200
2
1,500
3
1,900
4
1,000
Total
5,600
Previous quarter’s production:
900 units
Beginning inventory:
0 units
Backorder costs:
$60/unit
Inventory-holding cost (on ending
inventory):
$12/unit/quarter
Hiring employees:
$30/unit increase
Firing employees:
$70/unit decrease
a.
Determine the change in workforce costs (hiring and firing employees) if the paint
company decides to use a chase demand strategy.
b.
Determine the inventory holding and backorder costs for the year if the paint company
wants to use a level production strategy, ending Quarter 4 with no inventory.
16. A company is interested in developing a quarterly aggregate production plan, but they aren’t
sure if level production strategy or chase demand strategy would be better. They have the
following information available regarding their production operation:
Number of working days per quarter = 65 days
Number of hours per day per person = 8 hours
Labor standard to produce one unit = 3 hours
Demand for four quarters respectively: 40,000, 42,000, 41,000, and 44,000 units
Quarter
Demand
Production Rate
Rate Change Cost
1
1200
1200
$ 9,000.00
2
1500
1500
$ 9,000.00
3
1900
1900
$12,000.00
4
1000
1000
$63,000.00
Total
$93,000.00
b.
Inventory/
Demand
Production Rate
Ending Inventory
Backorder Cost
1
1200
1400
200
$ 2,400.00
2
1500
1400
100
$ 1,200.00
3
1900
1400
(400)
$24,000.00
4
1000
1400
0
$ 0
Total
$27,600.00