Houma Containers, Inc., makes industrial fiberglass tanks that are used on offshore oil
platforms. Demand for the next four months and capacities of the plant are shown in the
table below. Unit cost on regular time is $400. Overtime cost is 150% of regular time
cost. Subcontracting is available in substantial quantity but at a very high cost, $1100
per unit. Holding costs are $200 per tank per month; back orders cost the firm $1000
per unit per month. Houma’s management believes that the transportation algorithm can
be used to optimize this scheduling problem. The firm has no beginning inventory and
anticipates no ending inventory.
a. How many units will be produced on regular time in June?
b. How many units will be produced by subcontracting over the four-month period?
c. What will be the inventory at the end of April?
d. What will be total production from all sources in April?
e. What will be the total cost of the optimum solution?
f. Does the firm utilize the expensive options of subcontracting and back ordering?
When; why?