Macdonald Refrigeration Limited
PART I 1. Characterize the dominant strategy used for each of Janet’s production plans, and provide a brief summary of the strengths and weaknesses of each.
PRODUCTION PLAN 1: LEVEL STRATEGY
Janet's first plan proposes using a stable workforce and a constant output rate. Inventories would increase during low demand periods and decrease during high demand periods.
Strengths:
* Workers are protected against forecast error * Stable work hours and increased job security lead to happier employees * Employees would not have to work as many overtime hours to fill orders because there would be substantial inventory during heavy demand months * Tasks become easier and workers more …show more content…

a. Assuming the "temps." capacity will be used to avoid some overtime production, how long will it take (in months) to breakeven with a "Temp.?"

In order to solve this problem, we need three pieces of information:
Hiring/ Firing costs: $3,000
Regular time pay per month: $2,400
Overtime pay per month: $3,300
The question then becomes comparing how much it would cost to hire a temporary worker, paid at the regular time pay per month to how much it would cost paying an additional employee overtime to perform the work. | Temporary Worker | Overtime Worker | Initial Cost of Hiring Firing | 3,000 | 0 | Salary Month 1 | 2,400 | 3,300 | Total cost compare end Month 1 | 5,400 | 3,300 | Salary Month 2 | 2,400 | 3,300 | Total cost compare end Month 2 | 7,800 | 6,600 | Salary Month 3 | 2,400 | 3,300 | Total cost compare end Month 3 | 10,200 | 9,900 | Salary Month 4 | 2,400 | 3,300 | Total cost compare end Month 4 | 12,600 | 13,200 |

Therefore, by the end of Month 4, it is more lucrative to have hired a temp.
We can also solve the problem algebraically to find the exact length of time in months. Set x = months.
3000 + 2400x = 3300 x
3000 = 900x x = 3.33 months

b. Another alternative is to build inventory during slack periods and hold it until needed, rather than produce the product at overtime rates during the period