The company wants to determine the cost of meeting the demand by using a mixed strategy which involves
changes in the number of employees and the use of overtime work. To keep from adding too many
temporary employees during the peak demand period, the company will use overtime equal to up to 25
percent of the regular-time hours available.

The company has 22 employees at the end of the current year (i.e. at the beginning of period 1 of the
following year which is being planned), and wants to end period 6 of the planning year with the same number
of employees, i.e. 22 employees. It costs $400 to hire and $500 to lay off an employee. The company begins
the planning year with no inventory.

If at least 50% of anew employee’s regular-time capacity could be utilized during the current period as well
as the next period, it will add an employee, otherwise overtime will be used. The company will continue to
add employees as required until the maximum employment level as dictated by the constraint of using
overtime subject to a maximum of 25 percent of regular-time hours during the peak period, i.e. period 5.
Once the maximum employment level is reached, overtime will be used and no more employees are added.

a) Find the employment level for each bimonthly period.
b) Find the total payroll-related costs for the year.
c) What cost per unit results from these payroll-related costs? (Ans. $126 per unit)

Attachments:

Kangaroo-PL-8….docx