Macdonald Refrigeraton Case Analysis

2129 words 9 pages
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
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

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