Case

(a)

Number of hours per day = 8

Number of working days per month= 20

Total number of hours per annum for each employee= (20*8*12) = 1,920 hours

Total number of hours per annum= (1,920 hours*6,300) = 12,096,000 hours

Number of overtime hours per employee for each month = 20

Total number of overtime hours for each employee per annum= (20*12) = 240 hours

Total number of overtime hours per annum= (240*6,300) = 1,512,000

Total capacity (hours) = (12,096,000+1,512,000) = 13,608,000 hours

Allocation of labour hours between Routers and Switches; 1:2

(i)

Table 1: Computation of the Optimum Production Schedule

Routers	Switches
Capacity allocation(labour hours)	4,536,000	9,072,000
Capacity requirements per unit(labour hours)	1/3	1/6
Number of optimum production units	13,608,000	54,432,000

(ii)

Table 2: Computation of the Cost for the Optimum Production Schedule

Routers	Switches
Optimal capacity allocation-Normal(labour hours)	4,032,000	8,064,000
Optimal capacity allocation-Overtime(labour hours)	504,000	1,008,000
Labour cost per hour-Normal	$10	$10
Labour cost per hour-Overtime	$15	$15
Labour costs-Normal	$40,320,000	$80,640,000
Labour costs-Overtime	$7,560,000	$15,120,000
Total Labour Cost	$47,880,000	$95,760,000

Consider the following chart which depicts the optimal capacity allocation under normal labour hours and the optimal capacity allocation under the overtime labour hours for FlexMan Electronics Company.

Chart 1: Optimal Capacity Allocation

This chart confirms the fact that FlexMan would have to allocate extra production labour capacity for the manufacturing of switches compared to the production labour capacity for the manufacturing of routers.

(iii)

Table 3: Computation of Inventory

Routers	Switches
Opening inventory	100,000	50,000
Number of optimum production units	13,608,000	54,432,000
Annual demand	21,000,000	15,200,000
Closing inventory	0	39,282,000

(iv)

This does not seem reasonable since inventory in routers is zero. The implication is that the company is losing on customer sales and goodwill. The inventory for switches is almost three times the annual demand for switches.

(b)

No, there is no value for management in negotiating for an increase in the allowed overtime per employee for each month from the current level of 20 hours to 40 hours. This is because, the optimal the optimal number capacity level has been reached.

The variables that will be affected by this change include the following; labour costs and the total number of units (Routers and Switches) produced.

(c)

Table 4: Optimal Production Schedule

Month	Total Demand	Number of Employees	Hire	Layoffs
January	3,400	5,417		883
February	3,000	4,792		625
March	4,100	9,166	4,374
April	4,500	7,291		1,875
May	2,300	3,229		4062
June	2,700	6147	2,918
July	1,900	3,229		2,918
August	2,200	4,271	1042
September	3,900	9,063	4,792
October	4,500	10,937	1,874
November	1,800	2,917		8,020
December	1,900	3,125	208
End Year Recruit		3,175	3,175
Total	6,300	18,383	18,383
Cost			$700	$1,000
Total Cost	$12,868,100	$18,383,000

(d)

If FlexMan could improve its training such that new employees are able to achieve full productivity instead of their current 50% productive potential, the implication is that the total labour cost and cost of production will decline by half. This is because; the number of new employees recruited will decline by 50% from the current level of new recruitments.

The Implication of this change on the Hiring and Layoff Policy

This policy will reduce the number of new employees being hired. The policy may also reduce the number of employees being laid off.

(e)

FlexMan should use the third party in the event where the required new capacity is less than the available capacity. For instance, FlexMan should use the services of the third party when there is need to hire additional workers who have 50% productivity. In this case, it will be much more worthwhile for the company to use the third party for production of the excess demand than undertake production internally using new employees.

(f)

In this case, if new employees are able to achieve full productivity right away, the implication is that it will be much more worthwhile and profitable for FlexMan to hire new employees than use the third party in production. Therefore, in this case, there would be no need for FlexMan to use the third party producer of routers and switchers. This is because, since the new employees will have the same productive potential as the existing employees, the company will not incur any extra labour and production costs, which arise when the new employees have less productivity compared to the standard (Walker, 2015).