Overview

Table A Machine-hours: Requirements and Availability

Table B Standard Product Costs

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 Overview

Table C Overhead Budget for 1988

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 Constraint

Let Model 101 be X1 and Model 102 be X2

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 Objective function

Objective (Maximize profit Z) = 3,000X1+ 5,000X2

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 By Simplex

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Q1 a)

Variables
Model 101 ($) Model 102 ($) Objective ($)
2000 1000 11000000

The best production mix given the constraints would be 2,000 units
of Model 101 truck and 1,000 units of Model 102 truck which would
lead to a contribution $ 11,000,000.

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 Graph For the
Model

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Q1 b)

Variables
Model 101 ($) Model 102 ($) Objective ($)
1999 1001 11002000

A unit increase in engine assembly capacity is

worth $ 2,000. Model 101 assembly and model
102 assembly have 1,000 and 2,000 unutilized
resources respectively. Therefore, to get a better
mix, that adds this value to the contribution, given
an increase in a unit of assembly time, we forgo a
unit of model 101 and produce an additional unit
of model 102 and hence the net contribution will
be $ (- 3,000 + 5,000) =$ 2,000.
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 Variables
Q1 c) Model 101 ($) Model 102 ($) Objective
1900 1100 11200000

If the engine assembly capacity is

increased to 4,100 machine hours, the
contribution would increase by $ 2,000 *
100 to $ 11,200,000. This trend will
continue until the increase in machine
engine capacity surpass the upper
boundary of $ 4,500; therefore the engine
assembly can be increased by 500 before
the value changes.
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 Q1 (C).
According to questions
New constraints are;-
Max Z= 3000X1 + 5000X2 - 86,00,000
Such that;
X1 + 2X2 <= 4100
2X1 + 2X2 <= 6000
2X1 <= 5000
3X2 <= 4500
CORNER POINTS OBJECTIVE FUNCTION VALUES
Hence best product mix for this problem
O(0,0) 3000X0+5000X0=0
is;-
#Model 101 = 1900 A(2500,0) 3000X2500+5000X0=0
#Model 102 = 1100
from (b) we get; B(2500,500) 300X2500+5000X500=10,00,000
X1= 2000- β
X2= 1000+ β C(1900,1100) 3000X1900+5000X1100=11,20,000
where β = increase in engine assembly
capacity D(0,2050) 3000X0+5000X2500=10,25,000
MAX Z at C(1900,1100)

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 Q1 d)
500 units of Engine Assembly capacity can be added before it capacity worth
changes.

Profit At 4500 &4501 is same i.e. production decision does not change.

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 Q2
Maximum, we can have 500hr increase
in capacity and profit contribution
increases 2000$ per hr. Therefore, the
rent should not exceed the $ 2,000 per
engine assembly hour.
However, it could be expanded to 4,500
hours and therefore it is prudent for the
company to purchase additional (to a
maximum of) 500 hours at a cost of $
2,000 per hour.
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 Q3) Constraint

Let Model 101 be X1, Model 102 be X2, Model 103 be X3

Objective(Maximize profit Z) = 3,000X1+ 5000X2 + 2000X3

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 By Simplex

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 Q3 a)
• We should not produce
Model 103
Variables
Model 101 Model 102 Model 103 Objective
2000 1000 0 11000000

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 Q3 b)

Model 103 should be more than >2350 in order to make it worthy of production

• With the coefficient of X3 from 2000 to 2351

 Remaining all the constraints are same

Objective(Maximize profit Z) = 3,000X1+ 5000X2 + 2351X3

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 By Simplex

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 Variables
Model 101 Model 102 Model 103 Objective
0 857.1429 2857.1429 11002857.1429

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 Q4) Constraint
When we introduce the
overtime, for the 2,000
hours engine assembly,
the direct labor cost for
Model 101 and Model
102 will increase by $ 600
and $ 1,200 respectively.
Therefore the
contributions will
decrease to $ 2,400 and
$ 3,800 respectively.

Let, the units Model 101 and Model 102 produced during the
overtime as X3 and X4 respectively.

Objective(Maximize profit Z) = 3,000X1+ 5,000X2 +

2,400X3+3800X4

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 By Simplex

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 Q4)
Variables
Model 101 Model 102 X4 Objective
1500 1250 250 11700000

• The optimal solution, given the constraints, gives a contribution

of $ 11,700,000 with 1500 model 101 trucks and 1250 model
102 produced in regular time and 250 model 102 produced in
over time (No production of model 101 in overtime). This is an
increase in contribution by $ 700,000, which is relatively good.
However, adoption of this would lead to an increase in fixed
overheads by $ 750,000 which is greater than the marginal
increase in contribution, and hence overtime operations in
engine assembly should not be adopted.

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 Q5) Constraint

Management proposal to
produce 101 Models at
least 3 times the number
of Model 102. Therefore
we have a new constraint
of X1 ≥ 3X2 which
transforms to X1-3X2 ≥ 0.

Objective(Maximize profit Z) = 3,000X1+ 5,000X2

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 By Simplex

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 Q5)
Variables
Model 101 Model 102 Objectives
2250 750 10500000

• The output yields a contribution of $

10,500,000 with 2,250 units of Model
101 and 750 units of Model 102 which
is lower than the initial contribution of
$ 11,000,000 and therefore it is not a
worthy idea.
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 Q5 (graph)

FEASIBLE REGION

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 Introduction of Model 103 (X3)

Merton Truck Company Product Mix

Problem

Model 101 (x1) Model 102 (x2) Model 103 (x3)

Profit ($) 3000 5000 2000

Hours Required to Hours Required to Hours Constraints Hours

produce X1 produce X2 Used type Available

Engine Assembly Department 1 2 0.8 4000 <= 4000

Metal Stamping Department 2 2 1.5 6000 <= 6000
Model 101 Assembly 2 0 1 4000 <= 5000
Model 102 Assembly 0 3 0 3000 <= 4500

Model 101 (x1) Model 102 (x2) Model 103 (x3) Profit
Product Mix Produced 2000 1000 0 11000000

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 Merton Truck Company Product Mix
Problem
Model 102
with
Model 101 with overtime
Model 101 (x1) Model 102 (x2) overtime (X3) (X4)
Profit ($) 3000 5000 2400 3800

Overtime
Prodn
Hours Hours Overtime Hours
Required to Required to Prodn Hours Required Constraints
produce X1 produce X2 Required (X3) (X4) Hours Used type Hours Available

Engine Assembly Department 1 2 0 0 4000 <= 4000

Metal Stamping Department 2 2 2 2 6000 <= 6000
Model 101 Assembly 2 0 2 0 3000 <= 5000
Model 102 Assembly 0 3 0 3 4500 <= 4500

Over Production Engine Assembly 0 0 1 2 500 <= 2000

Model 102
with
Model 101 with overtime
Model 101 (x1) Model 102 (x2) overtime (X3) (X4) Profit
Product Mix Produced 1000 1500 500 0 11700000

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© 2015 McGraw-Hill Education. All rights reserved.
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© 2015 McGraw-Hill Education. All rights reserved.
© 2015 McGraw-Hill Education. All rights reserved.
© 2015 McGraw-Hill Education. All rights reserved.
© 2015 McGraw-Hill Education. All rights reserved.
© 2015 McGraw-Hill Education. All rights reserved.