27C0100
Tools for Business
    Decisions
kari.silvennoinen@hse.fi
Case 1

Merton Truck Company




                       2
Exercise set 3
• Despite what’s on the first page,
  returning by e-mail is not ok. Return
  your answers to the box.




 ...
Merton Truck Company
• Objective function:
Unit contribution = selling price –
  variable costs = selling price – [direct
...
MTC: Constraints
                      M101            M102
Engine assembly       1               2              ≤ 4000
Me...
Merton Truck Company
4. No overtime production. Additional
    variables and constraints:
                      M101OT    ...
Merton Truck Company
5. No marketing constraint. Additional
   constraint:
              M101           M102
Sales mix    ...
Auto Assembly
a) FT: 3800, CC: 2400, Profit: 26,64
   million
b) No, current demand isn’t even met.
c) FT: 3250, CC: 3500, ...
Auto Assembly
h) FT: 1500, CC: 3500, Profit 24,30
   million
i) FT: 1875, CC: 3500, Profit 25,65 > a)
j) f) is the most opti...
Ken and Larry, Inc.
a) Chocolate: 0, Vanilla: 300, Banana: 75
b) Solution will change, profits will increase
c) Solution wo...
Upcoming SlideShare
Loading in …5
×

Tools for Business Decisions - Exercises 3

4,959 views

Published on

Published in: Education, Technology, Business
0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
4,959
On SlideShare
0
From Embeds
0
Number of Embeds
60
Actions
Shares
0
Downloads
210
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide
  • Tools for Business Decisions - Exercises 3

    1. 1. 27C0100 Tools for Business Decisions kari.silvennoinen@hse.fi
    2. 2. Case 1 Merton Truck Company 2
    3. 3. Exercise set 3 • Despite what’s on the first page, returning by e-mail is not ok. Return your answers to the box. kari.silvennoinen@hse.fi 3
    4. 4. Merton Truck Company • Objective function: Unit contribution = selling price – variable costs = selling price – [direct material + direct labor + variable overhead]  • Model 101 contribution = $3,000 • Model 102 contribution = $5,000 • Objective function: kari.silvennoinen@hse.fi 4
    5. 5. MTC: Constraints M101 M102 Engine assembly 1 2 ≤ 4000 Metal stamping 2 2 ≤ 6000 Model 101 assembly 2 0 ≤ 2500 Model 102 assembly 0 3 ≤ 4500 1. (a) M101 = 2000, M102 = 1000, total contribution = $11 000 000 (b) shadow price for assembly = $2 000 (c) & (d) Allowable increase = 500 2. See (c) & (d), above 500 shadow price = 0, so maximum is 500 3. No Model 103 production. Lost contribution (from shadow prices) = 0,8*2000 + 1,5*500 + 1*0 + 0*0 = $2350 < additional contribution $2000 kari.silvennoinen@hse.fi 5
    6. 6. Merton Truck Company 4. No overtime production. Additional variables and constraints: M101OT M102OT Engine assembly OT 1 2 ≤ 2000 Metal stamping 2 2 ≤ 6000 Model 101 assembly 2 0 ≤ 2500 Model 102 assembly 0 3 ≤ 4500 Contributions (to objective function): M101OT = $2400, M102OT = $3800 Optimal product mix: M101 = 1500, M102 = 1250, M101OT = 0, M102OT = 250 New total profit = 11,7 M$ -kari.silvennoinen@hse.fi 0,75 M$ (additional fixed cost) < 11 M$ 6 (original solution)
    7. 7. Merton Truck Company 5. No marketing constraint. Additional constraint: M101 M102 Sales mix 1 -3 ≥0 New optimal solution: M101 = 2250, M102 = 750, total profit = 10,5 M$ < 11 M$ (original solution) (Also: in general, additional constraints kari.silvennoinen@hse.fi 7
    8. 8. Auto Assembly a) FT: 3800, CC: 2400, Profit: 26,64 million b) No, current demand isn’t even met. c) FT: 3250, CC: 3500, Profit 30,60 million d) 30,6 - 26,64 = 3,96 million e) FT: 3000, CC: 4000, Profit 30,30 million kari.silvennoinen@hse.fi 8
    9. 9. Auto Assembly h) FT: 1500, CC: 3500, Profit 24,30 million i) FT: 1875, CC: 3500, Profit 25,65 > a) j) f) is the most optimal choice kari.silvennoinen@hse.fi 9
    10. 10. Ken and Larry, Inc. a) Chocolate: 0, Vanilla: 300, Banana: 75 b) Solution will change, profits will increase c) Solution won’t change, profits will decrease d) Solution will change, profits decrease by $3 e) Yes, the shadow price is higher than cost f) Final value: 180 (LHS constraint), Shadow price: 0 (Not binding), Constraint RHS: 200, Allowable increase: Infinity (Not binding), Allowable decrease: 20 (LHS + 20 = RHS) kari.silvennoinen@hse.fi 10

    ×