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Introduction

1. Merton's fnancial perormance was unsatisactory

2. Operating at capacity in some production lines

3. 2 specialized models o trucks: Model 11 ! Model 12

". " departments and capacities1. #ngine $ssem%ly & 1

2. Metal (tamping & )3.3

3. Model 11 $ssem%ly & "

". Model 12 $ssem%ly & 1

*. +otal mac,ine ,ours a-aila%le: "

. +,ey can sell t,e complete produce

/. 0urrent mont,ly output: 1 Model 11 1* Model

12

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Meeting

1. (ales Manager :

1. (top making Model 11 trucks

2. Model 11: 3 Model 12: 3)

2. 0ontroller :1. +rying to a%sor% f4ed o-er,ead o Model 11 assem%ly

2. Increase production o Model 11

3. 5roduction Manager:

1. Increase Model 11 wit,out cutting %ack Model 12

2. 5urc,ase Model 11 or 12 engines rom outside supplier

3. 6educe capacity pro%lem in engine assem%ly

". 6eim%urse supplier or la%our and o-er,ead

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(olution 1 a

A 11 12

5roft 3. *.

7nits 2 1

1. 8est 5roduct Mi4 or Merton:

2. 0ontri%ution and 5roft:

0ontri%ution 9i4ed cost

11. )

Proft= $2,400,000.00

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(olution 1 %

(,adow 5rice o #ngine $ssem%ly 2(o Increase in $ssem%ly unit capacity 1 ;"

to "1 2

2

FinalShado

wConstra

intAllowa

bleAllowab

le

Cell NameValu

e Prie!.".Side

nrease

%erease

?11

#ngine $ssem%ly+otal Mac,ine @r permont, " 2 " * *

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0ontd.

1. Aew 8est 5roduct Mi4 or Merton:

2. Aew contri%ution and 5roft:

A 11 12

5roft 3. *.

7nits 1 11


112. )

Proft= $2,402,000.00

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(olution 1 c

(,adow 5rice o #ngine $ssem%ly 2(o Increase in $ssem%ly unit capacity 1

;" to "1 2

2

FinalShado

wConstra

intAllowa

bleAllowab

le

Cell NameValu

e Prie!.".Side

nrease

%erease

?11


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0ontd.


2. Aew 5roft:

3. Aew 0ontri%ution:

A 11 12

5roft 3. *.

7nits 1 11

Initial 0ontri%ution 11 Increase0ontri%ution inpart;%< 112. 2.

0ontri%ution inpart;c< 112. 2.

Aet5roft

2.

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(olution 1 d

FinalShado

wConstra

intAllowa

bleAllowab

le

Cell Name

Valu

e Prie

!.".

Side

nreas

e

%ereas

e

?11


$llowa%le increase depicts t,e ma4imum num%ero $ssem%ly engine capacity t,at can %eadded wit,out c,anging t,e capacity wort,.

+,us * units o engine assem%ly capacity can%e added.

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Cuestion 2

1. $lternati-e suggested %y 5roduction Manager

1. (,ould t,e company adopt t,is alternati-eD

2. Ma4imum rent D

3. Ma4imum num%er o mac,ine ,ours to %e rented D

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(olution 2

FinalShado

wConstra

intAllowa

bleAllowab

le

Cell NameValu

e Prie!.".Side

nrease

%erease

?11

#ngine $ssem%ly

+otal Mac,ine @r permont, " 2 " * *

(ince allowa%le increase is * so ma4imum,ours or w,ic, renting is possi%le is *,ours.

(ince eac, ,our increases contri%ution %y 2

so ma4imum rent to %e paid per ,our is 2

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0ontd.

+,e company can go or t,is alternati-e i rent paid is %elow2. $ny rent %elow t,is amount will %e profta%le or t,ecompany



A 11 12

5roft 3. *.

7nits 1* 1*


12. )

5roft 3".

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Cuestion 3

Ei-en:1. Model 13 to %e introduced2. 0ontri%ution : 2

3. +otal #ngine $ssem%ly 0apacity * permont,

". +otal Metal (tamping 0apacity " permont,

*. $ssem%led in Model 11 assem%lydepartment

. 6eFuires ,al t,e time o Model 11 truck

Cuestions:

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(olution 3

A 11 12 13

5roft 3. *. 2.

7nits 2 1


11. )

5roft 2".

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0ontd.

=e can see rom t,e sensiti-ityreport t,at i we want to introduceModel 13 into solution t,en its

contri%ution s,ould %e increased %yat least %y 3*1.

Final!edu

ed(b)eti*

eAllowa

bleAllowabl

e

Cell Name Value Cost

Coe+ie

nt

nreas

e

%ereas

e0" 7nits Model 11 2 3 2 *?" 7nits Mdel 12 1 * 1 2#

" 7nits Mdel 13 &3* 2 3* 1#G3

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Cuestion "

Ei-en:1. #ngine can %e assem%led on o-ertime2. 5roduction #Hciency unc,anged

3. O-ertime capacity 2 mac,ine ,ours". ?irect la%our costs * ,ig,er or o-ertime*. aria%le o-er,eads unc,anged. Mont,ly f4ed o-er,ead or engine assem%ly

department increases %y ./* million

Cuestion:(,ould t,ey assem%le engines o-ertimeD

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(olution "



A 11 12

5roft 3. *.

7nits 1* 1*


12. )

5roft 3".

Aet 5roft 23*.

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0ontd.

=it, t,e application o o-ertime int,e engine assem%ly departmentt,e net contri%ution reac,es to

23*

Increased 9i4ed 0ost /* /*

Increase in Ja%or 2*>3

0ost sa-ing *>12

+otal increase 1*

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Cuestion *

MertonKs 5residentKs opinion:1. Ma4imizing s,ort&run contri%ution not good in

long run

2. Ma4imize Model 11 production

$greed:3. Aum%er o Model 11 L 3 4 Aum%er o

Model 12". Ma4imize 0ontri%ution

Cuestion:

6esulting optimal product mi4D

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1. Aew 8est 5roduct Mi4 or Merton ater addition oconstraint:


(olution *

A 11 12

5roft 3. *.7nits 22* /*


1*. )

5roft 1.

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+@$A NO7

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