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Case Problem 1: Product Mix

The document discusses a case problem involving optimizing the product mix for a nut company given constraints on available ingredients and demand. It provides cost data on different nut ingredients and mixes. It then formulates a linear programming model to maximize profit contribution given constraints. The model is solved, showing the optimal mix allocates the most production to the Regular mix. Sensitivity analysis shows purchasing additional almonds would be worthwhile. Increasing the almonds constraint and resolving increases optimal profit. It also finds it would be advantageous to negotiate a decrease in the required Holiday mix amount.

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Bryan Seow
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123 views4 pages

Case Problem 1: Product Mix

The document discusses a case problem involving optimizing the product mix for a nut company given constraints on available ingredients and demand. It provides cost data on different nut ingredients and mixes. It then formulates a linear programming model to maximize profit contribution given constraints. The model is solved, showing the optimal mix allocates the most production to the Regular mix. Sensitivity analysis shows purchasing additional almonds would be worthwhile. Increasing the almonds constraint and resolving increases optimal profit. It also finds it would be advantageous to negotiate a decrease in the required Holiday mix amount.

Uploaded by

Bryan Seow
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
You are on page 1/ 4

CaseProblem1:ProductMix

NotetoInstructor:Thedifferencebetweenrelevantandsunkcostsiscritical.Thecostoftheshipmentof
nutsisasunkcost.Practiceinapplyingsensitivityanalysistoabusinessdecisionisobtained.Youmay
wanttosuggestthatsensitivityanalysesotherthantheoneswehavesuggestedbeundertaken.
1.

Costperpoundofingredients
Almonds
Brazil
Filberts
Pecans
Walnuts

$7500/6000=$1.25
$7125/7500=$.95
$6750/7500=$.90
$7200/6000=$1.20
$7875/7500=$1.05

Costofnutsinthreemixes:

2.

Regularmix:

.15($1.25)+.25($.95)+.25($90)+.10($1.20)+.25($1.05)=$1.0325

Deluxemix

.20($1.25)+.20($.95)+.20($.90)+.20($1.20)+.20($1.05)=$1.07

Holidaymix:

.25($1.25)+.15($.95)+.15($.90)+.25($1.20)+.20($1.05)=$1.10

Let

R=poundsofRegularMixproduced
D=poundsofDeluxeMixproduced
H=poundsofHolidayMixproduced

Notethatthecostofthefiveshipmentsofnutsisasunk(notarelevant)costandshouldnot
affectthedecision.However,thisinformationmaybeusefultomanagementinfuture
pricingandpurchasingdecisions.Alinearprogrammingmodelfortheoptimalproductmix
isgiven.
Thefollowinglinearprogrammingmodelcanbesolvedtomaximizeprofitcontributionfor
thenutsalreadypurchased.
Max
s.t.

1.65R

2.00D

2.25H

0.15R
0.25R
0.25R
0.10R
0.25R
R

+
+
+
+
+

0.20D
0.20D
0.20D
0.20D
0.20D

+
+
+
+
+

0.25H
0.15H
0.15H
0.25H
0.20H

D
H

6000
7500
7500
6000
7500
10000
3000
5000

Almonds
Brazil
Filberts
Pecans
Walnuts
Regular
Deluxe
Holiday

R,D,H0

MGTC74W07

Page 1 of 4

Chapter 3 11th ed.

ThesolutionfoundusingTheManagementScientistisshownbelow.
ObjectiveFunctionValue=61375.000
VariableValueReducedCosts

R17500.0000.000
D10624.9990.000
H5000.0000.000

ConstraintSlack/SurplusDualPrices

10.0008.500
2250.0000.000
3250.0000.000
4875.0000.000
50.0001.500
67500.0000.000
77624.9990.000
80.0000.175

OBJECTIVECOEFFICIENTRANGES
VariableLowerLimitCurrentValueUpperLimit

R1.5001.6502.000
D1.8922.0002.200
HNoLowerLimit2.2502.425

RIGHTHANDSIDERANGES
ConstraintLowerLimitCurrentValueUpperLimit

15390.0006000.0006583.333
27250.0007500.000NoUpperLimit
37250.0007500.000NoUpperLimit
45125.0006000.000NoUpperLimit
56750.0007500.0007750.000
6NoLowerLimit10000.00017500.000
7NoLowerLimit3000.00010624.999
80.0005000.0009692.307
3.

MGTC74W07

Fromthedualpricesitcanbeseenthatadditionalalmondsareworth$8.50perpoundto
TJ.Additionalwalnutsareworth$1.50perpound.Fromtheslackvariables,weseethat
additionalBrazilnut,Filberts,andPecansareofnovaluesincetheyarealreadyinexcess
supply.

Page 2 of 4

Chapter 3 11th ed.

4.

Yes,purchasethealmonds.Thedualpriceshowsthateachpoundisworth$8.50;thedual
priceisapplicableforincreasesupto583.33pounds.

Resolvingtheproblembychangingtherighthandsideofconstraint1from6000to7000
yieldsthefollowingoptimalsolution.Theoptimalsolutionhasincreasedinvalueby
$4958.34.Notethatonly583.33poundsoftheadditionalalmondswereused,butthatthe
increaseinprofitcontributionmorethanjustifiesthe$1000costoftheshipment.
ObjectiveFunctionValue=66333.336
VariableValueReducedCosts

R11666.6670.000
D17916.6680.000
H5000.0000.000
ConstraintSlack/SurplusDualPrices

1416.6670.000
2250.0000.000
3250.0000.000
40.0005.667
50.0004.333
61666.6670.000
714916.6670.000
80.0000.033

OBJECTIVECOEFFICIENTRANGES
VariableLowerLimitCurrentValueUpperLimit

R1.0001.6501.750
D1.9762.0003.300
HNoLowerLimit2.2502.283

RIGHTHANDSIDERANGES
ConstraintLowerLimitCurrentValueUpperLimit

16583.3337000.000NoUpperLimit
27250.0007500.000NoUpperLimit
37250.0007500.000NoUpperLimit
44210.0006000.0006250.000
57250.0007500.0007750.000
6NoLowerLimit10000.00011666.667
7NoLowerLimit3000.00017916.668
80.0025000.00015529.412

MGTC74W07

Page 3 of 4

Chapter 3 11th ed.

5.

MGTC74W07

Fromthedualpricesitisclearthatthereisnoadvantagetonotsatisfyingtheordersforthe
RegularandDeluxemixes.However,itwouldbeadvantageoustonegotiateadecreasein
theHolidaymixrequirement.

Page 4 of 4

Chapter 3 11th ed.

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