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Case Study Report

Merton Truck Company is experiencing financial difficulties and does not know the optimal product mix to maximize profits. Group 2 analyzed the situation and used linear programming to determine: 1) The best product mix is 2000 units of Model 101 and 1000 units of Model 102, yielding a profit of $11 million. 2) Increasing engine assembly by one unit would yield $2000 more profit, with 1999 units of Model 101 and 1001 units of Model 102. 3) Introducing a new Model 103 would not be worthwhile unless its contribution was increased to over $2351.

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umair talash
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124 views4 pages

Case Study Report

Merton Truck Company is experiencing financial difficulties and does not know the optimal product mix to maximize profits. Group 2 analyzed the situation and used linear programming to determine: 1) The best product mix is 2000 units of Model 101 and 1000 units of Model 102, yielding a profit of $11 million. 2) Increasing engine assembly by one unit would yield $2000 more profit, with 1999 units of Model 101 and 1001 units of Model 102. 3) Introducing a new Model 103 would not be worthwhile unless its contribution was increased to over $2351.

Uploaded by

umair talash
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Merton truck company (case study)

Merton Truck Company has been experiencing difficulties related to their financial
performance, and they do not know which the optimal product mix is to maximize profits
and performance. Group 2 was asked to make recommendations and analyze the given
situation to eliminate the difficulties and come up with the right product mix and the optimal
solutions considering different alternatives and scenarios.?
Model of linear programming

Solution
LP is solved by using excel solver the output of the case study is given below
Sensitivity report
Variable
Reduce Allowabl Allowabl
    Final d Objective e e
Valu Coefficie
Cell Name e Cost nt Increase Decrease
$G$ weekly profit model
6 101 2000 0 3000 2000 500
$H$ weekly profit model
6 102 1000 0 5000 1000 2000

Constraints
Fina Shado Constrai Allowab Allowabl
l w nt le e
Valu
Cell Name e Price R.H. Side Increase Decrease
$I$1
1 engine assembly total 4000 2000 4000 500 500
$I$1
2 metal stamping total 6000 500 6000 500 1000
$I$1 model 101 assembly
3 total 4000 0 5000 1E+30 1000
$I$1 model 102 assembly
4 total 3000 0 4500 1E+30 1500

Activity report
Objective cell
Original Final
Cell Name Value Value
$I$1
0 profit total 0 11000000

Variable cell
Original
Cell Name Value Final Value Integer
$G$
6 weekly profit model 101 0 2000 Contin
$H$
6 weekly profit model 102 0 1000 Contin

Constraint
Slac
Cell Name Cell Value Formula Status k
$I$1 $I$11<=$K$1
1 Engine assembly total 4000 1 Binding 0
$I$1 $I$12<=$K$1
2 Metal stamping total 6000 2 Binding 0
$I$1 Model 101 assembly $I$13<=$K$1 Not
3 total 4000 3 Binding 1000
$I$1 Model 102 assembly $I$14<=$K$1 Not
4 total 3000 4 Binding 1500

BY USING R
> library (lpSolve)
> library (ROI)
> plugins <- ROI_available_solvers()[,c("Package", "Repository")]
> plugins

> lp <- OP (objective = L_objective (c (3000,5000), c ("x", "y")),


+ constraints = L_constraint(L = rbind(c(1,2), c(2,2), c(2,0),c(0,3)),
+ dir = c ("<=", "<=", "<=","<="),
+ rhs = c (4000,6000,5000,4500)),
+ maximum = TRUE)
> sol <- ROI_solve(lp, solver = "lpsolve")
> sol
Optimal solution found.
The objective value is: 1.100000e+07
> sol$solution
x y
2000 1000
Question 1 (a)
Best product mix for Merton is 2000 units of model 101 and 1000 units of model 102.
(b)
If we increase one unit then the best product mix is 1999 units of model 101 and 1001 units of
model 102. Extra unit of engine assembly worth of 2000 dollars.
Valu
Cell Name e
$G$
6 Weekly profit Model 101 1999
$H$
6 Weekly profit Model 102 1001

Original
Cell Name Value Final Value
$I$ (c)
9 Profit Total 11000000 11002000
If the capacity is increase 4100
hours, then the extra unit of
assembly worth of 2000*100 =
$ 200,000. It is 100 times of part (b).

(d)
Allowable increase in the engine assembly capacity is 500 units. The profit at 4000 and 4500 is
same there will be no change in production decision.

Question # 2
The shadow price of the engine assembly is 2000$. This is the price which the manager willing to
pay to the third party. The maximum number of machine hours is 500 hrs. So by these value there
is no effect on the profit

Question # 3 (a)
From the data Merton should not produce Model 103. This is because the contribution of $2000
is far below contributions of $3000 and $5000 derived from trucks 101 and 102 and thus not
worthwhile to deploy resources into its production compared to other truck models.
(b)
As the reduced cost of the model 103 is 350. If we increase 351 in the present contribution means
the contribution is 2351 them it will make worthy.
Model Model Model
  101 102 103
857.1428 2857.142
Weekly profit 0 6 9

By increasing the contribution, the production of model 103 is 2857.149 and model 102 is 857.14
and no model of 101 produce.

Question # 4
The best product mix give the profit of 2.4 million per month. If Merton wants to assemble engine
overtime which increase the overhead value about 0.75 million. With the increase of the overhead
the profit is decrease. The new profit is 1.65 million, which is less than the previous so Merton
cannot produce engine on overtime.

Question # 5
The optimal mix is 2500 unit of model 101 and 500 unit of model 102.
The objective function for this problem is 9000X1 + 5000X2
Model Model
  101 102
Weekly profit 2500 500

The profit is maximizing $25million by increasing the model 101 three times then the model 102.

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