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Problem Set 05 - Using Optimization To Find Best Decisions

This document outlines four optimization problems: 1) Determining optimal advertising expenditures for a company across four quarters given budget constraints. 2) Finding the optimal product mix and production quantities for an office furniture company to maximize profits. 3) Minimizing the cost of a trail mix product by determining optimal ingredient quantities while meeting nutritional requirements. 4) Choosing the optimal quantities of 15 vegetable products for a distributor to purchase to maximize profits given sales forecasts, costs, prices, and warehouse constraints.

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Shashwat
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66 views

Problem Set 05 - Using Optimization To Find Best Decisions

This document outlines four optimization problems: 1) Determining optimal advertising expenditures for a company across four quarters given budget constraints. 2) Finding the optimal product mix and production quantities for an office furniture company to maximize profits. 3) Minimizing the cost of a trail mix product by determining optimal ingredient quantities while meeting nutritional requirements. 4) Choosing the optimal quantities of 15 vegetable products for a distributor to purchase to maximize profits given sales forecasts, costs, prices, and warehouse constraints.

Uploaded by

Shashwat
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Problem Set 05 – Using Optimization to Find the Best Decisions

(Use of Excel Solver)


1. Advertising Budget Decision
Recall the Advertising Budget Decision problem of Problem Set 1.
a) What is the best choice of advertising expenditures in the first quarter (Q1)?
Ignore the total budget of $40,000 for this case. Assume other quarters to have
expenditures of $10,000 each.
b) What are the best choices of advertising expenditures for all four quarters? Ignore
the total budget of $40,000 for this case.
c) How should we allocate the advertising budget across the four quarters satisfying
the budget constraint of $40,000? What is the optimal profit?

2. Krafty Furniture Co.


Krafty Furniture Co. makes three kinds of office furniture: chairs, desks, and tables.
Each product requires some labour in the parts fabrication department, the assembly
department, and the shipping department. The furniture is sold through a regional
distributor, which has estimated the maximum potential sales for each product in the
coming quarter. Finally, the accounting department has provided some data showing
the profit contributions on each product. The decision problem is to determine the
product mix – that is, to maximize Krafty’s profit for the quarter by choosing
production quantities for the chairs, desks, and tables. The data shown in the
accompanying table summarize the parameters of the problem:
Department Hours per Unit Hours
Chairs Desks Tables Available
Fabrication 4 6 2 1850
Assembly 3 5 7 2400
Shipping 3 2 4 1500
Demand Potential 360 300 100
Profit $15 $24 $18

3. Trail Mix
Unimix wishes to introduce a packaged trail mix as a new product. The ingredients
for the trail mix are seeds, raisins, flakes, and two kinds of nuts. Each ingredient
contains certain amounts of vitamins, minerals, proteins, and calories. The marketing
department has specified that the product be designed so that a certain minimum
nutritional profile is met. The decision problem is to determine the optimal product
composition – that is, to minimize the product cost by choosing the amount of each
of the ingredients for the mix. The data shown in the accompanying table summarize
the parameters of the problem.
a) Help Unimix to obtain the optimal product composition.
b) How do the composition and product cost change when the marketing department
also specifies that there must be at least 0.15 pound of each of pecans and walnuts
in the trail mix?
c) What happens to the composition when the marketing department specifies that
there must be at least 0.15 pound of each ingredient?
Grams/pound
Component Seeds Raisins Flakes Pecans Walnuts Nutritional
Requirement
Vitamins 10 20 10 30 20 20
Minerals 5 7 4 9 2 10
Protein 1 4 10 2 1 15
Calories 500 450 160 300 500 600
Cost/pound $4 $5 $3 $7 $6

4. Auchan Distributors
The product portfolio problem asks which products a firm should be making. If there
are contracts that obligate the firm to enter certain markets, then the question is
which products to make in quantities beyond the required minimum. Consider
Auchan Distributors (AD), a company that distributes 15 different vegetables to
grocery stores. AD’s vegetables come in standard cardboard cartons that each take
up 1.25 cubic feet in the warehouse. The company replenishes its supply of frozen
foods at the start of each week and rarely has any inventory remaining at week’s end.
An entire week’s supply of frozen vegetables arrives each Monday morning at the
warehouse, which can hold up to 18000 cubic feet of product. In addition, AD’s
supplier extends a line of credit amounting to $30,000. That is, AD is permitted to
purchase up to $30,000 worth of product each Monday.
AD can predict sales for each of the 15 products for the coming week. The forecast
is expressed in terms of a minimum and a maximum level of sales. The minimum
quantity is based on a contractual agreement that AD has made with a few retail
grocery chains; the maximum quantity represents an estimate of the sales potential
in the upcoming week. The unit cost and unit selling price for each product are
known. The given data are compiled in the following table.
Product Cost ($) Price ($) Minimum Maximum
Whipped Potatoes 2.15 2.27 300 1500
Creamed Corn 2.20 2.48 400 2000
Blackeyed Peas 2.40 2.70 250 900
Artichokes 4.80 5.20 0 150
Carrots 2.60 2.92 300 1200
Succotash 2.30 2.48 200 800
Okra 2.35 2.20 150 600
Cauliflower 2.85 3.13 100 300
Green Peas 2.25 2.48 750 3500
Spinach 2.10 2.27 400 2000
Lima Beans 2.80 3.13 500 3300
Brussel Sprouts 3.00 3.18 100 500
Green Beans 2.60 2.92 500 3200
Squash 2.50 2.70 100 500
Broccoli 2.90 3.13 400 2500

What quantities of each product should AD buy to maximize profit?

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