MERTON TRUCK

COMPANY
Group A2
Aachal Garg
Ameeno Pradeep Paul
Chaitanya Gandhi
Joe Kynadi
Kanika Bandooni
Sudipta Mondal

Cost
specification
DM

model 101 model

24000
Direct Labor
engine assembly
1200
metal stamping
800
final assembly
2000
Total DL
4000
Variable Overhead
engine assembly
2100
metal stamping
2400
final assembly
3500
Total variable Overload
8000
Selling Prices
39000
Total cost
36000
Contribution Margin per Unit
3000

102
20000
2400
600
1500
4500
4000
2000
2500
8500
38000
33000
5000

Fixed Cost
Fixed Cost Data
Engine Assembly

1700000

metal stamping

2700000

final assembly
Total Fixed Overhead

2700000
8600000

1500000

Constraints
Engine assembly constraint :
Metal stamping constraint :
Model 101 Assembly constraint:
Model 102 Assembly constraint:

X1 +X2<= 4000
2X1+2X2<=6000
2X1+0X2<=4000
0X1+3X2<=3000

Max Profit = 3000 X1+5000X2-8600000 (fixed overheads)

Sensitivity Analysis
Variable Cells

Name

Final
Value

Reduced Objective
Cost
Coefficient

Allowable
Increase

Allowable
Decrease

Quantity Model 101

2000

3000

2000

500

Quantity Model 102

1000

5000

1000

2000

Name

Final
Value

Shadow
Price

Constraint
R.H. Side

Allowable
Increase

Allowable
Decrease

Engine asembly constraint Usage (LHS)

4000

2000

4000

500

500

Metal stamping constraint Usage (LHS)

6000

500

6000

500

1000

Model 101 Assembly constraint Usage (LHS)

Model 102 Assembly constraint Usage (LHS)

4000
3000

0
0

5000
4500

1E+30
1E+30

1000
1500

Constraints

SOLUTION 1

A)

MODEL 101

MODEL 102

OBJECTIVE

2000

1000

2400000

B) The shadow price of engine assembly is 2000$ , if

engine assembly capacity is

increased
by one unit from 4000 to 4001 machine hours then extra unit eng
assembly capacity will be 2000$ .
MODEL 101

MODEL 102

OBJECTIVE

1999

1001

2402000

C) Increase in profit due to 100 unit increase in production capacity= 26000002400000=200000

MODEL 101

MODEL 102

OBJECTIVE

1900

1100

2600000

SOLUTION 1

D) 500 units of engine assembly capacity can be added before its capacity worth
changes.
Profit at 4500 & 4501 is same i.e. production decision doesnt change .

MODEL 101

MODEL 102

OBJECTIVE

1500

1500

3400000

SOLUTION 2

Maximum we can have 500 hour increase in capacity & profit contribution
increase 2000$ per hour. So maximum we can pay that much

MODEL 101

MODEL 101

OBJECTIVE

1500

1500

3400000

Max Profit = 3000 X1+5000X2+2000X3-8600000 (fixed overheads)

Constraints:

Availability(RHS)

Engine asembly constraint

0.8 4000

<=

4000

Metal stamping constraint

1.5 6000

<=

6000

Model 101 Assembly

constraint

4000

<=

5000

Model 102 Assembly

constraint

3000

<=

4500

Non Negativity Model 101

2000

>=

Non Negativity Model 102

1000

>=

Non Negativity Model 103

>=

SOLUTION 3A

We should not produce model 103

Variables

Objective

Model 101

Model 102

Model 103

2000

1000

2400000

SOLUTION 3B
Name
Quantity Model 101
Quantity Model 102
Quantity Model 103

Final
Reduced Objective Allowable Allowable
Value
Cost
Coefficient Increase Decrease
2000
0
3000
2000
500
1000
0
5000
1000
2000
0
0
2000
350 1.00E+30

Final
Shadow Constraint Allowable Allowable
Name
Value
Price
R.H. Side Increase Decrease
Engine asembly constraint Usage (LHS)
4000
2000
4000
500
500
Metal stamping constraint Usage (LHS)
6000
500
6000
500
1000
Model 101 Assembly constraint Usage
(LHS)
4000
0
5000 1.00E+30
1000
Model 102 Assembly constraint Usage
(LHS)
3000
0
4500 1.00E+30
1500
Non Negativity Model 101
2000
0
0
2000 1.00E+30
Non Negativity Model 102
1000
0
0
1000 1.00E+30
2857.142
Non Negativity Model 103
0
-350
0
9
0

 Model 103 should be more than> 2350 in order to make it

worthy of production
With 2351 for Model 103 we get the following production
schedule
Variables

Objective

Model 101

Model 102

Model 103

857.14286

2857.1429

2402857

SOLUTION 4

Clearly from sensitivity analysis we see that 500 units of

engine assembly capacity
Variables

Model 101

Model 102

2000

1000

Engine assembly constraint :

Objective
2400000

X1 +X2<= 4500

 So additional Revenue =-50000

Variables

Objective

Model 101

Model 102

1500

1500

3400000

New Contribution

3400000

Increase in Fixed
Costs

750000

Increase in Labour

250*3600

900000

Labour cost saving

500*1200

600000

Net Contribution

2350000

SOLUTION 5

New constraint of product mix need to be added

Constraints:

Availability(RHS)

Engine asembly constraint

<=

4000

Metal stamping constraint

<=

6000

Model 101 Assembly

constraint

<=
2

Model 102 Assembly

constraint

Product Ratio

-1

5000
<=
4500
=

 Additional Contribution due to this decision is = 24000001900000= 500000$

Variables

Objective

Model 101

Model 102

2250

750

1900000