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labour costs are $20 per hour for machining and welding time, $15 per hour
for painting and finishging time, and $12 per hour for assembly, testing, and
packaging time. The market in which the two machines must compete
suggests a retail price of $2,400 for the BodyPlus100 and $3,500 for the
BodyPlus200, although some flexibility may be available to BFI because of
the unique capabilities of the new machines. Authorized BFI dealers can
purchase machines for 70% of the suggested retail price.
BFIs President believes that the unique capabilities of the Body-Strong
unit can help position BFI as one of the leaders in high-end exercise
equipment. Consequently, he has stated that the number of units of
BodyPlus200 produced must be at least 20% of the total production.
Managerial Report
Analyze the production problem at Better Fitness Inc., and prepare a report
for BFIs president presenting your findings and recommendations.
1. What is the recommend number of BodyPlus100 and BodyPlus200
machines to produce.
2. The effect on profits of the requirement that the number of units of the
BodyPlus200 produced must be least 25% of the total production.
3. Where efforts should be expended in order to increase contributions to
profits.
Frame unit
Press station
Total
2hrs
Pec-Dec
station
2hrs
Machine and
Welding time
4hrs
Painting and
Finishing
time
Assembling,
testing and
Packing time
2hrs
1hr
2hrs
5hrs
8hrs
2hrs
2hrs
Machine
and
Welding
time
Painting
and
Finishing
time
Assembly
testing
and
Packing
time
Frame
unit
Press
station
Pec-Dec
station
Leg press
station
Total
5hrs
3hrs
2hrs
2hrs
12hrs
4hrs
2hrs
2hrs
2hrs
10hrs
2hrs
2hrs
Table3. Cost
Cost
Frame unit
Raw
materials
(bodyplus1
00)
$450
Press
station
$300
Pec-Dec
station
$250
Leg press
station
-
Total
$1000
Packing
(bodyplus1
00)
Raw
materials
(bodyplus2
00)
Packing
(bodyplus2
00)
$50
$50
$650
$400
$250
$200
$1500
$75
$75
Table 4. Labor Cost
Machine and
welding
Painting and
finishing
$20
$15
Labor Cost
Assembling,
testing and
Packing
$12
Variables
Using the data above let:
X= no. of BodyPlus100 to be produced
Y= no. of BodyPlus200 to be produced
Objective:
Determine the no. of production of BodyPlus100 and BodyPus200 to
maximize the profit
Subject to Constraints:
Equation A.
8x+2y600
5x+10y450
2x+2y140
x0 y0
The company will only get 70% of the retail price. Computed as follows:
Revenue= (2400 * .7 x) + (3500 * .7 y) = 1680x + 2450y
1309x+ 1989y
The profit is the difference of revenue and cost. And given by:
1680x 1309x = 371x
2450y 1989y = 461y
Equation B
Profit= 371x + 461y
The requirement that the BodyPlus200 must be at least 20% of that the total
production.
y ( x + y) .20 x 3y 0
TableA.1
Conclusions:
a. From point 1 coordinates of 0 and 45 the profit is $20,745. From point 2
coordinates of 30 and 30 the profit is $24960. And from point 3 with
the coordinates of 50 and 16 2/3 the profit is $26,233.33. Then
coordinate points of (50, 16 2/3) gives the maximum profit. Thus the
company is recommended to produce 50 BodyPlus100 and 16
BodyPlus200.
X=50 y=16
While there is a slack in painting and finishing time and Assembly time.
Thus by increasing the Machine and welding time, the profit will
increased by utilizing the slack in painting and assembly time.
GALLONS REQUIRED
22,418
El Paso
Pendleton
Houston
6,800
80,290
100,447
Kansas City
Los Angeles
Glendale
Jacksonville
24,570
64,716
33,689
68,486
Little Rock
Bridgeport
148,586
111,475
Sacramento
112,000
TOTAL
773,522
Table2. FREIGHT COST ($ PER GALLON)
LOCATIONS
CINCINNATI
OAKLAND
Santa Ana
0.22
El Paso
0.84
0.74
Pendleton
0.83
0.49
Houston
0.45
Kansas City
0.36
Los Angeles
0.22
Glendale
Jacksonville
0.34
0.22
-
Little Rock
0.34
Bridgeport
0.34
Sacramento
0.15
FREIGHT COST/GALLON
CINCINNATI OAKLAND
0.84
0.83
0.45
0.36
0.34
0.34
0.34
-
0.22
0.74
0.49
0.22
0.22
0.15
Cin/Oak
PRODUCTIO
N
1.65
1.20-1.65
1.20-1.65
1.65
1.65
1.65
1.65
1.20
1.20
1.20
1.65
TOTAL
COST
/GALLON
1.87
2.04-2.39
2.03-2.14
2.10
2.01
1.87
1.87
1.54
1.54
1.54
1.80
SOLUTION
1. If Solutions Plus wins the bid, which production facility (Cincinnati or
Oakland) should supply the cleaning fluid to the locations where the
railroad locomotives are cleaned?
How much should be shipped from each facility to each location?
Variables
Using the data above let:
X = number of gallons produced in Cincinnati
Y = number of gallons produced in Oakland
Objective:
Minimize profit
P=
99X1+2.04X2+2.03X3+1.65X4+1.56X5+99X6+99X7+1.54X8+1.54X9+1.54X10+
99X11+1.87Y1+2.39Y2+2.14Y3+99Y4+99Y5+1.87Y6+1.87Y7+99Y8+99Y9+99Y10
+1.8Y11
These are the costs associated with shipping each product to each location
per gallon.
Note: 99 means they wont ship to the location.
Constraints:
Cincinnati Plant: X1+X2+X3+X4+X5+X6+X7+X8+X9+X10+X11 < 500,000
Oakland Plant:
Demand Constraints:
Santa Ana
El Paso
Pendleton
Houston
Kansas City
Los Angeles
Glendale
X1
X2
X3
X4
X5
X6
X7
+
+
+
+
+
+
+
Y1
Y2
Y3
Y4
Y5
Y6
Y7
=
=
=
=
=
=
=
22,418
6,800
80,290
100,447
24,570
64,716
33,689
Jacksonville
Little Rock
Bridgeport
Sacramento
X8 + Y8 = 68,486
X9 + Y9 = 148,586
X10 + Y10 = 111,475
X11 + Y11 = 112,000
Decision:
Oakland produces 273.552 gallons
Cincinnati produces 500,000 gallons
All railways receive their product from one plant except one. The Mystery
City, Pendleton. Conveniently located between both plants.
2. What is the breakeven point for Solutions Plus? That is, how low can
the company go on its bid without losing money?
FREIGHT
COP
GALLONS
COST/GALLON
+ FRT REQUIRE
LOCATIONS CINCINNAT OAKLAN
D
I
D
Santa Ana
0.22
1.87
22,418
El Paso
0.84
0.74
2.04
6,800
Cincinnati(0.83+1.20)*39,636<49%>+
Pendleton
Oakland(0.49+1.65)*40,654<51%>=
Houston
0.45
1.65
100,447
Kansas City 0.36
1.56
24,570
Los
0.22
1.87
64,716
Angeles
Glendale
0.22
1.87
33,689
Jacksonville 0.34
1.54
68,486
Little Rock
0.34
1.54
148,586
Bridgeport
0.34
1.54
111,475
Sacrament 0.15
1.80
112,000
o
TOTAL
COST
TOTAL
COST
41,921.66
13,872
167,460.64
165,737.55
38,329.2
121,103.07
62,998.43
105,468.44
228,822.44
171,617.5
201,600
1,318,984.9
3
Decision: The minimum bid Solution Plus can submit without losing money is
$1,318,984.93. This is also known as the breakeven point.
3. If Solutions Plus wants to use its standard 15% markup, how much
should it bid?
Answer:
Customarily, Solutions Plus adds a 15% markup on their bid contracts.
If that so, then 1,516,832.67 would be the bid submission.
However, they may not wish to bid so high to have a better chance of
obtaining the contract.
4. Freight costs are significantly affected by the price of the oil. The
contract on which Solutions Plus is bidding for two years. Discuss how
fluctuation in freight costs might affect the bid Solutions Plus submits.
Answer:
Oil prices tend to fluctuate thus causing the potential for increases in
high freight costs in the near future.
Where we would increase the bid an additional 5% to 1,582,781.916 to
account for fluctuating fuel costs, instead we will submit for only 15%
markup to help the odds of obtaining the bid. 1,516,832.67