A seminar was recently attended by the Managing Director of XYZ Manufacturing Company Limited located at Sheffield. The focus of the seminar was "optimising scarce resources utility in a manufacturing setting with particular reference to linear programming". On his return to his base, he called for a meeting with the Management to share his experience from the seminar and the impact this will have on the decision by the Board to produce two major products in the years ahead.
A seminar was recently attended by the Managing Director of XYZ Manufacturing Company Limited located at Sheffield. The focus of the seminar was "optimising scarce resources utility in a manufacturing setting with particular reference to linear programming". On his return to his base, he called for a meeting with the Management to share his experience from the seminar and the impact this will have on the decision by the Board to produce two major products in the years ahead.
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ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
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![Question 2
A seminar was recently attended by the Managing Director of XYZ Manufacturing Company
Limited located at Sheffield. The focus of the seminar was "optimising scarce resources
utility in a manufacturing setting with particular reference to linear programming". On his
return to his base, he called for a meeting with the Management to share his experience
from the seminar and the impact this will have on the decision by the Board to produce two
major products in the years ahead.
A group of external research experts had previously been commissioned and the following
represents information from the research carried out by them
The expected products are "Best" and "Smart" with expected costs statistics as follows:
Best
£
£
Smart
(3kg@£50/kg)
Material costs
(5kg@£50/kg)
250
150
Labour costs
Machinery time
30
(4 hours @£15/Hr) 60
(4 hours @£10/hr) 40
(2hours @£15/Hr)
(5hours@£10/Hr)
Other Processing Time
50
The applicable pricing policy is based on total cost of production plus 20% mark up on cost.
The Company's overhead is expected to be £10,000,000 with normal production of 200,000
units of Best and 100,000 units of Smart and overhead absorbed on the basis of 3 to 2
respectively.
The resources below will be available to the company in the following year.
i. Materials 1,800,000kgs
ii.
Machine time 800,000 hours
iii.
Other process time 1,400,000](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc5b4c0ca-17c4-40f8-af4f-e35633804917%2F7d99980f-6dcd-4cc0-ba71-bea576d14ac4%2F6d83bf_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Question 2
A seminar was recently attended by the Managing Director of XYZ Manufacturing Company
Limited located at Sheffield. The focus of the seminar was "optimising scarce resources
utility in a manufacturing setting with particular reference to linear programming". On his
return to his base, he called for a meeting with the Management to share his experience
from the seminar and the impact this will have on the decision by the Board to produce two
major products in the years ahead.
A group of external research experts had previously been commissioned and the following
represents information from the research carried out by them
The expected products are "Best" and "Smart" with expected costs statistics as follows:
Best
£
£
Smart
(3kg@£50/kg)
Material costs
(5kg@£50/kg)
250
150
Labour costs
Machinery time
30
(4 hours @£15/Hr) 60
(4 hours @£10/hr) 40
(2hours @£15/Hr)
(5hours@£10/Hr)
Other Processing Time
50
The applicable pricing policy is based on total cost of production plus 20% mark up on cost.
The Company's overhead is expected to be £10,000,000 with normal production of 200,000
units of Best and 100,000 units of Smart and overhead absorbed on the basis of 3 to 2
respectively.
The resources below will be available to the company in the following year.
i. Materials 1,800,000kgs
ii.
Machine time 800,000 hours
iii.
Other process time 1,400,000
![Required:
a. What is linear programming? Briefly explain the usefulness of the model.
b. Compute the prices that will be adopted by the company for the two products
using the company policy.
c. Advise the company on the output that needs to be produced to maximise its
total profit, supporting your answer with full financial analysis.
d. i. Explain the meaning of "shadow prices" and comment on the usefulness of
it and its limitation.
ii. Calculate the shadow prices of the constraints.
Assuming the company's position in (c) is maintained for three years with an
investment cost of £45,000,000 on the day of commencement of manufacturing
business, using a cost of capital of 15%.
i. Can this venture be justified for the period?
ii. What is the breakdown discount factor for this project?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc5b4c0ca-17c4-40f8-af4f-e35633804917%2F7d99980f-6dcd-4cc0-ba71-bea576d14ac4%2F7y0tsoh_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Required:
a. What is linear programming? Briefly explain the usefulness of the model.
b. Compute the prices that will be adopted by the company for the two products
using the company policy.
c. Advise the company on the output that needs to be produced to maximise its
total profit, supporting your answer with full financial analysis.
d. i. Explain the meaning of "shadow prices" and comment on the usefulness of
it and its limitation.
ii. Calculate the shadow prices of the constraints.
Assuming the company's position in (c) is maintained for three years with an
investment cost of £45,000,000 on the day of commencement of manufacturing
business, using a cost of capital of 15%.
i. Can this venture be justified for the period?
ii. What is the breakdown discount factor for this project?
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