An Insurance Company is introducing two new product lines: special risk insurance and mortgages. The expected profit is $5 per unit on special risk insurance and $2 per unit on mortgages. Management wishes to establish sales quotas for the new product lines to maximize total expected profit. The work requirements are as follows: - Should the company consider acquiring an additional 500 hours for the Underwriting department at a cost of $2 per hour, and why? - Based on the sensitivity report, can you determine the increase or decrease in profit if 100 work hours were transferred from Administration to Underwriting? If not, how you would be able to find the profit change in such a scenario.
An Insurance Company is introducing two new product lines: special risk insurance and mortgages. The expected profit is $5 per unit on special risk insurance and $2 per unit on mortgages. Management wishes to establish sales quotas for the new product lines to maximize total expected profit. The work requirements are as follows: - Should the company consider acquiring an additional 500 hours for the Underwriting department at a cost of $2 per hour, and why? - Based on the sensitivity report, can you determine the increase or decrease in profit if 100 work hours were transferred from Administration to Underwriting? If not, how you would be able to find the profit change in such a scenario.
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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Question
An Insurance Company is introducing two new product lines: special risk insurance
and mortgages. The expected profit is $5 per unit on special risk insurance and $2 per unit on
mortgages. Management wishes to establish sales quotas for the new product lines to
maximize total expected profit. The work requirements are as follows:
- Should the company consider acquiring an additional 500 hours for the Underwriting
department at a cost of $2 per hour, and why?
- Based on the sensitivity report, can you determine the increase or decrease in profit if 100
work hours were transferred from Administration to Underwriting? If not, how you would be
able to find the profit change in such a scenario.
Transcribed Image Text:Department
Underwriting
Administration
Claims
Work-Hours per Unit
Special Risk Mortgage
2
1
0
3
0
2
Work-Hours
Available
2400
800
1200
Transcribed Image Text:Variable Cells
Final Reduced
Cell Name Value Cost
$D$E Sp Risk 600
$D$7 Mortgage 300
Constraints
0
0
Objective
Coefficient
1
0
1
5
2
Final Shadow
Constraint
Cell Name Value Price R.H. Side
$F$6 Underwr 2400
$F$7 Admin
300
$F$8 Claims
1200
2400
800
1200
Allowable
Increase
1E+30
1.333333333
Allowable
Increase
1000
1E+30
Allowable
Decrease
Allowable
Decrease
2
2
600
500
400 666.6666667
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