Elco, a small electronics company manufactures two products. The per-unit costs for labor and raw materials, as well as the per-unit sales price is provided in the following table. Product 1 Product 2 Unit Sales Price $100 $90 Labor Cost $50 $35 Raw Materials Cost $30 $40 Today is December 1, and Elco has enough raw materials on hand to manufacture 100 units of each product. The company's balance sheet for today is shown in the following table. Cash Assets Liabilities $10,000 Accounts Receivable $3,000 Inventory Outstanding $7,000 Bank Loan $10,000 Accounts receivable is the money owed to the company from customers who have pur- chased its products. Inventory outstanding is the value of the raw materials on hand: 30(100) + 40(100)-7000. The company's asset-liability ratio (called the current ratio) is 20000/10000-2 Elco must determine the number of each product to produce during December. Demand is large enough to ensure that all goods produced in December will be sold in December. All sales are on credit, however, and payment for goods produced and sold in December will not be available until February of the following year. During December Elco will collect $2,000 in accounts receivable and must payoff $1,000 of the outstanding loan and a monthly rent of $1,000. On January 1, Elco will receive a shipment of raw materials worth $2,000, which must be paid for on February 1. Elco's management has decided that the cash balance on hand on January 1 must be at least $4,000. ⚫Elco's bank requires the company to have a current ratio of at least 2 on January 1. (a) Formulate a linear program to help Elco determine how much of each product to produce in December so as to maximize contribution to profit from production (which equals revenues to be received minus variable production costs). (b) Graphically solve the LP you formulated in part (a). (c) Suppose that the January 1 inventory shipment is valued at $7,000. Show that the problem is now infeasible.
Elco, a small electronics company manufactures two products. The per-unit costs for labor and raw materials, as well as the per-unit sales price is provided in the following table. Product 1 Product 2 Unit Sales Price $100 $90 Labor Cost $50 $35 Raw Materials Cost $30 $40 Today is December 1, and Elco has enough raw materials on hand to manufacture 100 units of each product. The company's balance sheet for today is shown in the following table. Cash Assets Liabilities $10,000 Accounts Receivable $3,000 Inventory Outstanding $7,000 Bank Loan $10,000 Accounts receivable is the money owed to the company from customers who have pur- chased its products. Inventory outstanding is the value of the raw materials on hand: 30(100) + 40(100)-7000. The company's asset-liability ratio (called the current ratio) is 20000/10000-2 Elco must determine the number of each product to produce during December. Demand is large enough to ensure that all goods produced in December will be sold in December. All sales are on credit, however, and payment for goods produced and sold in December will not be available until February of the following year. During December Elco will collect $2,000 in accounts receivable and must payoff $1,000 of the outstanding loan and a monthly rent of $1,000. On January 1, Elco will receive a shipment of raw materials worth $2,000, which must be paid for on February 1. Elco's management has decided that the cash balance on hand on January 1 must be at least $4,000. ⚫Elco's bank requires the company to have a current ratio of at least 2 on January 1. (a) Formulate a linear program to help Elco determine how much of each product to produce in December so as to maximize contribution to profit from production (which equals revenues to be received minus variable production costs). (b) Graphically solve the LP you formulated in part (a). (c) Suppose that the January 1 inventory shipment is valued at $7,000. Show that the problem is now infeasible.
Chapter6: Activity-based, Variable, And Absorption Costing
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Transcribed Image Text:Elco, a small electronics
company manufactures two
products. The per-unit costs for
labor and raw materials, as well
as the per-unit sales price is
provided in the following table.
Product 1 Product 2
Unit Sales Price
$100
$90
Labor Cost
$50
$35
Raw Materials Cost
$30
$40
Today is December 1, and Elco has enough raw materials on hand to manufacture 100
units of each product. The company's balance sheet for today is shown in the following
table.
Cash
Assets Liabilities
$10,000
Accounts Receivable
$3,000
Inventory Outstanding $7,000
Bank Loan
$10,000
Accounts receivable is the money owed to the company from customers who have pur-
chased its products. Inventory outstanding is the value of the raw materials on hand:
30(100) + 40(100)-7000. The company's asset-liability ratio (called the current ratio) is
20000/10000-2
Elco must determine the number of each product to produce during December. Demand
is large enough to ensure that all goods produced in December will be sold in December.
All sales are on credit, however, and payment for goods produced and sold in December
will not be available until February of the following year.
During December Elco will collect $2,000 in accounts receivable and must payoff
$1,000 of the outstanding loan and a monthly rent of $1,000.
On January 1, Elco will receive a shipment of raw materials worth $2,000, which
must be paid for on February 1.
Elco's management has decided that the cash balance on hand on January 1 must
be at least $4,000.
⚫Elco's bank requires the company to have a current ratio of at least 2 on January 1.
(a) Formulate a linear program to help Elco determine how much of each product
to produce in December so as to maximize contribution to profit from production
(which equals revenues to be received minus variable production costs).
(b) Graphically solve the LP you formulated in part (a).
(c) Suppose that the January 1 inventory shipment is valued at $7,000. Show that the
problem is now infeasible.
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