Lovisa's products include a range of rose gold plated bracelets and necklaces. The following presents information in
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Lovisa's products include a range of rose gold plated bracelets and necklaces. The following presents information in regards to the production of these products. The production manager would like your assistance to identify the optimal production mix. Below is an estimation of the costs to manufacture these products.
Open Toggle Bracelet | Cubic Zirconia Circle Necklace | Synthetic Opal Bezel Pendant Necklace | Open Circle Necklace | |
Selling price | $36.00 | $40.00 | $38.00 | $36.00 |
Direct materials | $9.15 | $10.45 | $9.98 | $9.98 |
Direct labour | $9.15 | $9.26 | $9.03 | $9.03 |
Variable overhead | $4.75 | $6.65 | $6.65 | $6.65 |
Fixed overhead | $4.75 | $7.13 | $7.13 | $7.13 |
Each of these four products goes through the same manufacturing process. The time for each process and the hours available are provided in the table below.
Process | Open Toggle Bracelet | Cubic Zirconia Circle Necklace | Synthetic Opal Bezel Pendant Necklace | Open Circle Necklace | Total hours available |
Chain fabrication | 0.125 | 0.126 | 0.126 | 0.126 | 40,000 |
Pendant fabrication | 0.085 | 0.084 | 0.084 | 0.084 | 25,200 |
Polishing | 0.084 | 0.098 | 0.112 | 0.098 | 31,000 |
Inspection and packing | 0.028 | 0.042 | 0.042 | 0.042 | 12,500 |
Required:
- Using Excel Solver, formulate a linear program to determine the optimal production mix which ensures that the maximum contribution margin is obtained. Discuss the key features of your results and why these were considered to be the optimal result
- Discuss and suggest three possible ways in which the firm could improve the contribution margin in light of the above Solver analysis. Provide financial information to support your recommendations and clearly illustrate how your proposals impact the production mix and the firm's contribution margin
Ensure that your answers for the above are discussed and supported by relevant calculations/workings.
Related Book For
Operations Management Creating Value Along the Supply Chain
ISBN: 978-0470525906
7th Edition
Authors: Roberta S. Russell, Bernard W. Taylor
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