Six questions:

Part 1

ABC, Inc. produces two lines of heavy equipment. One of these product lines, termed earthmoving equipment, is essentially for construction applications. The other line, termed forestry equipment, is destined for the lumber industry. The largest member of the earthmoving equipment line (the E-9) and the largest member of the forestry equipment line (the F-9) are produced in the same departments and with the same equipment.

Using economic forecasts for the next month, ABC’s marketing manager has judged that during that period it will be possible to sell as many E-9s or F-9s as the firm can produce. Management must now determine a production plan, with a goal of maximizing profit. That is, how many E-9s and F-9s should be produced?

The following major factors should be considered in making this decision:

• ABC will make a profit of $5000 on each E-9 that is sold and $4000 on each F-9

• Each project requires machining operations in both department A and department B.

• For the next month's production, these two departments have 150 and 160 hours of available time,

  respectively. Each E-9 uses 10 hours of machining in department A and 20 hours of machining in department B, whereas each F-9 uses 15 hours in department A and 10 hours in department B. These data are summarized below.

Department	Hours per E-9	Hours per F-9	Total Available Hours
A	10	15	150
B	20	10	160
Profit	5000	4000

1. What is the LP Model?

2. What is the best production plan, i.e. how many E-9’s and F-9’s should the company produce?

   o What profit would result from this production plan?

3. Would it be profitable for the company to increase its capacity in department A? (Hint: Please utilize the

   concepts of binding constraints, which define the optimal solution point.)

   o IndepartmentB?

4. Suppose that the profit on each F-9 were to fall to $2000. What should the new production plan be?

   o How would this affect your above answers?

Part 2

Now, a new technology becomes available, which allows ABC to produce a new earthmoving equipment line (the New E-9). The MP is $7000. But, each NE-9 uses 16 hours of machining in department A and 25 hours of machining in department B.

Department	Hours per E-9	Hours per F-9	Hours per New E-9	Total Available Hours
A	10	15	16	150
B	20	10	25	160
Marginal Profit (MP)	5000	4000	7000

5. Should ABC replace the old E-9 with the new E-9 (NE-9)?

6. If the new technology requires a license fee (suppose that the old E-9 is replaced with a new E-9), how

   much would you like to pay for the license?

Answer rating: 100% (QA)

Answer Part I 1 The LP model is followin... View the full answer