CASE: Merton Truck Company

Quantitative Techniques II

Assignment: 1
Section: G
Group VI

Submitted To: Prof. Bhuvanesh Pareek

Submitted By:
Ajay Krishnan 2015PGP014
Amit Jat IPM2011012
Boddu Chandra Hasa 2015PGP080
Karkhanis Rucha Umesh 2015PGP171
Patel Pratik Dhirendrakumar 2015PGP253
Shanmugapriya Thiagarajan 2015PGP336
Varun Sharma IPM2012117

Decision Variables:
No. of units of Model 101 produced X
No. of units of Model 102 produced Y
Constraints:

Objective Function:
Maximize: 3000X + 5000Y
Q1 a)

Net Profit resulting from this product mix = $11000000 - $8600000 (Total Fixed
Overhead ) = $2400000

Q1 b) Shadow Price of Engine Assembly is $2000. If Assembly unit cap is increased

from 4000 to 4001 then extra Engine Assembly capacity is worth $2000.

Q1 c) With an increase in Engine Assembly to 4100, increase in profit due to

additional capacity will be 11200000-11000000 = $200000

Q1 d) 500 units of Engine Assembly can be added before there is a change in the
value of additional unit of capacity as its Allowable Increase and Decrease is 500
(from the Sensitivity Table).
Q2) There can be a maximum increase of 500 machine hours of engine capacity
with maximum rent being $2000/hr.

Q3 a)

We should not produce Model 103.

Q3 b)

Contribution Margin of Model 103 should be more than 2350 for it to be

profitable to begin production (reduced cost from Sensitivity Analysis).
Q4) New Decision Variables:
X No. of units of Model 101 produced in regular time
Y No. of units of Model 102 produced in regular time
A No. of units of Model 101 produced in overtime
B No. of units of Model 102 produced in overtime
New constraints:

New Objective Function:

Maximize: 3000X + 5000Y +2400A + 3800B

Increase in contribution = $7000000

Increase in fixed cost = $750000
Net contribution = -$50000
Therefore, Merton should not assemble engines on overtime.
Q5) New constraints:

The resulting optimal product mix is: