Farhan Ahmed Siddiqui Student Number: 4634512 TBS 912 Problem of Sensitivity Analysis (Product Mix) TJs Inc.

make 3 types of nut mix i.e. Regular Mix, Deluxe Mix and Holiday Mix. They are made with the percentage amount of five species of nuts that are as follows: Nut Types Almond Brazil Filbert Pecan Walnut Shipment Size (lbs.) 6000 7500 7500 6000 7500 Shipment Cost (lbs.) $7500 $7125 $6750 $7200 $7875 Cost per lbs. $1.25 $0.95 $0.90 $1.20 $1.05

The cost of Almond per pound is $1.25 i.e. $7500/6000= $1.25 The cost of Brazil per pound is $0.95 i.e. $ 7125/7500=$0.95 The cost of Filbert per pound is $0.90 i.e. $ 6750/7500=$0.95 The cost of Pecan per pound is $1.20 i.e. $ 7200/6000=$1.20 The cost of Walnut per pound is $1.05 i.e. $ 7875/7500=$1.05

1. Cost of Nut Mixes Per Pound Calculations:

I. Regular Mix:
Nut Types Almond Brazil Filbert Pecan Walnut Regular Mix per pound calculation Cost per lbs. Percentage $1.25 $0.95 $0.90 $1.20 $1.05 15% 25% 25% 10% 25% Per Pound rate 0.1875 0.2375 0.225 0.12 0.2625 Total: $1.03

The actual per pound cost with the weightage of Nut Type for Regular Mix= $1.03

II.

Deluxe Mix:
Nut Types Almond Brazil Deluxe Mix per pound calculation Cost per lbs. Percentage $1.25 $0.95 20% 20% Per Pound rate 0.25 0.19

Filbert Pecan Walnut

$0.90 $1.20 $1.05

20% 20% 20%

0.18 0.24 0.21 Total: $1.07

The actual per pound cost with the weightage of Nut Type for Deluxe Mix= $1.07 III.

Holiday Mix:
Nut Types Almond Brazil Filbert Pecan Walnut Holiday Mix per pound calculation Cost per lbs. Percentage $1.25 $0.95 $0.90 $1.20 $1.05 25% 15% 15% 25% 20% Per Pound rate 0.3125 0.1425 0.135 0.3 0.21 Total: $1.10

The actual per pound cost with the weightage of Nut Type for Holiday Mix= $1.10

2. Findings for the Optimal Product Mix and Total Profit Contribution:
The related given data and the findings will help TJs Inc. for the profit contribution maximization as we will choose how much quantity in terms of pounds should be produced for Regular, Deluxe and Holiday Mix. We start by assigning the function name and after that representing the decision variable what TJs should mark .The assigning of function name and decision variable we expanded are as follows: A= Regular Mix in Pounds B= Deluxe Mix in Pounds C= Holiday Mix in Pounds Using the Given Data of profit contribution that includes cost of packaging, sales price etc. of three nut mixes, we get the objective function and the main purpose what we have to maximize. The function is given below:

1.65A+2B+2.25C
Where, $1.65= profit per pound of Regular Mix $2 =profit per pound of Deluxe Mix

$2.25 =profit per pound of Holiday Mix And 36450 is the total cost of shipment of nuts as these costs will not contribute in profit so we subtract it There are 8 constraints for this question because there is limited placed for obtainable amount, which are stated below: I. II. III. IV. V. VI. VII. VIII. Produced Regular mix in pounds >= Customer orders of Regular Mix in pounds Produced Deluxe mix in pounds >= Customer orders of Deluxe mix in pounds Produced Holiday mix in pounds >= Customer orders of Holiday Mix in pounds Amount of almond in all mixes<= Almond available amount Amount of brazil in all mixes <= Brazil available amount Amount of filbert in all mixes <= Filbert available amount Amount of pecan in all mixes <= Pecan available amount Amount of walnut in all mixes <= Walnut available amount

Whereas, The customer order table is shown Orders in pounds 10,000 3,000 5,000

Type of Mix Regular Mix Deluxe Mix Holiday Mix

Now, I will give mathematical representation of every constraint for solving the problem: I. II. III. IV. The constraint for the Regular Mix produced: A>=1000 The constraint for the Deluxe Mix produced: B >= 3000 The constraint for the Holiday Mix produced: C >= 5000 The constraint for the almonds in the all mixes with the limit assigned: 0.15A + 0.20B + 0.25C <=6000

V. VI. VII. VIII.

The constraint for the Brazil in the all mixes with the limit assigned: 0.15A + 0.20B + 0.15C <=7500 The constraint for the Filberts in the all mixes with the limit assigned: 0.15A + 0.20B + 0.15C <=7500 The constraint for the Pecans in the all mixes with the limit assigned: 0.10A + 0.20B + 0.25C <=6000 The constraint for the Walnuts in the all mixes with the limit assigned: 0.25A + 0.20B + 0.20C <=7500

Now, Putting the values in Management Scientist to solve the Product Mix problem Objective Function Variable Names: Coefficients: A 1.65 Constraints Subject To: Constraint Constraint Constraint Constraint Constraint Constraint Constraint Constraint 1 2 3 4 5 6 7 8 A 1 1 0.15 0.25 0.25 0.1 0.25 0.2 0.2 0.2 0.2 0.2 1 0.25 0.15 0.15 0.25 0.2 B C Relation [<,=,>] > > > < < < < < RightHand-Side 10000 3000 5000 6000 7500 7500 6000 7500 B 2 C 2.25

To complete the linear programming model we have to relate all the constraints with the non- negativity value i.e.

A, B, C >=0
Solution of the software and the Analysis of the problem:
Using the Management Scientist software to answer the product mix question, the results are generated and are as follows:

Optimal Solution Objective Function Value = Variable A B C

61375.000 Value 17500.000 10625.000 5000.000 Reduced Costs 0.000 0.000 0.000

The optimal solution shows the objective function value that will give the maximum profit value in the function i.e. $61375. As the total cost of shipment value is 36450, it is considered as expense so we have to subtract total cost of shipment value of different types of nuts with the calculated original objective function value by the software. The optimal solution after the subtraction of expense is $24935 that will give the maximum profit. The Values of Regular Mix, Deluxe Mix and Holiday Mix shows that the ideal value of the decision variables are A= 17500, B=10625 and C=5000. Now optimal solution to generate Regular Mix is 17500 lbs., 10625 Deluxe Mix to produce and 5000 Holiday Mix to produce. The values of Slack/Surplus, Dual Price Values given in the management scientist are given below: Constraint 1 2 3 4 5 6 7 8 Slack/Surplus 7500.000 7625.000 0.000 0.000 250.000 250.000 875.000 0.000 Dual Prices 0.000 0.000 -0.175 8.500 0.000 0.000 0.000 1.500

I.

II. III.

The first constraint of Regular Mix has a surplus of 7500 shows that Regular Mix can produce more 7500 pounds as order where of 10,000 pounds. With the same cost and the maximizing the profitability with the same cost it can produce 7500 more pounds of Regular Mix. The second constraint shows the surplus of 7625 that increases the ideal solution which was previously required of 3000 only. But with the same profitability it can produce 7625 more pounds in it. The third constraint shows that Holiday Mix with the Zero surplus which indicates, with the raise of single pound will decrease the profitability even with 5000 to 5001 and the dual price shows that with the increase of one

IV.

V. VI. VII. VIII.

pound of more production $0.175 per pound will be decreased from the profit contribution. The fourth constraint is different as types of nuts available are considered in this constraint so it concludes that with the increase of almonds used it will contribute the profit with the rate of $8.50 per pound on almonds. As Dual price is an addition amount which shows the increase of each pound will give increase in profit and it would be recommended to increase the amount of almonds in pounds. The fifth constraint of Brazil nut type shows the slack is there of 250 pounds only with no dual price which is not recommended, as the profit will be same if you use even 250 pounds more. The sixth constraint of Filberts nut type indicates again the slack of 250 that will also not been recommended as it will on the same profit even we purchase 250 pounds more. The seventh constraint of pecans shows the slack of 875 which means even if we buy 875 pounds more from the supplier the profit will be same as dual price is indicating it will not give more profit The eighth constraint shows the dual price of $1.50 that means with every increase of Walnuts used, $1.50 will increase the profitability per pound.

So the table shows that Almonds and Walnuts only are the nut types, which will increase the profitability with the rate of $8.50 and $1.50 respectively. The variables having slack i.e. Brazil, Filberts, Pecans shows the zero profit is increased by buying more pounds of these types of nuts as dual price is also zero. OBJECTIVE COEFFICENT RANGES Variable A B C Lower Limit Current Value 1.500 1.650 1.892 2.000 No Lower Limit 2.250 Upper Value 2.000 2.200 2.425

RIGHT HAND SIDE RANGES Constraint Lower Limit 1 No Lower Limit 2 No Lower Limit 3 0.000 4 5390.000 5 7250.000 6 7250.000 7 5125.000 8 6750.000

Current Value 10000.000 3000.000 5000.000 6000.000 7500.000 7500.000 6000.000 7500.000

Upper Limit 17500.000 10625.000 9692.308 6583.333 No Upper Limit No Upper Limit No Upper Limit 7750.000

3. How the total profit contribution can be increased if additional quantities of nuts can be purchased:
If in a case its preferred to increase the profit contribution by purchasing extra quantities of nuts then the proposal would be to purchase Almonds and Walnuts. The table of Slack/Surplus, Dual price shows that Almonds and Walnuts can give additional profit influence on the company. Almonds used with every pound increase will influence the profit contribution with the growth of $8.50 and Walnut dual price shows that with every pound increase in walnut used, it will influence $1.50 per pound in profit contribution. The table shows that the $8.50 dual price will be applicable on 583 extra pounds, which will be produced after 6000 as the upper limit shows the value of 6583 pounds of production. And Walnut shows the upper limit of 7750 and the actual value is 7500 so it means the extra 250 will be giving $1.5 per pound. The other 3 nut type i.e. Filberts, Pecans, Brazil shows zero dual price with zero upper limit so it will not give contribute to profits with additional quantity so these two will be considered i.e. Almonds & Walnuts.

4. Should TJs purchase additional Almonds of 1000 pounds for $1000 from a supplier who overbought?
I will recommend TJs to purchase almonds of 1000 pounds with $1000 from a supplier that overbought. As we will be purchasing almonds on the price of $1.00 per pound which means we will be also saving cost of 25 cents per pound as what we were previously having on $1.25 per pound. This will also increase the profit with the dual price and as well as on the cost saving on purchase. The dual price also shows that the almonds with the additional pound will be beneficial at the rate of $.8.50 so it means the upper limit is 6583 pounds of almonds shows 583 extra pounds will be utilized only in the purchase of 1000 pounds. The left 417 will not be used Now, we will find out the optimal solution in Management Scientist after adding the additional 1000 pounds of almonds in available pounds of almonds, which are now 7000 from 6000. In Management Scientist we will change 6000 pounds of almonds with 7000 to get the optimal solution, which is stated below:

Optimal Solution Objective Function Value = Variable A B C Constraint 1 2 3 4 5 6 7 8

66333.333 Value 11666.667 17916.667 5000.000 Reduced Costs 0.000 0.000 0.000 Dual Prices 0.000 0.000 -0.033 0.000 0.000 0.000 5.667 4.333

Slack/Surplus 1666.667 14916.667 0.000 416.667 250.000 250.000 0.000 0.000

After changing the amount of almonds available from 6000 to 7000. The profit increases from $24925 to $29883.33. As objective function value come as $66333.333 and the cost of shipment will be subtracted from it. $66333.33 - $36450= $ 29883.33

The increase of $4958.33 is there after receiving almonds of 1000 pounds. But the cost of $1000 is also paid on the Almonds. So the accurate profit will be: $29883.33- $1000= $28883.33 5. How Profit Contribution could be increased if TJs doesnt satisfy

all existing orders.

If TJs doesnt satisfy all the existing orders then management scientist solution shows the dual prices which indicates that the production till the upper limit should be made so it will give the best optimal solution for the product mix. TJs will reach the maximum profit for the mixes that benefits him more i.e. Regular & Deluxe Mix. The Holiday Mix is going in loss with $0.175 per pound, which is an obstacle for profit goals. So it will be profitable if Holiday Mix is decreased with the production but Regular and Deluxe Mix should not be affected by this decision, as it is profitable to produce more of these then ordered. Almond order decision should also not be associated with this strategy.