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I.

Case Study : Production Strategy

Better Fitness, Inc. (BFI), manufactures exercise equipment at its plant


in Freeport, Long Island. It recently designed two universal weight machines
for the home exercise market. Both machines use BFI patented technology
that provides the user with an extremely wide range of motion capability for
each type of exercise performed. Until now, such capabilities have been
available only on expensive weight machines used primarily by physical
therapists.
At a recent trade show, demonstrations of the machines resulted in
significant dealer interest. In fact, the number of orders that BFI received at
the trade show far exceeded its manufacturing capabilities for the current
production period. As a result, management decided to begin production of
the two machines. The two machines, which BFI named BodyPlus100 and
BodyPlus200, require different amounts of resource to produce.
The BodyPlus100 consists of a frame unit, a press station and a pecdec station. Each frame produced uses 4 hours of machining and welding
time and 2 hours of painting and finishing time. Each press station requires 2
hours of machining and welding and 1 hour of painting and finishing, and
each pec-dec station uses 2 hours of machining and welding time and 2
hours of painting and finishing time. In addition 2 hours are spent
assembling, testing and packaging each BodyPlus100. The raw material
costs $450 for each frame, $300 for each press station and $250 for each
pec-dec station. Packaging costs are estimated at $50 per unit.
The BodyPlus200 consists of a frame unit, a press station, a pec-dec
station, and a leg press station. Each frame produced uses 5 hours of
machining and welding time and 4 hours of painting and finishing time. Each
press station requires 3 hours machining and welding time and 2 hours of
painting and finishing time, each pec-dec station uses 2 hours of machining
and welding time and 2 hours of painting and finishing time, and each leg
press station requires 2 hours of machining and welding time and 2 hours of
painting and finishing time. In addition, 2 hours are spent assembling,
testing, and packaging each BodyPlus200. The raw material costs are: $650
for each frame, $400 for each press station, $250 for each pec-dec station,
and $200 for each leg press station; packaging costs are estimated to be $75
per unit.
For the next production period, management estimates that 600 hours
of machining and welding time, 450 hours of painting and finishing time, and
140 of assembly, testing, and packaging time will be available. Current

labour costs are $20 per hour for machining and welding time, $15 per hour
for painting and finishging time, and $12 per hour for assembly, testing, and
packaging time. The market in which the two machines must compete
suggests a retail price of $2,400 for the BodyPlus100 and $3,500 for the
BodyPlus200, although some flexibility may be available to BFI because of
the unique capabilities of the new machines. Authorized BFI dealers can
purchase machines for 70% of the suggested retail price.
BFIs President believes that the unique capabilities of the Body-Strong
unit can help position BFI as one of the leaders in high-end exercise
equipment. Consequently, he has stated that the number of units of
BodyPlus200 produced must be at least 20% of the total production.

Managerial Report
Analyze the production problem at Better Fitness Inc., and prepare a report
for BFIs president presenting your findings and recommendations.
1. What is the recommend number of BodyPlus100 and BodyPlus200
machines to produce.
2. The effect on profits of the requirement that the number of units of the
BodyPlus200 produced must be least 25% of the total production.
3. Where efforts should be expended in order to increase contributions to
profits.

Frame unit

Press station

Total

2hrs

Pec-Dec
station
2hrs

Machine and
Welding time

4hrs

Painting and
Finishing
time
Assembling,
testing and
Packing time

2hrs

1hr

2hrs

5hrs

8hrs

2hrs
2hrs

Table1. Body Plus 100

Table2. Body Plus 200

Machine
and
Welding
time
Painting
and
Finishing
time
Assembly
testing
and
Packing
time

Frame
unit

Press
station

Pec-Dec
station

Leg press
station

Total

5hrs

3hrs

2hrs

2hrs

12hrs

4hrs

2hrs

2hrs

2hrs

10hrs

2hrs

2hrs

Table3. Cost
Cost

Frame unit

Raw
materials
(bodyplus1
00)

$450

Press
station
$300

Pec-Dec
station
$250

Leg press
station
-

Total
$1000

Packing
(bodyplus1
00)
Raw
materials
(bodyplus2
00)
Packing
(bodyplus2
00)

$50

$50
$650

$400

$250

$200

$1500

$75

$75
Table 4. Labor Cost
Machine and
welding

Painting and
finishing

$20

$15

Labor Cost

Assembling,
testing and
Packing
$12

Variables
Using the data above let:
X= no. of BodyPlus100 to be produced
Y= no. of BodyPlus200 to be produced
Objective:
Determine the no. of production of BodyPlus100 and BodyPus200 to
maximize the profit

Subject to Constraints:
Equation A.
8x+2y600
5x+10y450
2x+2y140
x0 y0
The company will only get 70% of the retail price. Computed as follows:
Revenue= (2400 * .7 x) + (3500 * .7 y) = 1680x + 2450y

The cost of raw materials plus the packaging cost is given by


1050x + 1575y
The cost of labor in the three areas is given by:
(8x + 12y) 20 + (5x + 10y) 15 + (2x + 2y) 12; 259x + 414y
Thus the total cost is computed as follows:
1050x + 259x = 1309x
1575y + 414y = 1989y;

1309x+ 1989y

The profit is the difference of revenue and cost. And given by:
1680x 1309x = 371x
2450y 1989y = 461y

Equation B
Profit= 371x + 461y

The requirement that the BodyPlus200 must be at least 20% of that the total
production.
y ( x + y) .20 x 3y 0

TableA.1

Conclusions:
a. From point 1 coordinates of 0 and 45 the profit is $20,745. From point 2
coordinates of 30 and 30 the profit is $24960. And from point 3 with
the coordinates of 50 and 16 2/3 the profit is $26,233.33. Then
coordinate points of (50, 16 2/3) gives the maximum profit. Thus the
company is recommended to produce 50 BodyPlus100 and 16
BodyPlus200.
X=50 y=16

b. Arriving at the optimal solution the constraints of producing at least


25% BodyPlus200 of total production ,we can see that machine and
welding time is fully utilized.
8*50+12*16.66=600
5*50+ 10*16.66<=450 ------------- SLACK of 33.33 hours
2*50+2*16.66<= 140 ------------ SLACK of 6.68 hours

While there is a slack in painting and finishing time and Assembly time.
Thus by increasing the Machine and welding time, the profit will
increased by utilizing the slack in painting and assembly time.

c. Increase the effort in the Machine and Welding Department. If we


assume that all constraints are in place, as in (a), then the maximum
at A can be increased by causing A to move away from the origin.

II. Case Study : Solution Plus

Table1. GALLONS OF CLEANING FLUIS REQUIRED AT EACH LOCATON


LOCATIONS
Santa Ana

GALLONS REQUIRED
22,418

El Paso
Pendleton
Houston

6,800
80,290
100,447

Kansas City
Los Angeles
Glendale
Jacksonville

24,570
64,716
33,689
68,486

Little Rock
Bridgeport

148,586
111,475

Sacramento

112,000

TOTAL

773,522
Table2. FREIGHT COST ($ PER GALLON)

LOCATIONS

CINCINNATI

OAKLAND

Santa Ana

0.22

El Paso

0.84

0.74

Pendleton

0.83

0.49

Houston

0.45

Kansas City

0.36

Los Angeles

0.22

Glendale
Jacksonville

0.34

0.22
-

Little Rock

0.34

Bridgeport

0.34

Sacramento

0.15

Table3. FREIGHT AND PRODUCTION COST PER GALLON


LOCATIONS
Santa Ana
El Paso
Pendleton
Houston
Kansas City
Los Angeles
Glendale
Jacksonville
Little Rock
Bridgeport
Sacrament
o

FREIGHT COST/GALLON
CINCINNATI OAKLAND
0.84
0.83
0.45
0.36
0.34
0.34
0.34
-

0.22
0.74
0.49
0.22
0.22
0.15

Cin/Oak
PRODUCTIO
N
1.65
1.20-1.65
1.20-1.65
1.65
1.65
1.65
1.65
1.20
1.20
1.20
1.65

TOTAL
COST
/GALLON
1.87
2.04-2.39
2.03-2.14
2.10
2.01
1.87
1.87
1.54
1.54
1.54
1.80

SOLUTION
1. If Solutions Plus wins the bid, which production facility (Cincinnati or
Oakland) should supply the cleaning fluid to the locations where the
railroad locomotives are cleaned?
How much should be shipped from each facility to each location?
Variables
Using the data above let:
X = number of gallons produced in Cincinnati
Y = number of gallons produced in Oakland

Objective:
Minimize profit
P=
99X1+2.04X2+2.03X3+1.65X4+1.56X5+99X6+99X7+1.54X8+1.54X9+1.54X10+
99X11+1.87Y1+2.39Y2+2.14Y3+99Y4+99Y5+1.87Y6+1.87Y7+99Y8+99Y9+99Y10
+1.8Y11
These are the costs associated with shipping each product to each location
per gallon.
Note: 99 means they wont ship to the location.
Constraints:
Cincinnati Plant: X1+X2+X3+X4+X5+X6+X7+X8+X9+X10+X11 < 500,000
Oakland Plant:

Y1+Y2+Y3+Y4+Y5+Y6+Y7+Y8+Y9+Y10+Y11 < 500,000

Demand Constraints:
Santa Ana
El Paso
Pendleton
Houston
Kansas City
Los Angeles
Glendale

X1
X2
X3
X4
X5
X6
X7

+
+
+
+
+
+
+

Y1
Y2
Y3
Y4
Y5
Y6
Y7

=
=
=
=
=
=
=

22,418
6,800
80,290
100,447
24,570
64,716
33,689

Jacksonville
Little Rock
Bridgeport
Sacramento

X8 + Y8 = 68,486
X9 + Y9 = 148,586
X10 + Y10 = 111,475
X11 + Y11 = 112,000

Decision:
Oakland produces 273.552 gallons
Cincinnati produces 500,000 gallons
All railways receive their product from one plant except one. The Mystery
City, Pendleton. Conveniently located between both plants.

2. What is the breakeven point for Solutions Plus? That is, how low can
the company go on its bid without losing money?
FREIGHT
COP
GALLONS
COST/GALLON
+ FRT REQUIRE
LOCATIONS CINCINNAT OAKLAN
D
I
D
Santa Ana
0.22
1.87
22,418
El Paso
0.84
0.74
2.04
6,800
Cincinnati(0.83+1.20)*39,636<49%>+
Pendleton
Oakland(0.49+1.65)*40,654<51%>=
Houston
0.45
1.65
100,447
Kansas City 0.36
1.56
24,570
Los
0.22
1.87
64,716
Angeles
Glendale
0.22
1.87
33,689
Jacksonville 0.34
1.54
68,486
Little Rock
0.34
1.54
148,586
Bridgeport
0.34
1.54
111,475
Sacrament 0.15
1.80
112,000
o
TOTAL
COST

TOTAL
COST

41,921.66
13,872
167,460.64
165,737.55
38,329.2
121,103.07
62,998.43
105,468.44
228,822.44
171,617.5
201,600
1,318,984.9
3

Decision: The minimum bid Solution Plus can submit without losing money is
$1,318,984.93. This is also known as the breakeven point.

3. If Solutions Plus wants to use its standard 15% markup, how much
should it bid?
Answer:
Customarily, Solutions Plus adds a 15% markup on their bid contracts.
If that so, then 1,516,832.67 would be the bid submission.
However, they may not wish to bid so high to have a better chance of
obtaining the contract.

4. Freight costs are significantly affected by the price of the oil. The
contract on which Solutions Plus is bidding for two years. Discuss how
fluctuation in freight costs might affect the bid Solutions Plus submits.
Answer:
Oil prices tend to fluctuate thus causing the potential for increases in
high freight costs in the near future.
Where we would increase the bid an additional 5% to 1,582,781.916 to
account for fluctuating fuel costs, instead we will submit for only 15%
markup to help the odds of obtaining the bid. 1,516,832.67