ABC PAPER MANUFACTURING

The Production manager of a paper manufacturing company must determine the daily product
mix for a new paper and board plant. This plant produces four products: foot-board, container-board,
book paper and coarse paper. The sales department had established the following maximum daily
demand and sales prices:

Foot board 60 tons/day Rs. 2,050/- per ton

Container board 120 tons/day Rs. 1,100/- per ton
Book paper 25 tons/day Rs. 1,700/- per ton
Coarse paper 30 tons/day Rs. 1,550/- per ton

The first step in the manufacture of these products is the purchase of the wood to be chipped
and pulped. Hardwood can be purchased for Rs. 234/- per cord; Soft-wood costs Rs. 260/- per cord
(There is approximately 1.3 tons in a cord of either type of wood). The available local supply is limited to
200 tons per day of hardwood and 350 tons a day of softwood.

Hardwood and softwood are chipped and pulped separately. The equipment has a total output
capacity of 235 tons per day of pulp, regardless of the type of wood being processed. The yield on
hardwood is 47% (that is, the total tonnage of hardwood pulp is 47% of the hardwood tonnage fed into
the process). The yield for softwood is 45%. The chipping and pulping process incurs a variable cost of
Rs. 600/- per ton of pulp produced.

A portion of the pulp is used directly in producing the final products and the remaining portion is
bleached first. The stream of unbleached pulp going directly into the paper and board machines is
composed (by weight) of 60% hardwood pulp and 40% softwood pulp. The stream of pulp going into the
Bleacher consists of 50% hardwood and 50% softwood pulp. Bleaching adds a variable cost of Rs. 100/-
per ton of bleached pulp produced. The bleacher yield is 98% and has a daily output capacity of 80 tons.

The bleached and unbleached pulps are mixed in fixed proportions for each of the final
products. Information regarding quantities of bleached and unbleached pulp required to produce one
ton of each of the final products is given below.

Tons of pulp required to produce one ton of final product

Foot Board Container board Book paper Coarse paper
Unbleached pulp -- 0.10 0.70 0.90
Bleached pulp 1.10 0.95 0.40 0.15

A board machine is used to produce container board and foot board. A variable cost of Rs. 50/-
is incurred from production of a ton of either product; the board machine has an output capacity of 190
tons per day. A paper machine is used to produce book paper and coarse paper. A variable cost of Rs.
50/- is incurred from production of a ton of either product, and the machine has an output capacity of
60 tons per day.
P.T.O.,
 Rs. 234/- Variable Cost: Rs. 600/- per ton produced Rs. 260/-
Capacity: 235 tons/day
per cord per cord

Hard wood Soft wood

Chipping and pulping machine

47% Yield 45% Yield

HW pulp – HW pulp SW pulp – SW pulp to

Direct use to bleacher Direct use bleacher

Variable Cost: Rs.

60% 40% 50% 50% 100/- per ton
produced
Capacity: 80
tons/day
Bleaching Machine
Unbleached
Pulp
Yield 98%

Bleached
Pulp Variable Cost: Rs.
Variable Cost: Rs. 50/- 50/- per ton
per ton produced produced
Capacity: 190 tons/day Capacity: 60
tons/day
Board Machine Paper Machine

Foot Board Container Book Paper Coarse

Board Paper