COLLEGE OF ENGINEERING

Industrial Engineering Department

3rd Floor, OZ Building
900 San Marcelino Street, Ermita, Manila, 1000 Philippines
Phone(+632) 524-20-11 Local 411
Telefax: (+632) 524-0307

Name : Student Number: GRADE

(Last) (First) (M.I.)
Program : Date: Section :
Course : QUANTITATIVE TECHNIQUES FOR BUSINESS Schedule (Time/Day)
Professor / Instructor : ASEAN Eng. Nestley I. Sore, PIE
CASE ANALYSIS No. 1: LINEAR PROGRAMMING (Formulation, Graphical
Analysis, MS EXCEL SOLVER)

Objectives

At the end of the case analysis, the students are expected to:

(1) Know how to formulate and solve linear programming problems.

(2) Analyze and interpret results obtained from graphical analysis.
(3) Know how to do sensitivity analysis to determine the effects of changes in the constraints as well
as the effects of changes in the objective function’s coefficients.
(4) Know how to use the sensitivity report of MS EXCEL SOLVER to analyze and interpret the
results that could be obtained from such changes.

CASE 1: KRISTLEY RUBBER PRODUCTS

Kristley Rubber Products manufactures standard and deluxe messenger bags for executives.
Consumer demand for both bags is high, so the company can sell as many as each type as it can
produce. Profit margins are PhP 19.60 on the standard model and PhP 26.30 on the deluxe model.
Jercie Rivera is the new production manager of Kristley Rubber Products. Part of his
responsibilities is to schedule production. To do this, he must decide how many of each model to
make. HE has carefully reviewed the company’s production methods and their capacity to produce.
Table 1 lists the times required to produce the bags and the available resources for the different
operations.

TABLE 1
Resources Required/bags
Item Standard Deluxe Resources Available / week
A: Cut and Sew 36 minutes 60 minutes 360 hours
B: Install hardware 30 minutes 20 minutes 200 hours
C: Tanned Rubber 4 sq. ft. 4.6 sq. ft. 1840 sq. ft.

a. Formulate the LP models.

b. Prepare a well-drawn graph on which are plotted all constraints and an arbitrary profit line
(ISOPROFIT). Identify the area on the graph that’s feasible. Label the constraints and profit line
with proper identification. Identify the optimum point.
c. How many messenger bags of each type should Kristley produce each week, and why?
d. What is the weekly profit if Kristley produces and sells the number of messenger bags identified in
part (c)?
e. Which resources, if any, limit the company’s profits?
f. Which resources, if any, are not fully utilized when the company produces the numbers of messenger
bags identified in part (c)? How much unused resources remains?

Page 1 of 6
 COLLEGE OF ENGINEERING
Industrial Engineering Department
3rd Floor, OZ Building
900 San Marcelino Street, Ermita, Manila, 1000 Philippines
Phone(+632) 524-20-11 Local 411
Telefax: (+632) 524-0307

Jillean Berlin, president of Kristley, is a nice person but also a taskmaster. Her board of
directors expects her to manage the company well and to earn a good return for the stockholders.
Rivera realizes he must convince Berlin that his decisions are correct and that she, in turn, may have
to defend and explain them to the company’s chairman and board of directors.
Rivera also recognizes that although Berlin is an excellent businesswoman, with a good
knowledge of the financial and marketing areas of business, she knows very little details of
production. She’s somewhat skeptical of using number-crunching techniques for managing, and she
asks penetrating questions about recommendations brought to her that she does not fully understand.
Above all, Berlin will not tolerate “long-windedness” or the failure of her subordinates to get to the
bottom line quickly and directly.
Since Berlin is the boss, Rivera knows that his presentation must recognize her point of view
and characteristics, whether he agrees with them or not. Also, as a new employee, he must
demonstrate his own competence, and his presentation will be an opportunity to sell himself and gain
Berlin’s respects and confidence.

g. Show how Rivera might present his analysis and results to Berlin in a manner that should convince
her that his recommended production schedule is the best that can be done HINT: Show the
sensitivity report generated in MS EXCEL SOLVER.

Changing Cells
Cell Name Final Value Reduced Objective Allowable Allowable
Cost Coefficient Increases Decreases
Standard
Deluxe

Constraints
Cell Name Final Value Shadow Constraints Allowable Allowable
Prices RHS Increases Decreases
A: Cut and Sew
B: Install hardware
C: Tanned Rubber

Berlin is dissatisfied with the company’s level of profitability and would like to improve it.
She ask Rivera how much profitability might be increased if the company’s production capacity or
its supply of tanned rubber were increased.

h. Prepare a table showing how much profits might be increased by adding capacity to the production
centers or by increasing the amount of tanned rubber available for production. Indicate over what
range of increases the values are correct. Complete table 2.

TABLE 2: Additional Weekly Profit from Increasing Production Capacity of the Supply of Tanned
Rubber
Current Capacity (hours/week) ANALYSIS
Resources Available Used Idle Value of Added Valid Range
Capacity
A: Cut and Sew
B: Install hardware
C: Tanned Rubber

Page 2 of 6
 COLLEGE OF ENGINEERING
Industrial Engineering Department
3rd Floor, OZ Building
900 San Marcelino Street, Ermita, Manila, 1000 Philippines
Phone(+632) 524-20-11 Local 411
Telefax: (+632) 524-0307

Berlin next turns her attention to marketing. Because the market for messenger bags is
strong. She feels that it might be possible to raise prices somewhat and still sell all the company can
produce. She discusses this possibility with Rivera and Sarah Black, Kristley’s marketing manager.
“Just as an example,” she asks, “how much would our profitability be increased if the profit margin
on both models of our messenger bags were increased by 25% and we could still sell all we can
produce? And how would that affect how many messenger bags we make?”

i. Assuming that all other conditions remain as before, in the initial description of the situation, how
many messenger bags of each model should be made each week for maximum profit if the profit
margins on the bags are each increased by 25%? What would then be the maximum weekly profit?
HINT: Re-run SOLVER with the changes and generate all the reports.

Berlin is pleased with the increased profits that might be made each week if the selling prices
were increased. However, Black expresses some reservations about the effect that raising prices by
25% might have on limiting sales. Berlin asks, “Can you put a number on how much we might
expect to be able to sell at the higher prices?”
Black checks carefully with her retailers and market analysts. She returns with the following
response to Berlin’s questions:”I think it’s safe to say that if we raised our prices to increase our
marginal profitability by 25%, the market demand would limit us to selling only 210 of our deluxe
bags per week and only 300 per week for our standard model.”
Berlin passes this information on to Rivera for his action with the admonition, “There’s no
point, of course, in making more than we can expect to sell.”
Rivera returns to his office to prepare a report for Berlin.

j. Assuming that Black’s advice on the market limitation is correct, how many messenger bags of each
model should be made each week for maximum profit? What effect will the new amounts have on
the company’s profits? What would limit the company’s profits? How well would the new amounts
of messenger bags use the company’s production resources? Be sure your answers are clear and to
the point. Summarize them in a neat table that compares the initial situation with the new situation
after raising profit margins and having market limits. Include in Table 3 all the details that are
needed for Berlin to have a complete picture and understanding. (Other information will be taken for
other parts that follow)

Page 3 of 6
 COLLEGE OF ENGINEERING
Industrial Engineering Department
3rd Floor, OZ Building
900 San Marcelino Street, Ermita, Manila, 1000 Philippines
Phone(+632) 524-20-11 Local 411
Telefax: (+632) 524-0307

TABLE 3: Product Mix and profit for producing messenger bags under different business and
operating conditions
Basis: ONE WEEK OPERATION Parts a-f Parts i Parts j Parts k Parts l
Marginal Profit Standard PhP/unit
Deluxe PhP/unit

Market limit Standard Units

Deluxe Units

Production Schedule Standard Units

Deluxe Units

WEEKLY PROFIT

Requirements
Standard Cut and sew mins/unit
Install hardware mins/unit
Tanned rubber Sq.ft./unit
Requirements
Deluxe Cut and sew mins/unit
Install hardware mins/unit
Tanned rubber Sq.ft./unit

Resources available Cut and sew mins

Install hardware mins
Tanned rubber Sq.ft.
Add’l rubber Sq.ft.

Resources used Cut and sew mins

Install hardware mins
Tanned rubber Sq.ft.
Add’l rubber Sq.ft.

Constraints
Resources unused Cut and sew mins
Install hardware mins
Tanned rubber Sq.ft.
Add’l rubber Sq.ft.

Unmet demand Standard Units

Deluxe Units

Limiting Constraints? Cut and sew capacity

Install hardware capacity
Total Rubber available
Market for Standard bags
Market for Deluxe bags

Page 4 of 6
 COLLEGE OF ENGINEERING
Industrial Engineering Department
3rd Floor, OZ Building
900 San Marcelino Street, Ermita, Manila, 1000 Philippines
Phone(+632) 524-20-11 Local 411
Telefax: (+632) 524-0307

Berlin studies Rivera’s report. She’s satisfied that she understands what might be done in the
short term to improve profits by a marketing-and-selling approach and how this would affect
production. Rivera’s report intrigues her with the possibility of making changes in production to
earn still more profits. She meets with Rivera and asks him, “How much might our probability be
increased if our production capacity or supply of tanned rubber were increased? Can you get together
some numbers that we might discuss?”
Rivera replies,”Sure, I can get the numbers together for you. Can I assume that Sarah’s
advice is correct on the markets for our messenger bags?”
Berlin answers, “Yes, I’m satisfied that the markets would be close to what Sarah has said if
we increase our selling prices.”
Rivera says, “Okay, I’ll make the analysis on that basis. I’ll also check to see how much any
additional resources might cost.”
Rivera returns once more to his office. He confers with his planners and industrial engineers
and learns that it’s possible to add 40 hours/week to the capacity at the cut-and-sew center and that
the increased capacity will operate at the same costs as the present capacity.
Rivera next places a call to the company’s buyer, Ayoko Kasi, and asks, “What’s the
situation with other rubber supplier? Can he supply us with more rubber at the same price?”
Kasi replies, “ As you may know, we have contract with Sisshy Rubber to supply us with up
to 1840 square feet of tanned rubber a week at specified price. The contract has another year to run.
I’ll give them a call to see if we can increase our order.”
Later that day, Kasi calls Rivera with the following news: “I called Pretty Bon Sisshy, the the
president at Sisshy Rubber, and he tells me they can increase their supply of rubber to us by another
200 square feet a week, which would make a total of 2040 square feet a week. That’s as much as
they would be able to do. However, he says their costs have increased since we negotiated our
contract some months ago. He’ll continue to supply us with up to 1840 square feet a week at the
price in our contract, but for any amount greater than that he wants an additional PhP 1.00 per square
foot over what we’re now paying.”

k. Show what action Rivera should recommend to Berlin in order to improve the company’s
profitability. Show how the company would schedule production if his recommendations and
Black’s market analysis were implemented, and how much profit the company would then make.
Show how much additional rubber Rivera should order and how much of the additional available
cut-and-sew capacity would be used. Be sure Rivera’s analysis and recommendations are presented
in a manner that should be convincing and persuasive to Berlin and give her a complete and accurate
picture.

It’s now 6 months later. Berlin has accepted Rivera’s recommendations and Black’s market
analysis, and Kristley is operating under the conditions of part (k). An excited Rivera meets with
Berlin and gives her the following news: “Starting next week, as a result of some studies my
industrial engineers made, we’re going to be using new production methods that will reduce the time
for installing hardware by 10%.”
“Sounds good!” an impressed Berlin replies. Then she asks, in rapid fire, “What will that do
to the number of bags we should make each week, how much profit will we start earning, what will
put a cap on our profits, where will we have any excess capacity that we might use to make
something new, and how much excess production capacity will there be?”
This time Rivera is ahead of Berlin. Triumphantly, he responds, “Hey, I knew you were
going to ask those questions. Here are the answers, I already prepared. It shows exactly how well we
can do with our new production methods for installing hardware and how well that compares with
the past.”
Berlin is flabbergasted, though pleased. “Someone has really taught you some neat tricks to
play with that computer of yours,” she says, “Go to the head of the class.”

Page 5 of 6
 COLLEGE OF ENGINEERING
Industrial Engineering Department
3rd Floor, OZ Building
900 San Marcelino Street, Ermita, Manila, 1000 Philippines
Phone(+632) 524-20-11 Local 411
Telefax: (+632) 524-0307

l. Complete Table 3 and answer the following questions of Berlin:

a. What will that do to the number of bags we should make each week?
b. How much profit will we start earning?
c. What will put a capacity on our profits?
d. Where will we have any excess capacity that we might use to make something new?
e. How much excess production capacity will there be?

m. Should Berlin stop her incessant efforts to increase the company’s profits? Should Rivera expect to
see this type of scenario end anytime before his retirement? As a manager whose job, salary, and
bonus are keyed to his company’s success, should he want it to end?

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