SPORTING GOODS BIKES PRODUCT MIX DECISION & SENSITIVITY ANALYSIS

August 16,2021

Solution:

a. Letting the variables X1, X2, X3, and X4 denote the four different types of bikes, the linear
program for the problem may be set up as shown below. The objective is to maximize
aggregate profit under various constraints.

Maximize Z = 30X1 + 25X2 + 22X3 + 20X4

subject to:
2X + 2X + X3 + X4 ≤ 500 Space constraint
1 2
5X + 6X + 4X + 4X ≤ 120 Assembly hours
1 2 3 4 0
X1 + X2 + X3 + X4 ≥ 275 Minimum demand
X1, X2, X3, X4 ≥ 0 Non-negativity
conditions

The problem may be easily implemented in Excel. The solution is shown on next page;
however, the Excel file is attached with this document.

1 SAYED M. IRFAN | M.Engg. (Industrial Engineering) / Certified Supply Chain Design

Analyst, MIT
b. The model is shown above.
c. The optimal solution prescribes 100 of Adult Open Trails and 175 of Girl’s Sea Sprite.
The maximum profit possible is $6,850.
d. The storage space is not a scarce constraint since only 375 feet of space is consumed.
Therefore, additional 100 feet of space has no relevance.
e. To answer this, we may look at the sensitivity report generated by Solver.

In the reduced cost column, we see that the profit function for X2 will need to go beyond
(25 + 13) = $38 for this particular bike to be included in the optimal solution. As such, if
the profit margin for City Scape increases to $35, it will have no bearing. It has to go
beyond $38.

f. The dual price (shadow price) for assembly hours is positive ($8 per hour) since we
observe that the assembly time constraint is fully used up. Again, this information may
be extracted from the sensitivity report; this is shown below:
Constraints
Shado Constrai Allowabl Allowabl
Final w nt e e
Valu
Cell Name e Price R.H. Side Increase Decrease
$G$2
4 Space 375 0 500 1E+30 125

2 SAYED M. IRFAN | M.Engg. (Industrial Engineering) / Certified Supply Chain Design

Analyst, MIT
 $G$2 Assembl
5 y 1200 8 1200 125 100
$G$2
6 Demand 275 -10 275 25 35

The applicable range is 1,100 ≤ 1,200 ≤ 1,325.

g. In the table above, we see that there is a negative shadow price associated with the
demand constraint; that is, if we add one more to the inventory the optimal profit will
reduce by $10. So, if we were to add another five bikes, the total profit will reduce by 5 x
$10 = $50.
h. Clearly, the resource that yields a positive impact is the assembly hours. We may increase
the assembly time to as much as 1,325 hours.

3 SAYED M. IRFAN | M.Engg. (Industrial Engineering) / Certified Supply Chain Design

Analyst, MIT