Auto Assembly Case Study

Thrill Seeker Classy Cruiser Supply

Profit 3600 5400
Doors 4 2 20000
Labor 6 10.5 48000
Demand unlimited 3500

Maximize 3600x1 + 5400x2

Sub. To 4x1 + 2x2  20000
6x1 + 10.5x2  48000
x2  3500
x1, x2  0
 Thrill Seeker Classy Cruiser Supply
X2 : Classy Cruiser Profit 3600 5400
Doors 4 2 20000
Labor 6 10.5 48000
Demand unlimited 3500
Solution 3800 2400
Demand Profit = $ 26,640,000

X1 : Thrill Seeker

Is there any unused supply of doors or labor?

Is the classy cruiser demand of 3500 cars fully satisfied?
If demand and labor constraints are removed, what will be the product mix?
If demand and doors constraints are removed, what will be the product mix?

Part b. Does it make sense to spend the money on the

advertising campaign? Why or why not?
X2 : Classy Cruiser Part c: 25% additional labor is available
New Solution:
x1 = 3250, x2 = 3500, Z=30,600,000

Demand

Labor

X1 : Thrill Seeker

Part d: How much extra can be paid for overtime labor?

This payment must not exceed the resultant increase in profit
30,600,000 - 26,640,000 = 3,960,000
 X2 : Classy Cruiser Part e: 25% additional labor AND the advertising campaign

New Solution: x1 = 3000, x2 = 4000, Z=32,400,000

Doors

Demand

Labor

X1 : Thrill Seeker

Part f: Does it make sense to implement this solution compared to part a?

Increase in Profit: 32,400,000 - 26,640,000 = 5,760,000
Additional Costs 500,000 + 1,600,000 = 2,100,000
Net increase in Profit 5,760,000 - 2,100,000 = 3,660,000
Important: Ad campaign by itself is useless, but with additional labor
availability, it makes a lot of sense.
 Part g: Thrill Seeker profit is $2800, NOT $3600.

New Solution: x1 = 1875, x2 = 3500, Z=24,150,000

What would have been the profit with original solution?
3800*2800+2400*5400 = 23,600,000
X2 : Classy Cruiser

Doors

Demand

Labor

X1 : Thrill Seeker
 Part h: Thrill Seeker assembly time increases to 7.5 hours

New Solution:
x1 = 1500, x2 = 3500, Z=24,300,000
X2 : Classy Cruiser

Doors

Demand

Labor

X1 : Thrill Seeker
 Part i: Classy Cruiser demand must be fully met
New Solution:
x1 = 1875, x2 = 3500, Z=25,650,000
Decrease in profit = 26,640,000 - 25,650,000 = 990,000
Much less than 2,000,000.
X2 : Classy Cruiser

Doors

Demand

Labor

X1 : Thrill Seeker
 Part j: implement decisions of parts f, g and h.
g) Thrill Seeker Profit is $2800
h) Thrill Seeker needs 7.5 hours labor
f) Ad Campaign cost : $500,000
Overtime labor cost: $1,600,000
Should the Ad campaign be undertaken?
Should the overtime option be exercised?
No Ad, No overtime
Profit = 23,100,000
Run Ad, but no overtime
Profit = 24,136,000 – 500,000 = $23,636,000
Overtime, but no Ad
Profit = 27,580,000 – 1,600,000 = $25,980,000
Overtime as well as Ad
Profit = 28,616,000 – 2,100,000 = $26,516,000