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XYZ Corporation has a one-year contract to supply motors for all...

XYZ Corporation has a one-year contract to supply motors for all refrigerators produced by the IA Corporation. IA manufactures the
refrigerators at four locations around the country: Boston, Dallas, Los Angeles, and St. Paul. Plans call for the following number (in
thousands) of refrigerators to be produced at each location:
Boston
100
Dallas
80
Los Angeles
100
St. Paul
70
XYZ's three plants are capable of producing the motors. The plants and production capacities (in thousands) are as follows:
Denver
80
Atlanta
200
Chicago
150
Because of varying production and transportation costs, the profit that XYZ earns on each lot of 1000 units depends on which plant
produced the lot and which destination it was shipped to. The following table gives the accounting department estimates of the profit per
unit (shipments will be made in lots of 1000 units):
 

Shipped To

Produced At
Boston
Dallas
Los Angeles
St. Paul
Denver
8
18
13
10
Atlanta
20
17
8
13
Chicago
7
11
15
16
With profit maximization as a criterion, XYZ's management wants to determine how many motors should be produced at each plant and
how many motors should be shipped from each plant to each destination.

1. (20 p.) Find the optimal solution and the maximum profit. 
2. (20 p.) In which plant there will be idle capacity and how many units (in thousands)?
3. (10 p.) Does optimal solutions exist? Justify your answer.
4. (30 p.) If they exist, use the stepping stone algorithm and find the second optimal solution. Present your analysis in a graphically neat
manner. Use any drawing technique you like - just make sure it looks fairly professional. 
5. (20 p.) Produce the third optimal solution by taking a combination of 20% of the first optimal solution and 80% of the second one.
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Attach all relevant exhibits from Excel's Solver calculations. Use PrintScreen, edit/copy/paste, etc. - whatever you like. 숿
 

Accounting Business Cost Accounting OM 105 섈 쉋

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Answer & Explanation Solved by verified expert 숨

1.) Calculation of optimal solution

         To reduced at

                          Atlanta            Chicago        Denver

Shipped to        (200)               (80)               (150)

Boston           20×80                                                  

Balance           120                     80                   150

Dallas                                                             100×18

Balance            120                     80                   50

St. Paul          20×13               80×16                      

Balance            100                      0                     50

Los Angeles   20×8                                       50×13

Balance             80                     0                      0

Maximum profit => 20×80 = 1600

                                 100×18= 1800

                                    20×13 = 260

                                   80×16 = 1280

                                   20×8 = 160

                                   50×13= 650

                                                 5750

In plant Atlanta these will be idle capacity of 80

Step-by-step explanation

2.) Idle capacity is the remaining amount of capacity left in a company after productive capacity and protective capacity have been
eliminated from consideration.

In our case, the Denver plant has the biggest idle capacity of 200,000.

This is because it is the country that produces a lot of productivity in terms of transportation and travelling.. Moreover, it is the
company that regulates it's amounts and shipment regularly and alternatively.

Conclusively, Denver has idle capacity more than Chicago and Denver.

3.) Alternative optimal solution exists.

                                      Produced at

                       Atlanta       Chicago       Denver

Shipped to    (200)            (80)               (150)

Boston         30×20                                            

Balance          120                80               150

Dallas          100×17                                          

Balance          20                  80                150

 St. Paul        20×13          80×16                      

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Balance            0                    0                 150
숿

Los Angeles                                           70×13

 Balance           0                   0                   80

Maximum profit; 80×20 = 1600

                             100×17= 1700

                                20×13 = 260

                              80×16= 1280

                              70×13 = 910

                                             5750

The optimal solution exist since there is idle capacity of 80

4.)  

               To                Boston Dallas St. Paul Los Angeles          supply

From

Atlanta -6 +4 1 2                               50

Chicago +3 -8 7 4                               40

Denver 4 4 2 4                               60

Demand 20 95 35 33                            150

 
Net cost change                                               opportunity cost
3-6+4-8=-7                                                                  +7
1-2+4-4= -1                                                                +1
7-2+4-8= 1                                                                  -1
4-6+4-4= -2                                                               +2
 
5.)  at 20% each plant is at its best hence the current plants produce to their best at the economy.
 
At 80%  the companies will be achieving more at their profits and idle capacity, although their income will be at their worst due to
more negativity and also more waste of their resources. In simple terms, the plants would receive bothe negativity and positivity in
their production.
 

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