IQDM

Session 6
 Regarding Quiz#1
• Syllabus includes everything we’ll discuss up to
Thursday, 25 November 2021.

• Open notebook, open case-material, closed book.

No loose sheets, no printouts, no photocopies.

• MCQs (with negative marking) as well as work-it-

out questions that require all steps/ explanations.

• All other norms as shared by the PGP Office.

Questions?
 In Today’s Session

• Red Brand Canners Case

• Doubt-clearing

• Solutions to some exercise questions

Red Brand Canners Case
Decision Questions
 Objective

• Maximize the total contribution

• Mr. Gordon, VP Operations, asked the
Controller, the Sales Manager and the
Production Manager to meet with him to
discuss the amount of tomato products to
pack that season.

• The tomato crop, which had been purchased

at planting, was beginning to arrive at the
cannery, and packing operations would have
to be started in a week’s time.
• Red Brand Canners was a medium-sized
company which canned and distributed a
variety of fruit and vegetable products under
private brands in the western states.
• Tucker, the Production Manager, had picked up
Produce Inspection’s latest estimate of the
quality of the incoming tomatoes:
– 20% of the crop was Grade A, and
– the remaining 80% of the 3 million pound crop was
Grade B.

• Myers, the Sales Manager, passed around the

Demand Forecast and Selling Prices (Exhibit 1):
– Selling prices had been set in light of the long-term
marketing strategy of the Company, and potential
sales had been forecasted at these prices.
• Cooper, the Controller says:
– “Looks like we should do quite well this year”.
– With the new accounting system that had been
set up, he had been able to compute the
contribution for each product.
– According to this analysis, the incremental profit
on whole tomatoes > any other tomato product.
– Computed after Red Brand had signed contracts
agreeing to purchase the grower’s production at
an average delivered price of 18 cents per pound.
– Exhibit 2
• Cooper, the Controller says:

– With the new accounting system that had been

set up, he had been able to compute the
contribution for each product.
– According to this analysis, the incremental profit
on whole tomatoes > any other tomato product.
– Computed after Red Brand had signed contracts
agreeing to purchase the grower’s production at
an average delivered price of 18 cents per pound.
– Exhibit 2
• Cooper, the Controller says:

– With the new accounting system that had been

set up, he had been able to compute the
contribution for each product.

– Computed after Red Brand had signed contracts

agreeing to purchase the grower’s production at
an average delivered price of 18 cents per pound.
– Exhibit 2
• Cooper, the Controller says:

– With the new accounting system that had been

set up, he had been able to compute the
contribution for each product.

– Computed after Red Brand had signed contracts

agreeing to purchase the grower’s production at
an average delivered price of 18 cents per pound.
– Exhibit 2
– Allocated OHD?
• Production Manager, Tucker, brings quality
constraints to Cooper’s attention.
• RBC used a numerical scale to record the quality
of both raw produce and prepared products.
– This scale ran from zero to ten, higher number
representing better quality.
– A’s quality averaged 9 points per pound
– B’s quality averaged 5 points per pound
– Min 8 for canned whole tomatoes
– Min 6 for juice
– Paste could be made from Grade B
• Vice-President of Operations, Gordon says:
– 80,000 pounds of Grade A tomatoes available at
25.5 cents/ lb.

• Sales Manager, Myers, says:

– Tomato cost should be allocated on the basis of
quality and quantity rather than by quantity only
– Exhibit 3
–?
In a nutshell…
 Decision Questions

• How to apportion crop of tomatoes?

• Should we purchase additional Grade A

tomatoes?
LP Formulation
• Decision variables?
• x1 = Amount of Grade A tomatoes
in whole canned tomatoes
• x2 = Amount of Grade B tomatoes
in whole canned tomatoes
• x3 = Amount of Grade A tomatoes
in tomato juice
• x4 = Amount of Grade B tomatoes
in tomato juice
• x5 = Amount of Grade A tomatoes
in tomato paste
• x6 = Amount of Grade B tomatoes
in tomato paste
• Should we use Exhibit 2 for our formulation?

• Should we use Exhibit 3 for our formulation?

• Both?

• Neither?

• Any combination of the exhibits?

 Fixed costs?

• Allocated Overhead

• …anything else?
Context:

• The tomato crop, which had been purchased

at planting, was beginning to arrive at the
cannery, and packing operations would have
to be started in a week’s time.

• … after Red Brand had signed contracts

agreeing to purchase the grower’s production
at an average delivered price of 18 cents per
pound.
 Objective Function

Maximize the total contribution.

max z = (4.44/18)(x1+x2) +
(3.96/20)(x3+x4) +
(5.55/25)(x5+x6)
 Constraints
• Availability of Grade A and B:
x1 + x3 + x5 <= 600000
x2 + x4 + x6 <= 2400000

• Demand Constraints:
x1 + x2 <= 18*800000
x3 + x4 <= 20*50000
x5 + x6 <= 25*80000

• Quality Constraints:
9x1 + 5x2 >= 8(x1+x2)
9x3 + 5x4 >= 6(x3+x4)
9x5 + 5x6 >= 5(x5+x6)

• Non-negativity: x1, x2, …, x6 >= 0

• Excel Solver
 Decision Questions

• How to apportion crop of tomatoes?

• Should we purchase additional Grade A

tomatoes?
Excel Solver
Discussion
Linear vs. Nonlinear
Questions?
Solutions to Homework Exercises
 Example 6
A senior executive of a company recently opted for
VRS with a hefty packet of Rs. 100 crores. A Chit
Fund Company has offered the following
investment scheme for the benefit of such retired
people:
• "Invest a certain sum at the beginning of any
month, invest half of that amount beginning of
the next month and end of the second month,
you will get twice the amount invested originally
in the first month".

TTN, Proc. AWTOR

• This scheme is available for the next six months.

• The returns received at the end of any month can

be used immediately for reinvesting either as a
fresh investment or as a follow-up investment.

If you are in his/ her position, what will your aim be?

How will you achieve your aim/ objective?

 DVs

• Let xi = Fresh investment made at the

beginning of month i, i = 1, 2, …, 5
 Constraints
• x1 ≤ 100
• x2 + x1/2 ≤ 100 – x1
• x3 + x2/2 ≤ 100 – x1 – x2 – x1/2 + 2x1
x3 + x2/2 ≤ 100 + x1/2 – x2
• x4 + x3/2 ≤ 100 + x1/2 + x2/2 – x3
• x5 + x4/2 ≤ 100 + x1/2 + x2/2 + x3/2 – x4
• x5/2 ≤ 100 + x1/2 + x2/2 + x3/2 + x4/2 – x5
• Non-negativity
 Objective

• max z = 100 + x1/2 + x2/2 + x3/2 + x4/2 + x5/2

H.W.: Investment/ Portfolio Planning
Ms. Alice is looking at a 3 year planning horizon for investing
Rs.100000. She has two options:
a) Invest in a savings account at 5% rate of interest
with maturity period of 1 year
b) Invest in a security Y at 12% rate of interest with
maturity period of 2 years

Assume that the withdrawals can only be made at the end of

maturity period. Formulate as an LP so as to maximize the
total return at the end of 3 years.
 Decision Variables

• xi= Money invested in the savings account

at the beginning of i th year
• yi= Money invested in the security Y at the
beginning of i th year
 Decision Problem

1st Year 2nd Year 3rd Year End of 3rd Year

Start

x1 x2 x3
y1 y2 y3
 Constraints

1st Year 2nd Year 3rd Year End of 3rd Year

Start

x1 x2 x3 Money Received
y1 y2 y3 =1.05x3+ 1.12y2

x1+ y1=100000 x2+ y2=1.05x1 x3+ y3=1.05x2 + 1.12y1

 Formulation
Max Z=1.05x3+ 1.12y2

Subject to
x1 + y1 =100000
-1.05x1 + x2 + y2 =0
-1.12y1 -1.05x2 + x3+ y3 = 0
x1, y1 , x2, y2 , x3, y3 >= 0
 Optimal Investment Plan

1st Year 2nd Year 3rd Year End of 3rd Year

Start

x1 =100000 x2 =0 x3 =0
Plan 1 y1 =0 y2 = 105000 y3 =0
Money Received
OR =117600
x1 =0 x2 =0 x3 =112000
Plan 2
y1 =100000 y2 = 0 y3 =0
 Example: Dual LP of Minimization Problem

• Two brands of fertilizer available - Super-gro, Crop-quick.

• Field requires at least 16 pounds of nitrogen and 24 pounds of phosphate.
• Super-gro costs $6 per bag, Crop-quick $3 per bag.
• Problem : How much of each brand to purchase to minimize total cost of
fertilizer given following data ?

Chemical Contribution

Nitrogen Phosphate
Brand (lb/bag) (lb/bag)

Super-gro 2 4

Crop-quick 4 3
 Primal LP Formulation

Decision variables
x1 = number of bags of Super-gro to purchase
x2 = number of bags of Crop-quick to purchase
Objective function:
minimize z = $6x1 + 3x2

subject to the constraints:

2x1 + 4x2  16 lb (nitrogen constraint)
4x1 + 3x2  24 lb (phosphate constraint)
x1, x2  0 (non-negativity constraints)

Formulate its dual.

 Interpretation

• Homework
More Exercises
 Exercise 1: Production Planning
• XYZ Semiconductors manufactures two types of
Integrated Chips (ICs), IC101 and IC222, for sale under
contract to CCC Cars.
• CCC cars has just placed monthly orders for 4 months
from January 2022 to June 2022.
• Production costs are currently Rs. 1000 per IC101 chip
and Rs. 600 per IC222 chip.
• A planned wage increase with effect from the beginning
of the next financial year, that is from April 1, 2022,
will raise each of these production costs by 10%.
• The holding costs of IC101 and IC222 chips are Rs. 18
per month and Rs. 13 per month respectively.
• Monthly ending inventories are used as the average
inventory levels of the respective months.
• XYZ has made minor changes to their design
specifications, to be incorporated from 1 January 2022,
implying no inventory to begin with.
• At the end of June 2022, XYZ wants to have ending
inventories of 450 IC101 chips and 300 IC222 chips.
• The two ICs occupy the same storage space, and at
most 3,300 ICs can be stored at the same time.
• XYZ has a base employment level of 2,240 labour hours
per month and, by contract, this level of labour must be
used each month.
• In busy periods, however, the company has the option
of bringing on board two skilled former employees, each
of whom can provide up to 160 labour hours per month.
They must be paid per hour.
• Each IC101 chip requires 1.3 labour hours, and each
IC222 chip requires 0.9 labour hours.

Suppose the expected monthly demands are given,

formulate as an LP.
 Exercise 2: Transportation Problem
XYZ Soaps operates two factories from which it
distributes soaps to different depots. XYZ has four
depots in the region. The minimum demand for soaps
at these four depots is:

Depot Minimum Demand (in

tonnes)
Delhi 2850
Jhansi 3040
Jabalpur 308
Ghaziabad 3033

M. Raghavachari, "Mathematics for

Management: An Introduction”
Total available supplies at the two factories are as follows:

Factory Production Demand

(in tonnes)
Mumbai 35448
Kolkata 6860
Estimated transportation costs (in Rs.)/ tonne from the
factories to depots are given below:

Factory Depot Delhi Jhansi Jabalpur Ghaziabad

->
Mumbai 95.31 80.39 82.78 90.68
Kolkata 97.11 84.49 82.53 91.68
How should the distribution manager evolve an optimal
scheme for distributing soaps to different depots?
Questions?
Thank You