Construction of Problem Objective Function:Our Objective Function is to Maximize net profit.

From Exhibit 3, we can derive the net profit as follows:

Cost of Milk + Processing & Packing Cost 7453 7504 8238 8254 8953 8953 11431 11447 10817 10936 8005 8013

S.No 1 2 3 4 5 6 7 8 9 10 11 12

Alternatives FA Milk+Butter FA Milk+Ghee SMP+Butter SMP+Ghee WMP+Butter WMP+Ghee BabyFood+Butter BabyFood+Ghee Cheese+Butter Cheese+Ghee StdzdMilk+Butter StdzdMilk+Ghee

Total Revenue 7956 7952 8782 8609 9863 9698 12296 12080 12650 12546 8764 8645

Net Profit 503 448 544 355 910 745 865 633 1833 1610 759 632

Thus Objective function can be given as: Max z=(503x1 + 448x2 + 544x3 + 355x4 + 910x5 + 745x6 + 865x7+ 633x8 + 1833x9 + 1610x10 + 759x11 + 632x12 ) Constraints:S.No Alternatives 1 FA Milk+Butter 2 FA Milk+Ghee 3 SMP+Butter 4 SMP+Ghee 5 WMP+Butter 6 7 8 9 10 WMP+Ghee BabyFood+Butter BabyFood+Ghee Cheese+Butter Cheese+Ghee Qty. of main product 9874(L) = 1 unit 9874(L) = 1 unit 813(K) 813(K) 1179(K) 1179(K) 1307(K) = 1 unit 1307(K) = 1 unit 1094(K) = 1 unit 1094(K) = 1 unit 8675(L) = 1 unit 8675(L) = 1 unit Qty of by-product 62= .062 units 48 = .048 units 992 = .992 units 756 = .756 units 606 = .606 units 448 = .448 units 696 = .696 units 529 = .529 units 560 = .560 units 426 = .426 units 681 = .681 units 519 =.519 units Product Butter Ghee Milk Powder(SMP+WMP) Baby Food Cheese FA Milk(min. to be supplied) Raw Milk Production capacity per year 3650 912.5 2190000 1956.4 667.95 2772.4 6043

11 StdzdMilk+Butter 12 StdzdMilk+Ghee

From the above two tables we can see that total product produced should be less than the production capacity. Thus, .062x1 + .992 x3 + .606x5 + .560x7 + .681x9<= 3650 .048x2 + .756x4 + .448x6 + .529x8 + .426x10 +.519x12<= 912.5

813x3+ 813x4 + 1179x5 + 1179x6<= 2190000 x7 + x8<= 1956.4 x9 + x10<= 667.95 x1 + x2>= 2772.40 x1 + x2 + x3 + x4 + x5 + x6 + x7 + x8 + x9 + x10 + x11 + x12<= 6043

Solutions using linear programming software: a) Annual The formulation is shown in the next page. The solutions we get are:

Constraint Butter ghee milk powder baby food cheese FA milk standardized milk RM

Value used 1816.158 284.5467 2190000 745.1436 667.95 2772.4

max/Min inequality value <= 3650 <= 912.5 <= 2190000 <= 1956.4 <= 667.95 >= 2772.4

Value left 1833.84 627.953 0 1211.26 0 0 0 0

0 <= 6043 <=

6,043.00

So cheese should be produced as it utilizes whole of the constraint. The final values for objective function are Profit Labor cost Advertisement cost Depriciation net margin 4804797 950866.1 870000 810000 2173931

b) May-Aug The only difference lies in the procurement ofraw milk units per day, which is now 11.9 units/day

Contraint Butter ghee milk powder baby food cheese FA milk standardized milk RM

Value used 184.4356 140.7329 358827.7 0 225.09 934.2608

max/Min inequality value <= 1230 <= 307.5 <= 738000 <= 659.28 <= 225.09 >= 934.2608

Value left 1045.56 166.767 379172 659.28 0 0 0 0

0 <= 1463.7 <=

1,463.70

Again we see in spite of raw material constrain (equation 8 concerning RM) being changed, cheese production is a favoured function. The final values for objective function are Gross Profit Labor cost Advertisement cost Depriciation net margin 1057902 230313.2 290000 270000 267588.3

c) Sep-April Using similar logic as for May-Aug, the only changes are in milk supplied (19 units per day) Value used 1507.999 278.0332 1458000 1089.934 444.69 1845.735 max/Min inequality value <= 2430 <= 607.5 <= 1458000 <= 1302.48 <= 444.69 >= 1845.735 Value left 922.001 329.467 0 212.546 0 0 0 0

Contraint Butter ghee milk powder baby food cheese FA milk standardized milk RM

0 <= 4617 <=

4,617.00

The final values for objective function are

Gross Profit Labor cost Advertisement cost Depriciation net margin

3610976 726485 580000 540000 1764492

 How much money can the corporation invest in butter churning and powder drying? Capacity of milk powder we can expand by 1884211 kg per year(5162 kg/day). Weshouldn t invest more than 1884211*INR(0.13)= INR 244947 for expansion.

 Conclusion: Clearly, what made the production of cheese sound economically expensiveis high overhead costs. The costs of processing and packaging are high for a perishable like cheese. As a result, the calculations (without considering overhead costs) show cheese as a feasible product.

In the constraints table, constraints which are non-binding (non zero slack) can be considered as a expensive weight function in the profit maximization equation. The sensitivity analysis can help us realize how much constraints can be increased/decreased for the current optimal set. This can help us to find out how much FA milk we can commit to supply to the state.