Problem Set 5 – More Optimization Problems

1. Parfum du Lys
Parfum du Lys produces cleaning products for home use. This is a highly
competitive market, and the company continually struggles to increase its small
market share. Management has decided to undertake a major new advertising
campaign that will focus on the following three key products:
• A spray prewash stain remover
• A liquid laundry detergent
• A powder laundry detergent
This campaign will use both television and the print media. A commercial has been
developed to run on national television that will feature the liquid detergent. The
advertisement for the print media will promote all three products and will include
cents-off coupons that consumers can use to purchase the products at reduced prices.
The general goal is to increase the sales of each of these products over the next year
by a significant percentage over the present year. Specifically, management has set
the following goals for the campaign:
• Sales of the stain remover should increase by at least 3%
• Sales of the liquid detergent should increase by at least 18%
• Sales of the powder detergent should increase by at least 4%
The table below shows the estimated increase in sales for each unit of advertising on
the respective outlets. A unit is a standard block of advertising that Parfum du Lys
commonly purchases. The reason for -1% for the powder detergent in the Television
column is that the TV commercial featuring the new liquid detergent will take away
some sales from the powder detergent. The bottom row of the table shows the cost
per unit of advertising for each of the two outlets.
Management’s objective is to determine how much to advertise in each medium to
meet the sales goals at a minimum total cost. Using an Excel model help
management to take a decision.

Increase in sales per unit of advertising

Product Television Print Media Minimum
Required
Increase
Stain remover 0% 1% 3%
Liquid detergent 3% 2% 18%
Powder detergent -1% 4% 4%
Unit cost $1 million $2 million
Suppose the data given in the above table has now been changed as shown below.
What changes, if any, do you need to do in the model? How would the optimal
decision change?
Increase in sales per unit of advertising
Product Television Print Media Minimum
Required
Increase
Stain remover 0% 1.5% 3%
Liquid detergent 3% 4% 18%
Powder detergent -1% 2% 4%
Unit cost $1 million $2 million

2. Coco Scents Inc.

A common problem in manufacturing businesses is deciding on a product mix for
different items in the same product family. Coco Scents Inc. makes a premium
collection of perfume, cologne, and body spray for sale in large department stores
and boutiques. The primary ingredient is ambergris, a valuable digestive secretion
from whales that is harvested without harming the animals. Ambergris costs more
than $9,000 per pound and is very difficult to obtain in large quantities; Coco Scents
can only obtain about 20 pounds of ambergris each year. The other ingredients—
deionized water, ethanol, and various additives—are available in unlimited
quantities for a reasonable cost.
Create a spreadsheet model for Solver to determine the optimal product mix that
maximizes Coco Scents’ net income after taxes.
You are given the following information:
Body Spray Cologne Perfume
Sales price/bottle $11.95 $21.00 $53.00
Conversion Cost per $2.60 $6.50 $13.00
Unit (Direct Labor plus
Manufacturing
Overhead)

Minimum Units 60000 25000 12000

Required (minimum
amount to be supplied to
customers)
 Income Tax Rate 32%
Sales, General and $0.30
Administrative
Expenses per Dollar
Revenue

Cost per lb, Deionized $0.50

Water

Cost per lb, Ethanol $1.00

Cost per lb, Other $182.00

Additives

Cost per lb, Ambergis $9072.00

The bill of materials is the list of raw materials and ingredients required to make one
unit of a product.
Bill of Materials Body Spray Cologne Perfume
Deionized Water 0.1 0.1 0.05
(lb/unit)
Ethanol (lb/unit) 0.1 0.02 0.01
Other Additives 0.01 0.001 0.0001
(lb/unit)
Ambergis (lb/unit) 0.0001 0.00018 0.00055