Operations D007-21 Abhinanda Mallick

D008-21 Rajarshi Roy Choudhury

Research D009-21 Sainaz Sardar
M220-21 Akash Deep
Case Study 1 M234-21 Atul Meshram
M249-21 Kishalaya Mandal
M253-21 Malvika Vishwakarma
Merton Truck Company
M272-21 Perumandla Vivekananda
M278-21 Rekala Abhilash
M281-21 Rohit Chakma
By Group 5 M297-21 Solanky Aditya Kamleshkumar
Section C M309-21 Vaibhav Verma
MBA 2021-23 M318-21 Yogesh Yashwant Chaudhari
 About the ● The Company's President was not satisfied with Merton’s financial performance
during the period January-June 1988
Case Study
● Asked Company’s Controller, Sales and Production Manager to come up with the
different options and recommendations for improving Merton's financial
performance

● Merton Truck Company manufacturing plant produce Model 101(sold at $ 39,000

per truck) and Model 102 (sold at $38,000 per truck)

● Manufacturing operation grouped into four departments

1. Engine assembly
2. Metal Stamping
3. Model 101 assembly
4. Model 102 assembly
Merton Production Schedule Jan - June 1988

Monthly Output
● Model 101 - 1000 Trucks
● Model 102 - 1500 Trucks

Operations Efficiency

Engine assembly 100 %

Metal Stamping 83.3 %

Model 101 assembly 40 %

Model 102 assembly 100 %

 Model 101 Model 102

Selling Price $ 39000 $ 38000

Direct Material $ 24000 $ 20000

Contribution Margin =Selling Price - Direct Direct Labour $ 4000 $ 4500

Labour - Direct Material
- Variable Overheads Variable $ 8000 $ 8500
Overheads

Contribution $ 3000 $ 5000

Margin (Profit)
Question 1

We formulate a Linear Programming model to get the perfect product mix

Let Model 101 be X1 and Model 102 be X2

Objective function : Maximize profit Z = 3,000X1+ 5,000X2

Subject to Constraints: X1 + 2X2 ≤ 4,000 (Engine Assembly)

2X1 + 2X2 ≤ 6,000 (Metal Stamping)
2X1 ≤ 5,000 (Model 101 Assembling)
3X2 ≤ 4,500 (Model 102 Assembling)
X1, X2 ≥0 (Non negativity)
Question 2
Ans: Because the highest increment allowed is 500, the maximum number of hours that can be rented
is 500. The highest rent to be paid per hour is $2000, because each hour increases contribution by
2000. If the rent paid is less than $2000, the corporation might choose this option. Any rent that is less
than this will be lucrative for the business.
Question 3

Let X3 be the no. of Trucks of Model 103

Contribution by Model 103 = $ 2000
If model 103 is introduced we would have a different model. The Engine assembly time for each would be
(4000/5000) = 0.8, the metal stamping time would be (6000/4000) = 1.5 and the model assembling time
would be (0.5 * 2) = 1. The algebraic expression would be as follows

Objective: (Maximize profit Z) = 3,000X1 + 5,000X2 + 2,000X3

Subject to Constraints: X1 + 2X2 + 0.8 X3 ≤ 4,000 (Engine Assembly)
2X1 + 2X2 + 1.5X3 ≤ 6,000 (Metal Stamping)
2X1 + X3 ≤ 5,000 (Model 101 & 103 Assembling)
3X2 ≤ 4,500 (Model 102 Assembling)
X1, X2, X3 ≥0 (Non negativity)
Question 4

When we introduce the overtime, for the 2,000 hours engine assembly, the direct labor cost for Model 101
and Model 102 will increase by $ 600 and $ 1,200 respectively. Therefore the contributions will decrease to
$ 2,400 and $ 3,800 respectively. For the sake of algebraic expression we denote the units Model 101
produced during the overtime as X3 and X4. The model will be as follows:

Objective; (Maximize profit Z) = 3,000X1 + 5,000X2 + 2,400X3 + 3,800X4

Subject to Constraints; X1 + 2X2 ≤ 4,000 (Engine Assembly)
X3 + 2X4 ≤ 2,000 (Engine Assembly Overtime)
2X1 + 2X2 + 2X3 + 2X4 ≤ 6,000 (Metal Stamping)
2X1 + 2X3 ≤ 5,000 (Model 101 Assembling)
3X2 + 3X4 ≤ 4,500 (Model 102 Assembling)
X1, X2, X3,X4 ≥ 0 (Non negativity)
Question 5

Management proposal to produce 101 Models at least 3 times the number of Model 102. Therefore we
have a new constraint of X1 ≥ 3X2 which transforms to X1-3X2 ≤ 0. The model will be:

Objective; (Maximize profit Z) = 3,000X1+ 5,000X2

Subject to Constraints; X1 + 2X2 ≤ 4,000 (Engine Assembly)

2X1 + 2X2 ≤ 6,000 (Metal Stamping)
2X1 ≤ 5,000 (Model 101 Assembling)
3X2 ≤ 4,500 (Model 102 Assembling)
X1 - 3X2 ≤ 0 (At least 3 times)
X1 X2 ≥ 0 (Non negativity)
Thank You