Executive Summary of Shelby Shelving Essay Example

The optimal allocation of resources and the time should spent in each departments are shown in Exhibit 1 .

Assembly capacity of Model S and Forming department are the bottlenecks. Interpretation -? With the contribution margin of $625 Model S and $690 Model L X, finding the optimal quantities which give us the maximum profit is calculated by Solver.

Answer (b): When we compare the optimal solution and the one given in the case, we see that our optimal solution has more balanced allocating resources in departments and fixed overhead cost is minimized. Interpretation- With rents production the marketing department assumed that the costs will be higher if we increase the quantity of Model S produced. However, we can see that with the estimated current production the total cost of Model S and overhead costs are lower.

Also, the costs are lower for Model LAX, too. Answer (c): They should expand forming department because its a bottleneck. There are no slack times for forming. Interpretation- By expanding the capacity Of forming department the optimal solution may change or we can produce more both Models.

However, we should consider the overtime costs and the profit gained from expanding capacity of forming. Since the Lagrange multiplier for forming is $489, which means the firm is willing to pay up to $489 for an additional forming time.

Answer(d): If the material cost of Model S goes up by $1 00, the monthly profit will be $78. 250 because the reduced gradient is 1 37,49 the production planning is not changing. Interpretation- With higher material cost of Model S, the contribution margin will decrease and the profit will decrease

according to that. Answer(e): With reduced competition in market, the increasing selling price of Model LAX the new profit will be $463.

250 if we did not make changes in production planning.