Merton Truck Company Case Solution

Topics: 5th millennium, Best Products, 5000 Pages: 4 (947 words) Published: December 19, 2012
EMBA 2011-12



Merton Truck Company
Calculating contribution for each truck, Contribution for model 101 = selling price (direct mat. + direct labour + variable o/h) = 39000 (24000 + 4000 + 8000) = Rs. 3000/Contribution for model 102 = selling price (direct mat. + direct labour + variable o/h) = 38000 (20000 + 4500 + 8500) = Rs. 5000/-

Decisions variables: x1 = number of model 101 trucks produced, x2 = number of model 102 trucks produced, The algebraic formulation is: Max. 3000.x1 + 5000.x2, Constrains, 1.x1 + 2.x2 2.x1 + 2.x2 2.x1 + ..+ 3.x2 x1, x2 0.

4000, 6000, 5000, 4500,

Page | 1

Q.1 (A) Find best products mix for Merton. Sol. Solving by graphical method as follow.

Best product mix for Merton would be Model 101 2000 trucks Model 102 1000 trucks

Page | 2

Q.1 (B) What would be the best product mix if engine assembly capacity were raised by one unit, from 4000 to 4001 machine hour? What is the extra unit of capacity worth? Sol. Solving by graphical method as follow.

As shown in the graph best product mix after raising the capacity by one unit of machine-hour would be model-101 1999 trucks and model-102 1001 trucks. Extra unit of capacity worth is (11002000 11000000) Rs. 2000.

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Q.1 (C) Assume that a second additional unit of engine assembly capacity is worth the same as the first. Verify that if the capacity were increased to 4100 machine hours, then the increase in the contribution would be 100 times that in part (B). Sol.

If we increase the one unit in machine hour capacity increases the contribution by Rs. 2000/- as we seen in Q.1 (b) . whereas if we increase the capacity by 100 units of machine hour i.e from 4000 to 4100 contribution increases by Rs. 200000/- . which is (2000 * 100 times) 100 times of Rs. 2000/-. Hence it is been verified.

Page | 4

Q.1 (D) How many units of engine assembly capacity can be...
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