Infinity 2400 plastic 9800 0 0 10800 0 infinity 10000

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Infinity 2,400 Plastic 98,00 0 0 108,00 0 Infinity 10,000 Demand Basic 26,00 0 0 32,00 0 Infinity 6,000 Demand Advanced 0 0 9,00 0 Infinity 9,000 Demand Extreme 8,00 0 30 8,000 400 3,000 a) Workers have agreed to work for an overtime rate of $36 per hour up to #1,000 additional hours, above that amount they are demanding $50 per hour. Would you support this request? Explain. Profitability Comparison (status quo LP value to new model LP value) $1,500,000 to $1,357,200 (status quo) $142,800 better!! Plan changes & profit changes so overtime appears to have been a good option Status Quo used #10,000 hours (100%), now plan is to use #11,600 or #1,600 more hours We added something valuable. The question is how valuable? The new model LP changed two constraints but did not change the cost per labor hour ($20), therefore, to determine the net benefit the overtime amounts must be deducted (net of $20 which is in the model already). The profit increase between models needs to be adjusted for the extra 1,600 hours at the overtime rate Overtime Extra cost is $36 - $20 $16 for first #1,000 = $16,000 “Extra overtime” $50 - $20 $30 (#1,600 - #1,000) = $18,000 Net impact of adding a machine and overtime is then $142,800 - $16,000 - $18,000 = $108,800 b) How can the Shadow Price (opportunity cost) be $600 for machine 1? Machine #1 capacity is a binding constraint You could make more BASIC at $30 contribution margin if you had more machine 1 hours Calculation is .05 hour to make BASIC or 20 per hour (20 BASICS per hour )($30 per unit) $600 c) How can the Advanced product have no opportunity cost when it has a contribution margin of $40 and demand of 9,000 units?
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  • Spring '10
  • elaine
  • CFO, Dummy, column dummy

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Christopher Reinemann
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