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    Red Brand Canners Case Study

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    vamshi
    The managers at Red Brand Canners must determine how to allocate their tomato crop for the coming season across three products: whole tomatoes, tomato juice, and tomato paste. [1] The production manager provides details on the quality and quantity of tomatoes available. [2] The sales manager provides demand forecasts and pricing for each product. [3] The controller provides costs and profitability analysis. The optimal solution maximizes profit by allocating 525,000 lbs of grade A tomatoes and 175,000 lbs of grade B tomatoes to whole tomatoes, 75,000 lbs of grade A tomatoes and 225,000 lbs of grade B tomatoes to tomato juice, and the remaining 2,000,000 lbs of grade B tomatoes to tomato paste.

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    Red Brand Canners Case Study

    Uploaded by

    vamshi
    685 views8 pages
    The managers at Red Brand Canners must determine how to allocate their tomato crop for the coming season across three products: whole tomatoes, tomato juice, and tomato paste. [1] The production manager provides details on the quality and quantity of tomatoes available. [2] The sales manager provides demand forecasts and pricing for each product. [3] The controller provides costs and profitability analysis. The optimal solution maximizes profit by allocating 525,000 lbs of grade A tomatoes and 175,000 lbs of grade B tomatoes to whole tomatoes, 75,000 lbs of grade A tomatoes and 225,000 lbs of grade B tomatoes to tomato juice, and the remaining 2,000,000 lbs of grade B tomatoes to tomato paste.

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    The managers at Red Brand Canners must determine how to allocate their tomato crop for the coming season across three products: whole tomatoes, tomato juice, and tomato paste. [1] The production manager provides details on the quality and quantity of tomatoes available. [2] The sales manager provides demand forecasts and pricing for each product. [3] The controller provides costs and profitability analysis. The optimal solution maximizes profit by allocating 525,000 lbs of grade A tomatoes and 175,000 lbs of grade B tomatoes to whole tomatoes, 75,000 lbs of grade A tomatoes and 225,000 lbs of grade B tomatoes to tomato juice, and the remaining 2,000,000 lbs of grade B tomatoes to tomato paste.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    685 views8 pages

    Red Brand Canners Case Study

    Uploaded by

    vamshi
    The managers at Red Brand Canners must determine how to allocate their tomato crop for the coming season across three products: whole tomatoes, tomato juice, and tomato paste. [1] The production manager provides details on the quality and quantity of tomatoes available. [2] The sales manager provides demand forecasts and pricing for each product. [3] The controller provides costs and profitability analysis. The optimal solution maximizes profit by allocating 525,000 lbs of grade A tomatoes and 175,000 lbs of grade B tomatoes to whole tomatoes, 75,000 lbs of grade A tomatoes and 225,000 lbs of grade B tomatoes to tomato juice, and the remaining 2,000,000 lbs of grade B tomatoes to tomato paste.

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    RED BRAND CANNERS

    CASE STUDY

    Submitted by,

    ABHI RAYNA HARRIS

    JAYAVAMSHI NALLAPU SUDHAKAR

    ABHISHEK MALU

    ADIT CHOKSI

    VENKATA SAI SRUJITH REDDYVARI


    a) Verbal Structure of Problem:

    The Vice President of Operations, Mr. Michell Gorden, along with the
    Controller, Mr. William Copper, Sales Manager Mr. Charles Myers and
    Production Manager Mr. Dan Tucker wanted to discuss on the amount of
    tomato products to pack this season.

    i. The amount of Tomato and their Quality was provided by the


    Production Manager:

     The Company had purchased 3 million lbs. of Tomato Crop


     Crop has two types of Quality grades- “A” & “B”
     Grade “A” was 20% of crop
     20/100*30,000,000 lbs. = 600,000lbs. of Grade A crop
     Grade “B” was 80% of crop
     80/100*30,000,000 lbs. =24,000,000lbs. of Grade B crop

    ii. The Demand forecast and Selling price was provided by the
    Sales Manager:

     Selling prices were set in light of the long-term marketing strategy


    of the company. Potential sales have been forecasted at these
    prices.
     Three types of tomato products were to be produced- whole tomato,
    tomato juice and paste.
     The demand forecast in cases, selling price per case, number of
    pounds per case and the total pounds of tomato needed is
    mentioned below.

    Product Demand Selling Pounds of Total


    Forecast Price tomato pounds of
    (Cases) ( Per case (Per case) tomato
    in USD$)
    Whole 800,000 4 18 14,400,00
    Tomato 0
    Tomato Juice 50,000 4.50 20 1,000,000
    Tomato Paste 80,000 3.80 25 2,000,000

    iii. The Purchasing price & product profitability was provided by


    the controller:

     Price of Tomato Crop is 6 cents/lb.


     The total price of Tomato purchased= 0.06*3,000,000= 180,000
     Quality Grade points of “A” & “B" is mentioned below:

    Grade A Grade B
    9 points 5 points

    The minimum quality points required is mentioned in the below table:

    Product Whole tomato Tomato Juice Tomato Paste


    Minimum 8(with grade A 6(with grade A 5(without grade
    Quality points and grade B) and grade B) A)
    required

    Products
    Costs Whole Tomato Juice Tomato Paste
    Tomatoes
    Selling Price $4 $4.50 $3.80
    (per case)
    Variable Costs
    Direct Labor $1.18 $1.32 $0.54
    Variable $0.24 $0.36 $0.26
    Overhead
    Variable $0.40 $0.85 $0.38
    Selling
    Packaging $0.70 $0.65 $0.77
    material
    Fruit cost (per $1.08 $1.20 $1.50
    case)
    Total Variable $3.60 $4.38 $3.45
    Cost
    Contribution $0.40 $0.12 $0.35
    Less Allocated $0.28 $0.21 $0.23
    overhead
    Net Profit (per $0.12 $0.09 $0.12
    case)

     This method of approach to calculate the product mix is wrong, as


    the fruit cost is also added to the variable cost, nonetheless the
    fruits were already purchased so this is known as sunk cost.
     Allocated overhead involves fixed costs and it incurs before product
    is produced and it is not a function of production output.

    iv. Recomputed Marginal profit by Sales Manager:

    Z=Cost per pound of A Tomatoes in cents


    Y=Cost per pound of B Tomatoes in cents

    1.(600,000 lbs. * Z) + (2,400,00 lbs.* Y) = (3,000,000 lbs.*6)


    2. Z/9 = Y/5

    Z= 9.32 cents per pound


    Y=5.18 cents per pound

    Products
    Costs Whole Tomato Juice Tomato Paste
    Tomatoes
    Selling Price $4 $4.50 $3.80
    (per case)
    Variable Costs 2.52 3.18 1.95
    (excluding
    tomato cost)
    SP-VC 1.48 1.32 1.85
    Fruit cost 1.49 1.24 1.30

    v. Decision Variables:

    Let,

    AW = Weight of Grade “A” Tomato in Canned Whole Tomato


    BW = Weight of Grade “B” Tomato in Canned Whole Tomato
    AJ = Weight of Grade “A” Tomato in Tomato Juice
    B J = Weight of Grade “B” Tomato in Tomato Juice
    AP= Weight of Grade “A” Tomato in Tomato Paste
    BP = Weight of Grade “B” Tomato in Tomato Paste

    vi. The Demand constraints are:

    I. AW + BW <= 14,400,000 (Pre-determined because of quality of


    fruit available- 800,000 cases *18 lbs/case)
    II. AJ + BJ <= 10,00,000 (50000 cases * 20 lbs/case)
    III. AP + BP <= 20,00,000 (80000 cases * 25 lbs/case)

    vii. The Quality constraints:

    For whole canned tomato;

    9AW + 5BW >= 8(AW + BW)


    Solving,
    9AW + 5BW >=8AW + 8BW
    I. 1AW – 3BW >= 0

    For tomato juice;

    9AW + 5BW >= 6(AW + BW)


    Solving,
    9AW + 5BW >= 6AW + 6BW
    II. 3AW – 1BW >= 0

    For tomato paste;

    III. No constraints since paste is acceptable with B grade


    fruits.

    viii. The Quantity Constraints:

    For “A” Grade Tomatoes:


    AW + AJ + AP <= 6,00,000 (since only 600,000 lbs. available)

    For “B” Grade Tomatoes


    BW + BA + BP <= 24,00,000 (since 2,400,000 lbs. available)

    ix. The Objective:

    The Objective here is to maximize profit by optimally mixing the two


    different grades of tomatoes (“A” & “B”) to produce the three different
    tomato products (whole tomatoes, tomato juice and tomato paste) with
    the minimum quality requirement.

    b) Mathematical Formulation for objective function:

    Contribution= Selling price - Variable cost (excluding tomato cost)

    Contribution of WA = Contribution of WB = 1.48/18 = 0.0822


    Contribution of JA = Contribution of JB = 1.32/20 = 0.066
    Contribution of PA = Contribution of PB = 1.85/25 = 0.074

    AW BW AJ BJ AP BP

    CAW CBW CAJ CBJ CAP CBP

    1 1 ≦ 14,400,000

    1 1 ≦ 1,000,000

    1 1 ≦ 2,000,000
    1 1 1 ≦ 600,000

    1 1 1 ≦ 2,400,000

    1 -3 ≧ 0

    3 -1 ≧ 0

    i. Objective Function according to the Controller, William


    Cooper’s Approach:

    Max Z = 0.0822 AW + 0.822 BW + 0.066 AJ + 0.066 BJ + 0.074 AP+ 0.074


    BP – 180,000;

    WA + AJ + AP <= 600,000;

    WB + BJ + BP <=2,400,000;

    WA + AJ + AP + WB + BJ + BP <= 3,000,000;

    AJ + BJ <=1,000,000; Demand for Juice

    AP + BP <= 2,000,000; Demand for Paste

    AW + BW <=1,800,000; Demand for Whole tomatoes

    This method of calculating the Objective function is invalid because it


    does not satisfy the quality constraints.

    ii. Objective Function according to the Sales Manager, Charles


    Myer’s Suggestion:

    Objective function Max Z= -0.0055 AW – 0.0055 BW + 0.004AJ +0.004 BJ


    + 0.022 AP + 0.022 BP;

    WA + AJ + AP <= 600,000;

    WB + BJ + BP <=2,400,000;

    WA + AJ + AP + WB + BJ + BP <= 3,000,000;

    AJ + BJ <=1,000,000;
    AP + BP <= 2,000,000;

    AW + BW <=1,800,000;

    This method of obtaining an objective function is invalid because Myer’s is


    calculating the price of tomatoes separately.

    iii. Objective function according to the Production Manager Dan


    Tucker’s Approach:

    Max Z = 0.0822 AW + 0.0822 BW + 0.066 AJ + 0.066 BJ + 0.074 AP+


    0.074 BP – 180,000;

    AW + AJ + AP <= 600,000;

    BW + BJ + BP <=2,400,000;

    AW + AJ + AP + BW + BJ + BP <= 3,000,000;

    AJ + BJ <=1,000,000;

    AP + BP <= 2,000,000;

    AW + BW <= 800,000;

    AW >= 3BW;

    3AJ >= BJ;

    c) Results and Optimum Solution:

    Product Grade A Grade B Total Pound per Total no.


    tomatoes tomatoes tomatoes case of cases
    (Pounds) ( Pounds) (Pounds)
    Whole 525,000 175,000 700,000 18 38,888.0
    Tomatoes
    Tomato 75,000 225,000 300,000 20 15000
    Juice
    Tomato 0 2,000,000 2,000,000 25 80000
    Paste

    The value of the maximum objective function is 45,340. The Production


    Manager Dan Tucker’s Approach yield’s the maximum contribution
    adhering to the various constraints.

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