Case study:

Automobile Alliance, a large automobile manufacturing company, organizes the vehicles it

manufactures into three families: a family of trucks, a family of small cars, and a family of
midsized and luxury cars. One plant outside Detroit, Michigan, assembles two models from
the family of midsized and luxury cars. The first model, the Family Adventure, is a four-door
sedan with vinyl seats, plastic interior, standard features, and excellent gas mileage. It is
marketed as a smart buy for middle-class families with tight budgets, and each Family
Adventure sold generates a modest profit of [i.] for the company. The second model, the
Leisure Cruiser, is a two-door luxury sedan with leather seats, wooden interior, custom
features, and navigational capabilities. It is marketed as a privilege of affluence for upper-
middle-class families, and each Leisure Cruiser sold generates a healthy profit of [ii.] for the
company.

Rachel Rosencrantz, the manager of the assembly plant, is currently deciding the production
schedule for the next month. Specifically, she must decide how many Family Adventures and
how many Leisure Cruisers to assemble in the plant to maximize profit for the company. She
knows that the plant possesses a capacity of [iii.] labour-hours during the month. She also
knows that it takes [iv.] labour-hours to assemble one Family Adventure and [v.] labour-
hours to assemble one Leisure Cruiser.

Because the plant is simply an assembly plant, the parts required to assemble the two models
are not produced at the plant. Instead, they are shipped from other plants around the Michigan
area to the assembly plant. For example, tires, steering wheels, windows, seats, and doors all
arrive from various supplier plants. For the next month, Rachel knows that she will only be
able to obtain [vi.] doors from the door supplier. A recent labour strike forced the shutdown
of that particular supplier plant for several days, and that plant will not be able to meet its
production schedule for the next month. Both the Family Adventure and the Leisure Cruiser
use the same door parts, with [vii.] needed for the Family Adventure and [viii.] for the
Leisure Cruiser.

In addition, a recent company forecast of the monthly demands for different automobile
models suggests that the demand for the Leisure Cruiser is limited to [ix.] cars. [x.]
 a. Formulate and solve a linear programming model to determine the number of
Family Adventures and the number of Leisure Cruisers that should be assembled,
using both graphical method and Solver.

Before she makes her final production decisions, Rachel plans to explore the following
questions independently, except where otherwise indicated.

b. The marketing department knows that it can pursue a targeted $500,000

advertising campaign that will raise the demand for the Leisure Cruiser next
month by 20 percent. Should the campaign be undertaken?
c. Rachel knows that she can increase next month's plant capacity by using overtime
labour. She can increase the plant's labour-hour capacity by 25 percent. With the
new assembly plant capacity, how many Family Adventures and how many
Leisure Cruisers should be assembled?
(a)

objective function is¿ Maximize

P=7000 x 1+ 5000 x 2

Where

x 1=Number of Thrillseeker

x 2=Number of cruiser ' s

subject ¿ given constraints

working hour constraint

12 x1 +10 x 2 ≤ 48000

number of doors constraint

6 x 1+ 4 x 2 ≤ 2000 0

demand constraint
x 2 ≤ 4000

x1 , x2 ≥ 0
 Critical Points Function Value

(0,0) P=7000 ( 0 )+5000 ( 0 )=0

(3333.33,0) P=7000 ( 3333.33 ) +5000 ( 0 ) =23333310

(0,4000) P=7000 ( 0 )+5000 ( 4000 )=20000000

(666.66,4000) P=7000 ( 666.66 )+5000 ( 4000 )=24666620

Maximum Value is achieved for the given combination

x 1=666.66

x 2=4000

P=7000 x 1+ 5000 x 2

P=7000 ( 666.66 )+5000 ( 4000 )=$ 24666620

To achieve the maximum profit they should assembly 667 Thrillskillers and 4000 cruisers. With this
combination of production the profit achieved is $24666620.
Advertisement Cost Adjustment

P=7000 x 1+ 5000 x 2−500000

working hour constraint

12 x1 +10 x 2 ≤ 48000

number of doors constraint

6 x 1+ 4 x 2 ≤ 2000 0

demand constraint increased by 20 %

x 2 ≤ 4000

x1 , x2 ≥ 0

6000

5000

4000

C1
3000 C2
C3
2000

1000

0
0 500 1000 1500 2000 2500 3000 3500 4000 4500
 Critical Points Function Value

(0,4800) P=7000 ( 0 )+5000 ( 4800 )−500000=0

(666.66,4000) P=7000 ( 666.66 )+5000 ( 4000 )−500000=24616200

(133.33,4800) P=7000 ( 133.33 ) +5000 ( 4800 ) −500000=24433310

By spending $50,000 on the advertising campaign, the maximum profit is $24616200 which is less

than part 1 so it’s not feasible to go for advertisement.

So it is not recommended to spend $50000 on the advertisement since the demand of the classy car

is limited to 4000 so increasing the demand of classy car will not affect the optimal solution achieved

in part 1.
(c)

subject ¿ given constraints

working hour constraint increased by 25 %

12 x1 +10 x 2 ≤ 48000+12000

12 x1 +10 x 2 ≤ 60000

number of doors constraint

6 x 1+ 4 x 2 ≤ 2000 0

demand constraint
x 2 ≤ 4000

x1 , x2 ≥ 0
 Critical Points Function Value

(3333.33,0) P=7000 ( 3333.33 ) +5000 ( 0 ) =23333310

(0,4000) P=7000 ( 0 )+5000 ( 4000 )=20000000

(666.66,4000) P=7000 ( 666.66 )+5000 ( 4000 )=24666620

Maximum Value is achieved for the given combination

x 1=666.66

x 2=4000

P=7000 x 1+ 5000 x 2

P=7000 ( 666.66 )+5000 ( 4000 )=$ 24666620

Now they must produce 667 Thrillseekers and 4000 cruisers to make the maximum profit of
$24666620.

d)

When the labour working hour capacity is increased by 25 percent, the assembly capacity of the
plant remains unchanged since the optimal solution provides same profit value of $24666620. So in
this case increasing the working hour’s capacity by 25 percent will not affect the optimal solution.

With 25 percent increase in working hours of labour

Profit=$ 24666620
Profit without 25 percent increase in working hours of labour
Profit=$ 24666620
Net profit=$ 24666620−$ 24666620=0
So Racheal doesn’t have to spend extra money because the profit is still the same because this is not
affecting the optimal solution.
e)

Demand of crusier increased by 20 %=4000∗1.2=4800

working hour constraint increased by 25 %=48000∗1.25=60000

12 x1 +10 x 2 ≤ 60000

number of doors constraint

6 x 1+ 4 x 2 ≤ 2000 0

demand constraint
x 2 ≤ 4800

x1 , x2 ≥ 0

Maximum Value is achieved for the given combination

x 1=133.33

x 2=4800

P=7000 x 1+ 5000 x 2

P=7000 ( 133.33 ) +5000 ( 4800 ) =$ 24933333.33

With this combination they should now produce 133 Thrill seekers and 4800 Cruisers to make the
maximum profit of $24933333.33.
f)
Cost of advertisment =$ 50000

overtime labour cost =$ 1600000

Total extracost ¿ be considered =Cost of advertisment +overtime labour cost

Total extracost ¿ be considered =$ 50000+1600000=$ 2100000

Now let’s compare the profit generated when utilizing the above mentioned conditions of using the
advertising campaign and the increased labour working hours. With these utilization the company’s
profit value is $24933333.33.

Net profit=$ 24933333.33−$ 2100000

Net profit=$ 22833333.33

Profit without campaign and labour working hours
Profit=$ 24666620

The company’s net profit with advertising and extra working hours is $22833333.33 which is less
than $24666620 so considering this option is not feasible for the company since the net profit is less
than normal operation as in part a of the problem. To conclude it is not recommended to use the
advertising campaign and working hours.

g)
Profit on family adventure is subject ¿ 70 percent
New share
New share=7000∗0.70=$ 4900
New Objective function
P=4900 x1 +5000 x 2

Subjected to following Constraints

working hour constraint
12 x1 +10 x 2 ≤ 48000

number of doors constraint

6 x 1+ 4 x 2 ≤ 2000 0
demand constraint
x 2 ≤ 4000

Maximum Value is achieved for the given combination

x 1=667

x 2=4000

P=7000 x 1+ 5000 x 2

P=4900 ( 667 ) +5000 ( 4000 ) =$ 23268300

The discounted profit will reduce the profit for thrillseeker from $7000 to $4900. With the given
discounted profit they should now produce 667Thrill seekers and 4000 Cruisers to make the
maximum profit of $23268300.

h)
labour hour constraint increased ¿13 hours
In this scenario the profit of the thrillseeker family remains the same $7000 however due inspection
in the quality the working hour for assembly is increased to 13 hours which will affect the optimal
solution. The objective function and the door constraint will remains the same for the problem
however the working hours for thrillseeker family will be changed.
Objective functions
P=7000 x 1+ 5000 x 2

New constraints
working hour constraint
13 x 1+10 x 2 ≤ 48000

number of doors constraint

6 x 1+ 4 x 2 ≤ 2000 0

demand constraint
x 2 ≤ 4000

x1 , x2 ≥ 0

Maximum Value is achieved for the given combination

x 1=1000

x 2=3500

P=7000 x 1+ 5000 x 2

P=4900 ( 1000 )+ 5000 ( 3500 )=$ 24500000

With this new constraint imposed on the working hours they should now produce 1000 Thrill
seekers and 3500 Cruisers to make the maximum profit of $24500000.
i)

In the given part we need to formulate the problem such that the number of cruisers assembled
must meet the set demand constraint that is 4000. The problem formulation will remains the same
with same objective function and imposed constraints.

Objective functions
P=7000 x 1+ 5000 x 2

New constraints
working hour constraint
12 x1 +10 x 2 ≤ 48000

number of doors constraint

6 x 1+ 4 x 2 ≤ 2000 0

demand constraint
x 2=4000

x1 , x2 ≥ 0

Maximum Value is achieved for the given combination

x 1=667

x 2=4000

P=7000 x 1+ 5000 x 2

P=4900 ( 667 ) +5000 ( 4000 ) =$ 24666666.67

With this new constraint imposed on the working hours they should now produce 667 Thrill seekers
and 4000 Cruisers to make the maximum profit of $24666666.
New profit =$ 24666666

The profit calculated in the initial part of the problem

Initial profit=$ 24666620

Decrease∈ profit =$ 24666666−$ 24666620=$ 46

So the decrease in the profit is just $45 which is less than $20000 so it’s better to meet the full
demand for the Cruiser.
j)

Now we need to implement all the changes which were covered in the last three parts together to
determine the effectiveness of the advertising campaign, utilization of the overtime by the labours,
and the number of Cruiser’s cars to be assembled.

Let’s define the Linear Problem

Objective functions
P=4900 x1 +5000 x 2

Since the Profit of Thrillseeker family is reduced from $7000 to $4900

New constraints
working hour constraint increased by 1 hour
13 x 1+10 x 2 ≤ 60000

number of doors constraint

6 x 1+ 4 x 2 ≤ 2000 0

demand constraint increased by 25 percent

x 2 ≤ 4800

x1 , x2 ≥ 0

Maximum Value is achieved for the used constraints is given by following critical point

x 1=133

x 2=4000

P=4900 x1 +5000 x 2
P=4900 ( 133 ) +5000 ( 4800 )=$ 24653333.33

With new constraints imposed on the problem they should now produce 133 Thrill seekers and 4800
Cruisers to make the maximum profit of $24653333.33

Initial profit of company Initial profit=$ 24666620

New Profit of Company

New profit =$ 24653333.33

Net Profit/Loss
difference=$ 24653333.33−$ 24666620
difference=$ 13286
There is a loss of $13286 with the utilization of the new constraints so it’s better not to go for the
changes mentioned:
1. Profit of thrillseeker should remain the same as $7000
2. Working hours
3. No need for advertisement
K)
Sensitivity Report

Slack refers to the amount of resource which is not fully utilized in the constraint whereas the
binding constraints are the one’s which are fully utilized in the solution. The sensitivity report is
given above for the problem formulated. The final value for the optimal solution is 133 and 4800 for
the thrillseeker and cruiser. The shadow price for the doors resource is 816.66 which means increase
in one unit of assembly will increase the objective function value by that price. In the same way the
allowable decrease for the doors resource is 800 and 10266 for the labour hours. The reduced cost
for the cruiser production is $1733.33 which means for each additional unit of cruiser the profit is
increased by $1733.33. The reduced cost for the thrillseeker is 0 which will not be affected with
additional production. The objective coefficient refers to the profit of each family which is 4900 for
Thrillseeker and 5000 for the Classy Cruiser.

To find the slack and binding constraints we need to use the following constraints.
working hour constraint
13 x 1+10 x 2 ≤ 48000

number of doors constraint

6 x 1+ 4 x 2 ≤ 2000 0

demand constraint
x 2 ≤ 4800

By plugging in the optimal solution points found in the previous part we can define the slack and
binding constraints.

x 1=133

x 2=4800

working hour constraint

13 x 1+10 x 2 ≤ 60000

13(133)+10(4800)≤ 60000
49733.33 ≤ 60000
Here this resource is not fully utilized for the optimal solution so this constraint is binding constraint.

number of doors constraint

6 x 1+ 4 x 2 ≤ 2000 0

x 1=133

x 2=4000

6(133)+ 4( 4800)≤ 2000 0

2000 ≤2000
Here we can see that resources are completely utilized so this is a slack constraint

demand constraint
x 2 ≤ 4800

x 1=133

x 2=4800

4800 ≤ 4800
This is also fully utilized so this is also a slack constraint.
USING LP Excel Solver
(a)

(c)