Vollmer Manufacturing Accounting Worksheet

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correct answers

Vollmer Manufacturing makes three components for sale to refrigeration companies. The components are processed on two machines: a shaper and a grinder. The times (in minutes) required on each machine are as follows:

	Machine
Component	Shaper	Grinder
1	6	4
2	4	5
3	4	2

The shaper is available for 120 hours, and the grinder for 110 hours. No more than 120 units of component 3 can be sold, but up to 1,000 units of component 1 and up to 600 units of component 2 can be sold. In fact, the company already has orders for 600 units of component 1 that must be satisfied. The per unit selling price and per unit variable costs for each of the three components are as follows:

Component	Selling price	Material Cost	Labor Cost
1	$25	$12	$5
2	$18	$8	$4
3	$27	$13	$5

(a)

For each component, calculate the profit margin (profit margin = selling price – material cost – labor cost).

Component 1: $

Component 2: $

Component 3: $

Formulate and solve the model to determine the maximum profit. If the constant is “1”, it must be entered in the box. If an amount is zero, enter “0”.

Let C1	= units of component 1 manufactured
C2	= units of component 2 manufactured
C3	= units of component 3 manufactured

Max	$ C1	+	$ C2	+	$ C3
s.t.
	C1	+	C2	+	C3	Shaper
	C1	+	C2	+	C3	Grinder
					C3	Maximum units of component 3
	C1					Maximum units of component 1
			C2			Maximum units of component 2
	C1					Minimum units of component 1
			C1, C2, C3

Maximum profit: $

(b)

What are the objective coefficients ranges for the three components? If required, round your answers to two decimal places.

Variable	Objective Coefficient Range
C1	to
C2	to
C3	to

Interpret these ranges for company management.

Individual changes in the profit coefficients these ranges will not cause a change in the optimal number of components to produce.

(c)

What are the right-hand-side ranges?

Constraint	Right-Hand-Side Range
1	to
2	to

Interpret these ranges for company management.

These are the ranges over which the shadow prices for the associated constraints applicable.

(d)

If more time could be made available on the grinder, how much would it be worth? Explain.

, because the constraint related to the time available on the grinder binding.

(e)

If more units of component 3 can be sold by reducing the sales price by $4, should the company reduce the price?

, because the production of component 3 would be profitable than the production of the other two components and at the reduced price of component 3 would be produced.

Explanation & Answer:

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