Case 3.

1 Auto Assembly 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 M , assembles t!o models from the family of midsized and luxury cars. "he first model, the #amily "hrillseeker, is a four$door sedan !ith vinyl seats, plastic interior, standard features, and excellent gas mileage. t is marketed as a smart buy for middleclass families !ith tight budgets, and each #amily "hrillseeker sold generates a modest profit of %&,'(( for the company. "he second model, the )lassy )ruiser, is a t!o$door luxury sedan !ith leather seats, !ooden interior, custom features, and navigational capabilities. t is marketed as a privilege of affluence for upper$middle$class families, and each )lassy )ruiser sold generates a healthy profit of %*,+(( for the company. ,achel ,osencrantz, the manager of the assembly plant, is currently deciding the production schedule for the next month. -pecifically, she must decide ho! many #amily "hriliseekers and ho! many )lassy )ruisers to assemble in the plant to maximize profit for the company. -he kno!s that the plant possesses a capacity of +.,((( labor$hours during the month. -he also kno!s that it takes ' labor$hours to assemble one #amily "hrillseeker and /(.* labor$hours to assemble one )lassy )ruiser. 0ecause the plant is simply an assembly plant, the parts re1uired to assemble the t!o models are not produced at the plant. "hey are instead shipped from other plants around the Michigan area to the assembly plant. #or example, tires, steering !heels, !indo!s, seats, and doors all arrive from various supplier plants. #or the next month, ,achel kno!s that she !ill be able to obtain only 2(,((( doors 3/(,((( left$hand doors and /(,((( right$hand doors4 from the door supplier. A recent labor strike forced the shutdo!n of that particular supplier plant for several days, and that plant !ill not be able to meet its production schedule for the next month. 0oth the #amily "hriliseeker and the )lassy )ruiser use the same door part. n addition, a recent company forecast of the monthly demands for different automobile models suggests that the demand for the )lassy )ruiser is limited to &,*(( cars. "here is no limit on the demand for the #amily "hrillseeker !ithin the capacity limits of the assembly plant. a4 #ormulate and solve a linear programming problem to determine the number of #amily "hrillseekers and the number of )lassy )ruisers that should be assembled. 0efore she makes her final production decisions, ,achel plans to explore the follo!ing 1uestions independently except !here other!ise indicated. b4 "he marketing department kno!s that it can pursue a targeted %*((,((( advertising campaign that !ill raise the demand for the )lassy )ruiser next month by 2( percent. -hould the campaign be undertaken5

c4 ,achel kno!s that she can increase next month6s plant capacity by using overtime labor. -he can increase the plant6s labor$hour capacity by 25 percent. 7ith the ne! assembly plant capacity, ho! many #amily "hrillseelcers and ho! many )lassy )ruisers should be assembled5 d4 ,achel kno!s that overtime labor does not come !ithout an extra cost. 7hat is the maximum amount she should be !illing to pay for all overtime labor beyond the cost of this labor at regular time rates5 8xpress your ans!er as a lump sum. e4 ,achel explores the option of using both the targeted advertising campaign and the overtime labor$hours. "he advertising campaign raises the demand for the )lassy )ruiser by 2( percent, and the overtime labor increases the plant6s labor$hour capacity by 2* percent. 9o! many #amily "hrillseekers and ho! many )lassy )ruisers should be assembled using the advertising campaign and overtime labor$ hours if the profit from each )lassy )ruiser sold continues to be *( percent more than for each #amily "hrillseeker sold5 f4 :no!ing that the advertising campaign costs %*((,((( and the maximum usage of overtime labor$hours costs %/,'((,((( beyond regular time rates, is the solution found in part (e) a !ise decision compared to the solution found in part 3a45 g4 Automobile Alliance has determined that dealerships are actually heavily discounting the price of the #amily "hrillseekers to move them off the lot. 0ecause of a profit$ sharing agreement !ith its dealers, the company is therefore not making a profit of %&,'(( on the #amily "hrillseeker but is instead making a profit of %2,.((. Determine the number of #amily "hrillseekers and the number of )lassy )ruisers that should be assembled given this ne! discounted price. h4 "he company has discovered 1uality problems !ith the #amily "hrillseeker by randomly testing "hriliseekers at the end of the assembly line. nspectors have discovered that in over '( percent of the cases, t!o of the four doors on a "hrillseeker do not seal properly. 0ecause the percentage of defective "hrillseekers determined by the random testing is so high, the floor supervisor has decided to perform 1uality control tests on every "hrillseeker at the end of the line. 0ecause of the added tests, the time it takes to assemble one #amily "hrillseeker has increased from ' to ;.* hours. Determine the number of units of each model that should be assembled given the ne! assembly time for the #amily "hrillseeker. i4 "he board of directors of Automobile Alliance !ishes to capture a larger share of the luxury sedan market and therefore !ould like to meet the full demand for )lassy )ruisers. "hey ask ,achel to determine by ho! much the profit of her assembly plant !ould decrease as compared to the profit found in part 3a4. "hey then ask her to meet the full demand for )lassy )ruisers if the decrease in profit is not more than %2,(((,(((.

<4 ,achel no! makes her final decision by combining all the ne! considerations described in parts (f), 3g4, and (h). 7hat are her final decisions on !hether to undertake the advertising campaign, !hether to use overtime labor, the number of #amily "hriilseekers to assemble, and the number of )lassy )ruisers to assemble5