(a paste made from the remains of crushed sunflower seeds) that it sells into the market as base product for animal feed. experiences the occasional mechanical problem. The facility is expected to run at 90% capacity over the year (or on average 15090%=135 short tons per day). that year 15 is the most current year). also contains trace amounts of iodine. The market requires that that iodine content be a minimum of 0.78% and maximum of 0.88% The oleic acid and iodine content for the sunflower seeds from the three suppliers is given in the table below. For all three suppliers, it is expected that the average yield of oil from the seeds is 30%. There is no net loss of material, so the yield of mash from the same 70%. The company faces an additional variable production cost of $10 /short ton and an estimated fixed cost of $1,750,000 over the upcoming production period. The company is asking you to provide a recommendation on the amount of raw material it should purchase from each supplier to minimize its cost of feedstock. Management is also looking for an analysis on the profitability of the company in the next production cycle. | Suggested Approach This is a fairly complex problem. The following approach is suggested: time series and the exponential smoothing model for another time series. - Formulate a linear program to minimize the cost of raw sunflower seeds. Use the average price of seeds forecasted from the previous step in order to determine supplier prices. - Perform a cost-volume-price analysis (review the handout entitled Cost-Volume-Profit Analysis for details) using the average cost per short ton average selling price per short ton. - You can generate an effective cost per short ton by dividing the total cost of supply (from the linear program) by the total volume (that you assumed in the linear program). - You can generate an effective selling price per short ton from the expected percentage yields and the forecasted average price of sunflower oil and mash. - Because of the way that the contract is written, you can assume that the purchase of raw sunflower seeds is a variable cost (you only purchase what Recall that the cost-volume-price analysis requires you to provide: - an algebraic statement of the revenue function and the cost function, - a detailed break-even chart that includes lines for the revenue and for the total cost, fixed cost, and variable cost (a total of four lines), and - a calculation break-even point expressed in number of short tons and percent of capacity. Management Report Prepare a written management report that includes, at a minimum, the following sections: - Purpose of the Report - Description of the Problem - Methodology (which would include the model formulation) - Findings or Results - Recommendations or Conclusions - a forecast of the next production period's average price index for raw sunflower seeds, sunflower oil, and sunflower mash, - a recommendation for the optimal purchasing strategy from the various suppliers, - a cost-volume-profit analysis using for the recommended purchase strategy and the forecasted sunflower oil and mash sales price, - a discussion of the risks and uncertainties that are faced by the company, and - an analysis and opinion on the profitability of the company in the next production period (accounting for the expected profit or loss and the inherent risks. Remember that you are writing the report from the point of view of a consultant with senior management of TourneSol Canada, Ltd. as the intended audience. (a paste made from the remains of crushed sunflower seeds) that it sells into the market as base product for animal feed. experiences the occasional mechanical problem. The facility is expected to run at 90% capacity over the year (or on average 15090%=135 short tons per day). that year 15 is the most current year). also contains trace amounts of iodine. The market requires that that iodine content be a minimum of 0.78% and maximum of 0.88% The oleic acid and iodine content for the sunflower seeds from the three suppliers is given in the table below. For all three suppliers, it is expected that the average yield of oil from the seeds is 30%. There is no net loss of material, so the yield of mash from the same 70%. The company faces an additional variable production cost of $10 /short ton and an estimated fixed cost of $1,750,000 over the upcoming production period. The company is asking you to provide a recommendation on the amount of raw material it should purchase from each supplier to minimize its cost of feedstock. Management is also looking for an analysis on the profitability of the company in the next production cycle. | Suggested Approach This is a fairly complex problem. The following approach is suggested: time series and the exponential smoothing model for another time series. - Formulate a linear program to minimize the cost of raw sunflower seeds. Use the average price of seeds forecasted from the previous step in order to determine supplier prices. - Perform a cost-volume-price analysis (review the handout entitled Cost-Volume-Profit Analysis for details) using the average cost per short ton average selling price per short ton. - You can generate an effective cost per short ton by dividing the total cost of supply (from the linear program) by the total volume (that you assumed in the linear program). - You can generate an effective selling price per short ton from the expected percentage yields and the forecasted average price of sunflower oil and mash. - Because of the way that the contract is written, you can assume that the purchase of raw sunflower seeds is a variable cost (you only purchase what Recall that the cost-volume-price analysis requires you to provide: - an algebraic statement of the revenue function and the cost function, - a detailed break-even chart that includes lines for the revenue and for the total cost, fixed cost, and variable cost (a total of four lines), and - a calculation break-even point expressed in number of short tons and percent of capacity. Management Report Prepare a written management report that includes, at a minimum, the following sections: - Purpose of the Report - Description of the Problem - Methodology (which would include the model formulation) - Findings or Results - Recommendations or Conclusions - a forecast of the next production period's average price index for raw sunflower seeds, sunflower oil, and sunflower mash, - a recommendation for the optimal purchasing strategy from the various suppliers, - a cost-volume-profit analysis using for the recommended purchase strategy and the forecasted sunflower oil and mash sales price, - a discussion of the risks and uncertainties that are faced by the company, and - an analysis and opinion on the profitability of the company in the next production period (accounting for the expected profit or loss and the inherent risks. Remember that you are writing the report from the point of view of a consultant with senior management of TourneSol Canada, Ltd. as the intended audience