Case 8-4 LongLife, LLC

LongLife, LLC manufactures rechargeable batteries for the personal and recreational drone industry. The

company signed a contract with Best Buy electronics to produce three different lithium-ion battery

packs for a new line of retail drones. The contract calls for producing three types of battery packs.

LongLife agreed to supply 200,000 battery packs of their LL-mod-A; 100,000 batteries of their LL-mod-B

and 150,000 batteries of LL-mod-C.

LongLife manufactures the battery packs at plants located in China and South Korea. Each plant can

manufacture up to 230,000 battery packs next year. The unit cost of the battery packs differs at the two

plants because of differences in production equipment and wage rates. The unit costs for each battery

pack at each manufacturing plant are as follows:

Product China South Korea

LL-mod-A 5.95 5.98

LL-mod-B 5.98 6.08

LL-mod-C 6.34 6.15

The LL-mod-A and LL-mod-B battery packs are produced using similar production equipment available at

both plants. However, each plant has a limited capacity for the total number of LL-mod-A and LL-mod-B

battery packs produced. The combined LL-mod-A and LL-mod-B production capacities are 175,000 units

at the China plant and 160,000 units at the South Korea plant. The LL-mod-C production capacities are

75,000 units at the China plant and 100,000 units at the South Korea plant. The cost of shipping from the

China plant is $0.18 per unit, and the cost of shipping from the South Korea plant is $0.10 per unit.

Assignment Questions

1. Develop production and shipping plan that shows how many units of each battery pack should be

produced at each plant in order to minimize the total production and shipping cost associated with

the new contract.

2. What is the total cost to manufacture and ship battery packs next year? How much can LongLife

expect to incur for manufacturing costs at each plant? For shipping costs from each plant?

3. How much excess production capacity does LongLife have? How much would it cost LongLife to

produce and ship 5000 more LL-mod-A battery packs? Five thousand more LL-mod-B battery packs

Five thousand more LL-mod-C battery packs?

4. If LongLife decides to increase their production capacity of LL-mod-C battery packs, which plant

would you recommend they consider? Why?

5. If LongLife required each plant to produce at least 1000 battery packs of each model, how much

would this requirement cost the company?