CJL operates two paper mills - Mill 1 [M1] has a capacity of 20,000 tonnes and Mill 2(M2) - 30,000 tonnes and they currently have three Newspaper customers NA, NB

& NC. The current demand from these customers are NA - 12,000, NB - 20,000 & NC - 16,000 tonnes.

There are other suppliers of paper who will quickly fill any demand from these Newspaper customers if CJL fails to deliver or if it increases its price.

The controller of CJL is looking at last month's shipping costs of $1,512,000 and identified that the cost of shipping newsprint was increasing thereby threatening

the profitability of the business; it was therefore agreed that the only feasible resolution to this problem is to reduce the monthly cost of shipping and this has to

be done without affecting delivery schedules to customers.

Shipping costs are as follows:-

From Mill1 to NA -costs $$20 / tonne to NB -$28/tonne & to NC - $40 / tonne.

From Mill 2 to NA - $40/tonne to NB - $$36/tonne & to NC- $32/tonne

It was decided that the solution to the problem would be to ship only the maximum from each factory in such a manner that it minimizes the costs of shipping.

REQUIRED:

• Brief paragraph explaining the financial objectives of CJL and the problem they are experiencing in meeting those specific financial objectives.
• List the factors, and or functions of the business and the constraints that exists for each
• Express the constraints in financial terms
• Suggest a formulae that would be used to resolve the problems and satisfy the objectives of CJL