Estimate the optimal production plan and run the sensitivity analysis. Analyze the tactical and strategic information provided by the optimal solution:
2. What factors could lead to even better level of performance:
a. For each department, what is the marginal value of additional overtime capacity?
The Hawley Lighting Company manufactures four types of lamps at its factory including table lamps, floor lamps, ceiling lamps, and pendant lamps. Table 1 presents the average material costs for each of the products. Each product is made in one of two production processes by purchasing components, assembling and testing the product, and finally packaging it for shipping. Table lamps and floor lamps go through the assembly and finishing process in Department 1, while ceiling fixtures and pendant lamps go through the process in Department 2. Variable production costs and capacities are shown in Table 2. The capacities are measured in units of product. Note that there are regular and overtime possibilities for each department. Average selling prices for the four products are known, and estimates have been made of the market demand for each product at these prices (see Table 3). Sales levels can also be affected by advertising expenditures. Starting with the demand levels in the table, an increase of up to $10,000 in advertising raises the demand by the percentage shown in the last row. An expenditure of less than $10,000 in advertising will lead to a proportional effect on demand. For example, an increase in advertising of $5,000 for table lamps would raise demand by 6 percent, or 3,600 units. However, there is a budget limit of $18,000 on the total amount to be spent on advertising among all four products. Table 1 Product Table $66 Floor 85 Ceiling 50 Pendant 8 0 Material cost Table 2 Process Regular Time Unit Cost Capacity $16 100,000 12 90,000 Overtime Unit Cost Capacity 25,000 15 24,000 Department 1 Department 2 Table 3 Selling price Potential sales (000) Advertising effect Table $120 60 12% Floor 150 20 10% Ceiling 100 100 8% Pendant 160 35 15% The Hawley Lighting Company manufactures four types of lamps at its factory including table lamps, floor lamps, ceiling lamps, and pendant lamps. Table 1 presents the average material costs for each of the products. Each product is made in one of two production processes by purchasing components, assembling and testing the product, and finally packaging it for shipping. Table lamps and floor lamps go through the assembly and finishing process in Department 1, while ceiling fixtures and pendant lamps go through the process in Department 2. Variable production costs and capacities are shown in Table 2. The capacities are measured in units of product. Note that there are regular and overtime possibilities for each department. Average selling prices for the four products are known, and estimates have been made of the market demand for each product at these prices (see Table 3). Sales levels can also be affected by advertising expenditures. Starting with the demand levels in the table, an increase of up to $10,000 in advertising raises the demand by the percentage shown in the last row. An expenditure of less than $10,000 in advertising will lead to a proportional effect on demand. For example, an increase in advertising of $5,000 for table lamps would raise demand by 6 percent, or 3,600 units. However, there is a budget limit of $18,000 on the total amount to be spent on advertising among all four products. Table 1 Product Table $66 Floor 85 Ceiling 50 Pendant 8 0 Material cost Table 2 Process Regular Time Unit Cost Capacity $16 100,000 12 90,000 Overtime Unit Cost Capacity 25,000 15 24,000 Department 1 Department 2 Table 3 Selling price Potential sales (000) Advertising effect Table $120 60 12% Floor 150 20 10% Ceiling 100 100 8% Pendant 160 35 15%
