Manvi Motors of Malaysia produces cars under an agreement with Suzuki of Japan and trucks under an agreement with General Motors of the USA. The company was established in 1972 and now employs approximately 1000 people and can generally produce an average of 25 cars and trucks per day. Capital investment constraints have limited the nature of Manvi's manufacturing facilities. Consequently, it is not able to manufacture many of the items required for the assembly of cars and trucks. These items are imported from Suzuki or GM. 

However, both Suzuki and GM must limit the quantities of parts shipped to Manvi because of constraints on their own capacities. GM has guaranteed to provide parts sufficient for up to 200 trucks per month and Suzuki has guaranteed to provide parts sufficient for up to 500 cars per month. GM has just announced several price increases, which have raised the direct manufacturing cost (which includes all labor and material costs) of a Manvi truck from $800 to $1000 converted to US dollars. Suzuki has not raised prices on purchased parts, so the direct manufacturing cost of a Manvi car has remained stable at $800. The Ministry of Economics controls the selling price of Manvi"s output: cars sell at $4300 and trucks sell at $6000. Manvi's vehicles have a reputation as well-made and dependable products, suitable for the Malaysian market. Demand is so great that the company can sell all the cars and trucks it can produce, and the company expects no change in this situation. Manvi presently has unfilled orders (already paid for) for 150 cars and 100 trucks. The manufacturing process for both cars and trucks consists essentially of two departments, which limits the number of vehicles that can be produced during any month. These departments are fabrication and assembly. An agreement With the Ministry of Labor has set the minimum labor usage combined in both departments to be at 14,000 worker-hours per month. The fabrication department is organized as a job-shop, which produces hundreds of different parts on 45 machine tools. A recent analysis has shown that this shop can plan on no more than 12,000 worker-hours of capacity in the coming month. Each car manufactured requires 20 worker-hours of fabrication; each truck requires 40 workerhours. The assembly department is set up as a conventional assembly line. 10,000 worker hours of capacity will be available in the assembly department in the coming month. Each car requires 25 worker hours of assembly; each truck requires only 10 worker hours.

The fixed overhead costs are estimated at $10,000 in the fabrication department and $12,000 in the assembly department per month. At this morning's management meeting, Farah Hormozi, the production manager expressed considerable concern over GM's price increases. The next month's production schedule was to be announced tomorrow, and she asked Sunil Ray, the managing director, whether the cost should affect the currently planned production of 200 cars and 200 trucks. Mr. Ray replied "I have never been sure if our current plan is the best we can have. If it is, I think we will just have to absorb the price increase until the Ministry of Economics allows us to increase our selling price. In that case, we will go ahead with the previous plan -200 cars and 200 trucks".

Manvi Motors is considering introducing a new Manvi van. The new model requires 30 hours in the fabrication department and 20 hours in the assembly department. Each Manvi van will give a net profit of $4000. 

a) Should any vans be produced? 

b) How much would it cost in terms of profit if, for some reason the management insisted that at least one van be made?