Merlin Automotive Company Introduction Hard times have come upon the small Merlin Automotive Company. Financially, the performance of the factories in the past year or two have been lackluster. Making two high quality truck products, questions have arisen within the executive board on whether to keep both models, streamline (eliminate models), or add new products to the mix. Merlin's objective is to obtain maximum profit and grow the company out. Production Availability and Costs Merlin Automotive produces 2 truck models: the F-1 model and the F-2 model. The prices to dealers of the two models are $39,000 for model F1 and $38,000 for model F2. The company can sell as many trucks as it produces. Four departments exist within the plant: metal stamping, engine assembly, as well as Assembly line of F1 and Assembly line of F-2. Monthly production capacity per department are expressed in manufacturing machine-hours available (net of maintenance downtime). Machine-hours availability as well as machine-hours required for each truck model in each department is given in the table below. Merlin's production schedule for the first six months of 2014 had resulted in a monthly output of 1,000 trucks of model F-1 and 1,500 trucks of model F-2. At this level of production, F-2 assembly and engine assembly were operating at capacity. However, metal stamping and F1 assembly were operating at only 83.3% and 40% capacity, respectively. The cost structure at this production level is as following: 2. Merlin's production manager suggests purchasing engines from an outside suppler in order to relieve the capacity problem in the engine assembly department. If Merlin decides to pursue this alternative, it will be effectively "renting" capacity: furnishing the necessary materials and engine components, and reimbursing the outside supplier for labor and overhead. Should the company adopt this alternative? If so, what is the maximum rent it should be willing to pay for a machine hour of engine assembly capacity? What is the maximum number of machine-hours it should rent? 3. The company president, in arguing that maximizing short-run contributions was not necessarily good for the company in the long run, wanted to produce as many F-1 trucks as possible. After some discussion, it was agreed to maximize the monthly contribution as long as the number of F-1s produced was three times the number of F-2s produced. What is the resulting "optimal" product mix? 4. Merlin is considering the introduction of a third line of vehicles, the F-3 model. Each F-3 truck would give a contribution of $2,000. The metal stamping capacity would be sufficient to produce 4,000 units of F3 per month and the total engine assembly capacity would be sufficient to produce 5,000 units of F3 per month. The new truck would be assembled in the F1 assembly/finishing department. Each F3 requires only half as much time as a F-1 unit. a. Should Merlin produce F-3 trucks? b. How high would the contribution on each F3 have to be before it became a worthwhile investment? Solve this problem using the sensitivity report, then to confirm your answer, reformulate the problem with 3 variables (hint: review the new investment T for the W\&V investment problem) 5. Engines can be assembled on overtime in the engine assembly department. Suppose production efficiencies do not change and 2,000 machine hours of engine assembly overtime capacity are available. Direct labor costs are higher by 50% for overtime production. While variable overhead would remain the same, an additional cost of $0.75 Million would be added for fixed overhead costs (increased electrical bills due to a second shift, etc.). Should Merlin Automotive produce engines on overtime? hint: you can reformulate this problem with 4 variables and 5 constraints andor solve using sensitivity report