Question 1 (a,b,c)

Sports Corp. produces three different types of sports shirts. Allstar (A), Bodyfit (B) and Cardiobunny (C). Sports Corp. faces a capacity constraint on machine hours of 180,000 hours per year and a capacity constraint on direct labor hours of 360,000 hours per year. Information about the different shirts is provided below:

	A	B	C
Selling price per unit (in EUR)	120	80	150
Variable costs per unit (in EUR)	45	35	55
Machine hours per unit	3	2	4
Labor hours per unit	4	5	6
Demand per year in units	18,000	21,600	25,200

The total fixed costs of producing the sports shirts are 1,250,000 EUR per year.

a

Determine the optimal production schedule for Sports Corp., i.e. show how many units of A, B and C will be produced. Calculate the overall profit generated by the sports shirts for Sports Corp.

b

Sensei Corp. approaches Sports Corp. with a request to produce 10,000 customized Yoga (Y) shirts. Sensei Corp. is willing to pay 180 EUR per unit of Y. The controller of Sports Corp. estimates that the variable cost per unit of Y are 80 EUR per unit, and that the production per unit would require 2 machine hours and 2 labor hours.

Does Senseis request change the optimal production schedule and the overall profit for Sports Corp.? Show your calculations.

c

Explain what the opportunity costs to accepting the order from Sensei Corp. are in this setting? Then calculate the opportunity costs and show your calculations.