The EEC production facility purchases wood waste materials from timber harvesting

operations as well as pulp and paper mills across Lower Alabama $($LA$)$ and uses these

biomass materials to produce cellulosic ethanol. EEC can process up to $540$ tons of

biomass feedstock per month during the regular production schedule and can outsource

any additional production as needed. The current process technology yields $65$ gallons of

ethanol per ton of feedstock. The production process uses specific enzymes to breakdown

the biomass feedstock into different sugars before it enters the fermentation and

distillation processes. The production process requires $50$ pounds of enzymes per ton of

biomass feedstock, and these enzymes cost $$52$ per hundred pounds. EEC has a contract

with a local paper mill to purchase $300$ tons of biomass feedstock per month at a price of

$$62$ per ton. Any additional biomass feedstock that EEC requires is purchased on the spot

market at a current price of $$60$ per ton. However, this spot market price fluctuates from

month to month between $$58$ and $$70$ per ton. The monthly fixed cost of operating the

plant is $$12,500$ with a variable processing cost of $$17$ per ton for regular production and

an outsourced processing cost of $$22$ per ton. The current market price of cellulosic

ethanol is $$2\mathrm{.}65$ per gallon, and at this price Eddie can sell $40,000$ gallons of ethanol each

month. Based on historical market data every one cent reduction in price increases this

demand by $2,000$ gallons. Conversely, every one cent increase in price reduces the

demand by $2,000$ gallons. For the next month, Eddie is planning to sell his cellulosic

ethanol for $$2\mathrm{.}50$ per gallon$\mathrm{.}1.$ Construct an influence chart and spreadsheet model for this problem. Document

any assumptions you make in constructing your model. Use Eddie$$s planned

ethanol sales price and the current biomass spot market price for the base case

scenario.

$2.$ If the contract quantity is fixed at its base case value, at what price should Eddie

sell his ethanol?

$3.$ If the sales price is fixed at Eddie$$s planned value, what biomass contract quantity

should Eddie select?

$4.$ What combination of sales price and contract quantity should Eddie use. Provide

appropriate analysis to justify your recommendation.