Case on Profit Maximization: Sensitivity Analysis

The New-Age Food Company produces three canned fruit products-mixed fruit, fruit cocktail and fruit delight. The main
ingredients in each product are Guava and Apple. Each product is produced in lots and undergoes three processes mixing,
canning and packaging. Guava requirement for mixed fruit, fruit cocktail and fruit delight is 20, 10 and 16 lb respectively.
Similarly, each unit of mixed fruit, fruit cocktail and fruit delight requires 10, 20 and 16 lb of Apple respectively. Mixed
fruit requires one hour of mixing, one hour of canning and two hours of packaging. Fruit cocktail requires two hour of
mixing, one hour in both canning and packaging. Fruit delight requires two hours of mixing, one hour both in canning and
in packaging. The availability of Guava and Apple is limited to 320 and 400 lb respectively. The profit from each unit of
mixed fruit, fruit cocktail and fruit delight is 10, 6 and 8 (in $) respectively. Company wants to know how many units of
each product to produce to maximize profit. Maximum time available for mixing, canning and packaging is 43, 60 and 40
respectively. From operation department of the company following results are provided;
Solution Report
Mixed Fruit Fruit Cocktail Fruit Delight RHS Dual
Maximize 10 6 8
Guava 20 10 16 <= 320 0.466
Apple 10 20 16 <= 400 0.0667
Mixing(in hr) 1 2 2 <= 43 0
Canning(hr) 1 1 1 <= 60 0
packaging(hr) 2 1 1 <= 40 0
Solution-> 8 16 0 $176.00
Sensitivity Report
Lower
Variable Value Reduced Cost Original Val Upper Bound
Bound
Mixed Fruit (X1) 8 0 10 9 12
Fruit Cocktail (X2) 16 0 6 5 20
Fruit Delight (X3) 0 0.533 8 -Infinity 8.53
Lower
Constraint Dual Value Slack/Surplus Original Val Upper Bound
Bound
Guava 0.467 0 320 200 400
Apple 0.0667 0 400 160 430
Mixing(in hr) 0 3 43 40 Infinity
Canning(hr) 0 36 60 24 Infinity
packaging(hr) 0 8 40 32 Infinity
Analyze the report submitted by the Operations Department and answer the following questions:
1. Suggest the optimum production policy (at max. profit) to the company with appropriate
recommendations.
2. Comment on the utilization of resources available with the company?
3. The company can also purchase a new packaging machine that would increase available time from 40 to
50. Would this affect the optimal solution? If yes than how much?
4. If the manger were to attempt to secure additional units of only one of the resources, which should it be.
And why?
5. If the company wants to increase Guava by 40 lb. would this affect the optimal solution? How much?
6. If the company wants to increase Apple by 20 lb. The purchasing cost of extra apple is $1. What should
company do purchase extra apple or not? Why?
7. If the manager increase the price of Mixed Fruit by $2. Would this affect the optimal solution? If yes than
how much?
8. What is important of lower and upper bound of resources in optimal solution?
1. A company has facilities for producing five products that require the same raw material and the same type of
production, packing, and finishing facilities. The unit contribution margin and the material and labour requirement
for each of the products are as given in below table:
Product A Product B Product C Product D Product E Availability
Raw Material (kg.) 5 5 10 15 10 100000
Labour Production Hr. 5 10 5 5 10 160000
Labour Packing Hr. 15 10 10 10 5 90000
Labour Finishing and 6 4 3 2 1 280000
Quality Check Hr.
Contribution margin (Rs.) 180 150 200 200 140
The QM for window output is shown below.

Product Product B Product Product D Product

A C E RHS Dual

Maximize 180 150 200 200 140

Raw Material (kg.) 5 5 10 15 10 <= 100000 14.36
Labour Production Hr. 5 10 5 5 10 <= 160000 0.90
Labour Finishing and
6 4 3 2 1 <= 90000 17.27
Quality Check Hr.
Labour Packing Hr. 15 10 10 10 5 <= 280000 0
Solution-> 6363.636 12545.45 545.4545 0 0 3,136,363.63

Reduced Original Upper

Variable Value Lower Bound
Cost Val Bound
Product A 6363.64 0 180 116.67 190
Product B 12545.45 0 150 144.44 340
Product C 545.45 0 200 170 225
Product D 0 54.54546 200 -Infinity 254.55
Product E 0 30 140 -Infinity 170
Dual Original Upper
Constraint Slack/Surplus Lower Bound
Value Val Bound
Raw Material (kg.) 14.36 0 100000 96250 247500
Labour Production Hr. 0.90 0 160000 83333.34 175000
Labour Finishing and
17.27 0 90000 66666.67 96000
Quality Check Hr.
Labour Packing Hr. 0 53636.36 280000 226363.6 Infinity

Analyze the report submitted by the Operation Department and answer the following questions:
a) Suggest the optimum product mix policy to the company with appropriate recommendations.
b) Comment on the important of resources of the company.
c) If the company want to increase 20% raw material which have cost of Rs. 290,000. Would company
increase extra raw material or not? Explain
d) Would there be a change in the solution if there is a 5% increase in labour production hours. If yes
than how much?
e) If the manger were to attempt to secure additional units of only one of the resource, which should it
be. And why?
f) If the company wants to increase 1000 labour finishing hours. The cost of extra per hours on finishing
and quality check is Rs. 15. What should company do increase extra labour finishing time or not?
Why?
g) Comment on the utilization of resources available with the company?
h) If the contribution margin of Product D is increased by Rs. 10 per unit. Than what is total contribution
margin of company?
i) What is important of lower and upper bound of resources in optimal solution?