1. A company must meet on time the following demands: quarter 1, 3000 units; quarter 2, 2000 units; quarter 3, 4000 units. Each quarter, up to 2700 units can be produced with regular-time labor, at a cost of $40 per unit. During each quarter, an unlimited number of units can be made with overtime labor, at a cost of $60 per unit. Of all units produced, 20% are unsuitable for sale and cannot be used for demand. Also, at the end of each quarter, 10% of all units on hand spoil and cannot be used to meet any future demands. After each quarter’s demand is satisfied and spoilage is accounted for, a cost of $15 per unit is assessed against the quarter’s ending inventory. Assume 1000 units are available initially.
a. Formulate this model and implement it in a sheet called “Question 1”. You might want to start by following the steps outlined in the lecture – brainstorming followed by determining equations. Try not to get frustrated if the first formulation doesn’t seem to come easily.
b. Solve the model you have formulated using Solver. Report the important decisions that the company must make. How much money will the solution cost the company?
Run the Sensitivity Report for the model in Question 1. Use the Sensitivity Report to answer these questions. Change the sheet name to “Question 2”.
a. How much more money will an increase of 1 unit of demand in quarter 1 cost the company to satisfy?
b. At what unit overtime cost in quarter 2 will the company possibly consider using overtime labor to produce units in quarter 2?
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