Shelby Shelving - Current Production Schedule

Machine usage requirements (hours per unit)

Stamping
Forming

Model S
0.30
0.25

Model LX
0.30
0.50

Monthly production

Model S
400

Model LX
1400

1900
$1,800

1400
$2,100

Assembly capacity
Unit selling price

Available
800
800

Hours spent in departments

Stamping
Forming

Model S
120
100

Model LX
420
700

Totals
540
800

Percentages of time spent in departments

Model S
Model LX
Stamping
22.2%
77.8%
Forming
12.5%
87.5%
Monthly overhead cost data

Stamping
Forming
Model S Assembly
Model LX Assembly

Model S
Variable
$80
$120
$165
$0
$365

Model LX
Variable
$90
$170
$0
$185
$445

Total
Fixed
$125,000
$95,000
$80,000
$85,000
$385,000

Standard costs of the shelves (based on the current production levels)

Direct materials
Direct labor:
Stamping
Forming
Assembly
Total direct labor
Overhead allocation
Stamping
Forming
Assembly
Total overhead
Total cost

Model S
$1,000

Model LX
$1,200

$35
$60
$80
$175

$35
$90
$85
$210

$149.44
$149.69
$365.00
$664.13
$1,839.13

$159.44
$229.38
$245.71
$634.53
$2,044.53

Microsoft Excel 12.0 Answer Report

Worksheet: [Accounting 522_Shelby Shelving.xlsx]Shelby Linear Programming
Report Created: 12/3/2014 12:45:49 AM

Target Cell (Max)

Cell
$C$37 Profit

Name

Original Value
$62,000

Adjustable Cells
Cell
Name
Original Value
$C$11 Production per month Model S
400
$D$11 Production per month Model LX
1400

Final Value
$268,250

$300,000
$250,000

Final Value
1900
650

$200,000
$150,000

Constraints
Cell
Name
$C$18 Forming Hours used
$C$17 Stamping Hours used
$C$11 Production per month Model S
$D$11 Production per month Model LX

$100,000

Cell Value
800
765
1900
650

Formula
$C$18<=$E$18
$C$17<=$E$17
$C$11<=$C$13
$D$11<=$D$13

Status
Slack
Binding
0
Not Binding
35
Binding
0
Not Binding 750

$50,000
$0

Profit
$300,000

$268,250

$250,000
$200,000
$150,000

Profit

$100,000
$62,000
$50,000
$0
Original Value

Final Value

Microsoft Excel 12.0 Sensitivity Report

Worksheet: [Accounting 522_Shelby Shelving.xlsx]Shelby Linear Programming
Report Created: 12/3/2014 12:45:49 AM

Adjustable Cells
Final Reduced Objective
Cell
Name
Value
Cost
Coefficient
$C$11 Production per month Model S
1900
137.5
260
$D$11 Production per month Model LX
650
0
245

Allowable Allowable
Increase
Decrease
1E+30
137.5
275
245

Constraints
Cell
Name
$C$18 Forming Hours used
$C$17 Stamping Hours used

Final Shadow Constraint Allowable Allowable

Value Price
R.H. Side
Increase
Decrease
800
490
800 58.33333334
325
765
0
800
1E+30
35

Microsoft Excel 12.0 Limits Report

Worksheet: [Accounting 522_Shelby Shelving.xlsx]Limits Report 1
Report Created: 12/3/2014 12:45:49 AM

Cell
$C$37 Profit

Target
Name

Adjustable
Cell
Name
$C$11 Production per month Model S
$D$11 Production per month Model LX

Value
$268,250

Value
1900
650

Lower Target
Limit Result
0 -225750
0 109000

Upper
Limit
1900
650

Target
Result
268250
268250

A
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39

Shelby Shelving - Linear Programming Profit Maximization Model

Machine requirements (hours per unit)

Stamping
Forming

Production per month

Assembly capacity

Model S
Model LX
0.30
0.30
0.25
0.50
Model S
1900
<=
1900

Model LX
650
<=
1400

Hours used
765
800

<=
<=

Problem Statement:
What is the optimal production mix for Shelby Shelving in order to maximize its
profits?

Constraints on hourly usage

Stamping
Forming
Profit analysis
Unit selling price

$1,800

$2,100

Unit variable costs

Labor
Material
Overhead
Total Variable Cost

$175
$1,000
$365
$1,540

$210
$1,200
$445
$1,855

Contribution Margin
Total Contribution

$260
$494,000

$245
$159,250

Total revenue
Total variable cost
Total Contribution
Fixed overhead
Profit

Available
800
800

Executive Summary:
The profit maximization linear programming model suggests the optimal
production mix is 1900 units of Model S and 650 units of Model LX.
This will increase profit from $62,000 to $268,250, representing an increase of
+433% over its current production schedule.
If the Model S production increases from 400 units to its maximum capacity of
1900 units, the cost per unit will decrease from $1839 to $1661.
Note:
Given that the total number hours that can be used for Forming is 800 hours
(which is used at full capacity), Shelby Shelving cannot produce any additional units
of Model S or Model LX. If you try to increase it by 1 using the Developer Spinner
button, the number of Forming hours used would EXCEED the given constraint of
800 hours

$4,785,000
$4,131,750
$653,250
$385,000
$268,250

Shelby Shelving Company LP Formulation

Shelby Shelving - Adjusted Production Schedule

Machine usage requirements (hours per unit)

Stamping
Forming

Model S
0.30
0.25

Model LX
0.30
0.50

Monthly production

Model S
1900

Model LX
650

1900
$1,800

1400
$2,100

Assembly capacity
Unit selling price

Available
800.00
800.00

Hours spent in departments

Stamping
Forming

Model S
570
475

Model LX
195
325

Totals
765
800

Percentages of time spent in departments

Model S
Model LX
Stamping
74.5%
25.5%
Forming
59.4%
40.6%
Monthly overhead cost data

Stamping
Forming
Model S Assembly
Model LX Assembly

Model S
Variable
$80
$120
$165
$0
$365

Model LX
Variable
$90
$170
$0
$185
$445

Total
Fixed
$125,000
$95,000
$80,000
$85,000
$385,000

Standard costs of the shelves (based on the current production levels)

Direct materials
Direct labor:
Stamping
Forming
Assembly
Total direct labor
Overhead allocation
Stamping
Forming
Assembly
Total overhead
Total cost

Model S
$1,000

Model LX
$1,200

$35
$60
$80

$35
$90
$85

$175

$210

$129.02
$149.69
$207.11
$485.81
$1,660.81

$139.02
$229.38
$315.77
$684.16
$2,094.16