Professional Documents
Culture Documents
Chapter 1 (Introduction)
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1.1
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Special Products Break-Even Analysis
Data:
If they go ahead with this product, a fixed cost of $50,000 is incurred.
The variable cost is $400 per clock produced.
Each clock sold would generate $900 in revenue.
A sales forecast will be obtained.
*
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1.2
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Expressing the Problem Mathematically
Decision variable:
* o Number of grandfather clocks to produce
Costs:
Fixed Cost o $50,000 (if * > 0)
Variable Cost o $400 *
Total Cost o
0, if * o 0
$50,000 + $400 * if * > 0
Profit:
Profit o Total revenue Total cost
Profit o 0, if * o 0
Profit o $900* ($50,000 + $400*) o $50,000 + $500*, if * > 0
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1.3
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Special Products Co. Spreadsheet
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1.4
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Analysis of the Problem
1
Re ene =
Profit
1
oss
1 1
rea een oint = 1 nits
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1.5
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Management Science Interactive Modules
Sensitivity analysis can be performed using the Break-Even module in the Interactive
Management Science Modules (available on your MS Courseware CD packaged with
the text).
Here we see the impact of changing the fixed cost to $75,000.
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1.6
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Special Products Co. Spreadsheet
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.
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1.7
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An Advertising Problem
Parker Mothers is a manufacturer of childrens toys and games. One of their hottest
selling toys is an interactive electronic Harry Potter doll.
Some data:
Unit Variable Cost: $48
Unit Selling Price: $65
Fixed Overhead: $42,000
Parker Mothers has analyzed past data for the Harry Potter doll (and other similar toys),
and determined that sales are affected by a number of factors:
the season (e.g., more at Christmas, more when a new Harry Potter book or movie is released,
etc.),
the size of the sales force devoted to the product,
the level of advertising.
*
!!!!"
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1.8
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Predicting the Sales Level
After performing a statistical regression analysis, they estimate that sales for the quarter will be
approximately related to the season and advertising budget, as follows:
Seasonality Factors:
Q1: 1.2 (publication of new Harry Potter book)
Q2: 0.7
Q3: 0.8
Q4: 1.3 (Christmas and expected release of new Harry Potter movie)
Effect of Advertising:
Sales
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1.9
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Spreadsheet for Quarter 1
0 $
X
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$ 2 /
2
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6
7
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! 384
/
3& 9
) 2&&&&
33
34 0 $
3X #:
33 3 34
3 3X #:
$4&&& X$3&""
3
2 3
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3/ 3 ; ) $3,$3
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3 9
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3 9
)$ $3&
4& #
6
7
2 4&&& 4& #
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43 43
44 23&/ 44 $3,$3 ,$4&
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1.10
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X
0 $ Trial Solutions
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$ 2 /
2
#
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7
2 4&&&
! 384
/
$ $ $
3& 9
) 2&&&& 3& 23&&&&& 3& 23&&&& 3& 24&&&&&
33 33 33 33
34 34 34 34
3X #:
33 3 3X 3/4 3X 3/ 3X 433/X
3 3 3 3
3
2 3 23&3 X&4 3 2343XX4 3 23X/ X
3 $*
2 3 3 243 3 2/ X 3 23&3/X
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3/ 3/ 3/ 3/
3 9
)$ 2&&&& 3 23&&&&& 3 23&&&& 3 24&&&&&
4& #
6
7
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43 43 43 43
44 23&/ 44 234 / 44 234XX3 44 233/333
0 $
3& 9
) 234&&&
33
34
3X #:
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233434&3
3 $*
2/4
3 ; ) 24 X4X
3/
3 9
)$ 234&&&
4& #
6
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2 4&&&
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44 2344X
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1.11
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The Excel Solver
0 $
X
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$ 2 /
2
#
6
7
2 4&&&
! 384
/
3& 9
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33
34
3X #:
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3
3
2
3 $*
2 3
3 ; ) 24&&
3/
3 9
)$ 2&&&&
4& #
6
7
2 4&&&
43
44 23&/
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1.12
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The Optimized Solution
0 $
X
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$ 2 /
2
#
6
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2 4&&&
! 384
/
3& 9
) 234
33
34
3X #:
3X
3
3
233X&3&
3 $*
2/X 34
3 ; ) 24 /
3/
3 9
)$ 234
4& #
6
7
2 4&&&
43
44 2344
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1.13
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Four Quarters Spreadsheet
X
8 8 8 8X
.
X
. X.X
. . XX
*
.. XX X X X X
.X XXX
.
X .X X X
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1.14
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Four Quarters Solver Optimized
0 $ 1 ;
X
' (
$ 2 /
2
#
6
7
2 4&&&
! 384 &8 &8/ 38X
/
3&
33 9
) 234 2 XX/ 2 23 2X&X
34
3X
3 #:
3X &4 /4 4&3 4X
3
3
233X&3& 2 44X/ 2X3& 23X34/3X 2X &X443
3 $*
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3/ ; ) 24 / 233&X 23 & // 2X XX3 2/ &&X
3
4& 9
)$ 234 2 XX/ 2 23 2X&X
43 #
6
7
2 4&&& 2 4&&& 2 4&&& 2 4&&& 23/&&&
44
4X 2344 243/ 2 3/ 233 2X &X
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1.15
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esidual Effect
0 $ 1 ;
X
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$ 2 /
2
#
6
7
2 4&&&
! 384 &8 &8/ 38X
/ 9
)
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3X
3 #:
3 /3 /&4 3/ X &4X
3
3
23&XX& 2&/&/ 243 234&&4X 2X4&
3 $*
2&3& 2X3 2X/443 2//// 24 3X33
3/ ; ) 2434 23X4//4 23X XX 2X3 &X 2/
3
4& 9
)$ 234 2 XX/ 2 23 2X&X
43 #
6
7
2 4&&& 2 4&&& 2 4&&& 2 4&&& 23/&&&
44
4X 23&3/ 2 3 2X/ 2344 & 2X& &/
0 $ 1
! 384 &8
/ 9
)
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3X
3 #:
$4&&&-X &8$33-&8X$/"" 14&&&-X &8133-&8X$33""
;
3X
3 4&&&-X &833-&8X133"" 4&&&-X &833-&8X33"" $3 <3 "
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1.16
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esidual Effect (Solver Optimized)
0 $ 1 ;
X
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$ 2 /
2
#
6
7
2 4&&&
! 384 &8 &8/ 38X
/ 9
)
2&&&&
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) 23X ,2433 / 23X& 2 / 2XX3&&
34
3X
3 #:
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3
3
233 X 2X / X 2X 43 2 2X3X
3 $*
2/&& & 24 4X3 2 / X 23&X 24XX/
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)$ 23X ,2433 / 23X& 2 / 2XX3&&
43 #
6
7
2 4&&& 2 4&&& 2 4&&& 2 4&&& 23/&&&
44
4X 2/ &43 2/XX ,23 234/4 2X4///
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1.17
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Solver Options
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1.18
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esidual Effect (Solver e-Optimized)
0 $ 1 ;
X
' (
$ 2 /
2
#
6
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2 4&&&
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/ 9
)
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3X
3 #:
334 // X 3 3/ / 3
3
3
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3 $*
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3/ ; ) 24 3 3 233X 23 / 24X& 2/43
3
4& 9
)$ 234/& 2& 2343 X3 243 2X4 X3
43 #
6
7
2 4&&& 2 4&&& 2 4&&& 2 4&&& 23/&&&
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4X 2 X 23 24 23/ 2X4/4X
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1.19
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esidual Effect with Budget (Optimized)
X
8 8 8 8X
.
. XX X
X
X X
.XXX X . XX X.
*
.. XX . . .
. X . .
.
. XX X
X . X X
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1.20
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Adding a Constraint in Solver
|
1.21
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