Answers to Red Brand Canners Case Part I 1.

Based on the availability of 600,000 pounds of grade A tomatoes (grade 9), one can mix in some grade B tomatoes (grade 5) to generate a mix of grade 8. Let X denote the pounds of grade B tomatoes that can be mixed in. Then: (600,000*9+X*5)/(600,000+X)=8. Solving this, yields X=200,000 lbs for a total weight of 800,000 lbs. 2. Coopers suggestion restricts the usage of tomatoes to merely 800,000 lbs (as shown in 1). The leftover tomatoes could be used profitably to at least make tomato paste. It might also be more profitable to make use of the A tomatoes to produce some tomato juice as well, and end up with a mix products that together produce the most profit. 3. In Exhibit 3, Myers attempt to prorate the unit cost per tomato (18 cents) based on the quality of tomato (grade A or B). The first equation (1) indicates that the sum of 600,000 lb multiplied by the unit cost per lb for grade A tomatoes (Z) and 2,400,000 lb multiplied by the unit cost per lb for grade B tomatoes (Y) equals the total cost paid (3,000,000 lbs multiplied by 18 cents per lb). The second equation (2) defines the relative relationship between the unit prices for grade A and B tomatoes based on the relative quality points for the two grades. Solving the two equations yields the values for the unit prices for the two grades. Based on this one can state that the unit cost per lb for tomatoes of quality of 1 is equal to the value of Z/9 or Y/5. This is then used to find the adjusted fruit cost. For example, the cost per case of whole tomatoes would be: (Z/9) $/lb *8*18 lb/case or $4.47 per case. Similarly, for tomato juice the cost per case would be: (Z/9) $/lb * 6 * 20 lb/ case = $3.72 per case. Since Myers believes that tomato paste is the most profitable option, he would like to sell as much tomato paste that demand allows, which is 80,000 cases or 2,000,000 lbs (80,000 cases*25lb per case). Beyond that Myers ranks tomato juice as the next profitable item and so the remaining 400,000 lbs of grade B tomatoes and 600,000 lbs of grade A tomatoes should be used for making tomato juice. A fundamental shortcoming in the analysis is that the fact that the grade A tomatoes implicitly cost the company more than the grade B tomatoes has nothing with the current task at hand which is to maximize the operating profit for the season given the resources (tomatoes) at hand. Indeed, tomatoes have already been purchased and, hence, their purchase price is a sunk cost. It does not make sense to penalize the production of whole tomatoes because of the cost already incurred in purchasing grade A tomatoes. 4. Let wA= weigh of tomato grade A allocated to produce whole tomatoes (lbs), wB=weight of tomato grade B allocated to produce whole tomatoes (lbs), jA=weight of tomato grade A allocated to produce whole tomatoes (lbs), jB=weight of tomato grade B allocated to produce whole tomatoes (lbs), pA=weight of tomato grade A allocated to produce whole tomatoes (lbs),

pB=weight of tomato grade B allocated to produce whole tomatoes (lbs). The formulation that maximizes net income for the tomato manufacturing operation is given below. First, the objective function is to maximize the generated income from selling the various tomato products. The income from selling a case of a product type is the contribution shown in Exhibit 2 plus the fruit cost. For each product type the income per pound is obtained by dividing the income per case by the weight (lb) per case. Then the total income for the product is the unit income per lb multiplied by the weight (in lbs) of tomatoes used in producing the product type. The objective function is then: Maximize ((1.20+3.24)*100)/18)*(wA+ wB) + ((0.36+3.60)*100)/20)*( jA+ jB) + ((1.05+4.50)*100)/25)*( pA+ pB) The first type of constraint is that the mix of tomato grades used should ensure the required scores for the whole tomatoes and the tomato juice products. No constraint is necessary for the tomato paste product as using either tomato grade A or B would meet the score required for tomato paste. For the whole tomatoes product, the combined score is 9*wA + 5* wB should be 8*(wA+ wB) or wA- 3wB 0. Similarly, for the tomato juice product, 9*jA + 5* jB should be 6*(jA+ jB) or 3jA - jB 0. Another set of constraints is needed to limit production of each type of tomato product so as to not to exceed demand. Finally, the usage of tomatoes should be limited to the amounts available of each grade. The complete formulation is then: Maximize ((1.20+3.24)*100)/18)*(wA+ wB) + ((0.36+3.60)*100)/20)*( jA+ jB) + ((1.05+4.50)*100)/25)*( pA+ pB) wA- 3wB 0 (whole tomatoes quality constraint) 3jA - jB 0 (tomato juice quality constraint) wA+ wB 800,000*18 (whole tomatoes production less than demand) jA+ jB 50,000*20 (tomato juice production less than demand) pA+ pB 80,000*25 (tomato paste production less than demand) wA+ jA+ pA 600,000 (grade A tomatoes usage less than available amount) wB+ jB+ pB 2,400,000 (grade B tomatoes usage less than available amount) wA, wB, jA, jB, pA, pB 0 5. In order to capture the possibility of ordering more grade A tomatoes, let eA denote the extra weight of grade A tomatoes to be purchased. The formulation can be modified to capture the cost (in the objective function) of purchasing the extra grade A tomatoes and the corresponding increased availability of such tomatoes (grade A tomatoes usage constraint). The new formulation is: Maximize ((1.20+3.24)*100)/18)*(wA+ wB) + ((0.36+3.60)*100)/20)*( jA+ jB) + ((1.05+4.50)*100)/25)*( pA+ pB) 0.255eA wA- 3wB 0 (whole tomatoes quality constraint) 3jA - jB 0 (tomato juice quality constraint) wA+ wB 800,000*18 (whole tomatoes production less than demand) jA+ jB 50,000*20 (tomato juice production less than demand)

pA+ pB 80,000*25 (tomato paste production less than demand) wA+ jA+ pA - eA 600,000 (grade A tomatoes usage less than available amount) wB+ jB+ pB 2,400,000 (grade B tomatoes usage less than available amount) 0 eA 80,000 (maximum amount of extra grade A tomatoes available) wA, wB, jA, jB, pA, pB, eA 0