1. Case Study – Merton Truck Company
Case Study Merton Truck Company
Submission Date 16-Oct-2009
Class EPGP– 09-10
Subject Decision Analysis
Instructor Prof. N. Ravichandran
Prof. Vinay
Submitted by
Rajendra Inani
Table of contents
Question 1 (a) Optimized Product Mix for Maximization of Profit................................................2
Question 1 (b) Increase in Engine Assembly Capacity by 1 Unit...................................................3
Question 1 (c) Additional Engine Assembly Capacity – 100 Units................................................6
Question 1 (d) Maximum Additional Engine Assembly Capacity..................................................8
..........................................................................................................................................................8
Question 2 Outsourcing - Additional Engine Assembly Capacity..................................................9
..........................................................................................................................................................9
Question 3(a) – Introduction of new model 103............................................................................11
Question 3(b) –New model 103 – Change in contribution............................................................13
Question 4 - Additional Capacity of 2000 Engine Ass. Hours......................................................15
........................................................................................................................................................15
Question 5 Model 101 production – 3 times Model 102...............................................................18
........................................................................................................................................................18
Page 1 of 19
2. Case Study – Merton Truck Company
Question 1 (a) Optimized Product Mix for
Maximization of Profit
Page 2 of 19
3. Case Study – Merton Truck Company
Question 1 (b) Increase in Engine Assembly Capacity
Model 101
Model 102
Total Contribution
Production Units
1999
1001
2402000
Increase by $ 2000
Machine Hours
requirement and
Availability -
Constraints
Department
Model 101
Hours
Model 102
Hours
Used capacity
Hours
Maxi Hours per month
% Utilz
Page 3 of 19
6. Case Study – Merton Truck Company
Question 1 (c) Additional Engine Assembly Capacity –
Model 101
Model 102
Total Contribution
Production Units
1900
1100
2600000
Additional Contribution
$ 200000
Machine Hours
requirement and
Availability -
Constraints
Department
Model 101
Hours
Model 102
Hours
Used capacity
Hours
Page 6 of 19
8. Case Study – Merton Truck Company
Question 1 (d) Maximum Additional Engine Assembly
Model 101
Model 102
Total Contribution
Production Units
1500
1500
3400000
Additional Contribution
$ 1000000
Machine Hours
requirement and
Availability -
Constraints
Department
Model 101
Hours
Model 102
Page 8 of 19
9. Case Study – Merton Truck Company
Question 2 Outsourcing - Additional Engine Assembly
Model 101
Model 102
Total Contribution
Production Units
1500
1500
3187500
Additional Contribution
$ 787500
*Rate to be paid to
vendor $ 3725 per
hours
Machine Hours
requirement and
Availability -
Constraints
Department
Model 101
Hours
Model 102
Page 9 of 19
11. Case Study – Merton Truck Company
Question 3(a) – Introduction of new model 103
Model 101 Model 102 Model 103 Total
Contribution
Production Units 2000 1000 0 2400000 Not
Profitable
Machine Hours requirement and Availability - Constraints
Department Model 101 Model 102 Model 103 Used Maxi % Utilz
Hours Hours Hours capacity Hours per
Hours month
Engine Assembly 1 2 0.8 4000 4000 100
Metal Stamping 2 2 1.5 6000 6000 100
Model 101 assembly 2 1 4000 5000 80
Model 102 assembly 3 3000 4500 66.66
Calculation of Cost and Contribution
Standard Product Model Model 102 / Model 103 / Total for
Costs 101 / Unit Unit Unit Production
Direct Material 24000 20000 68000000
Direct Labor 4000 4500 12500000
Overhead -Fixed 8600000
Overhead - Variable 8000 8500 5230 24500000
Total cost / Unit 36000 33000 5230 113600000
Selling price / unit 39000 38000 7230 116000000
Per Unit Contribution
before F/OH 3000 5000 2000
Overhead Calculations (US $)
Department F OH per V OH /Unit V OH /Unit V OH /Unit
Page 11 of 19
12. Case Study – Merton Truck Company
month model 101 model 102 model 103
1700000
Engine Assembly 2100 4000 1680
2700000
Metal Stamping 2400 2000 1800
Model 101/103 2700000
assembly 3500 1750
1500000
Model 102 assembly 2500
8600000
Total Overheads 8000 8500 5230
Page 12 of 19
13. Case Study – Merton Truck Company
Question 3(b) –New model 103 – Change in
contribution
Model 101 Model 102 Model 103 Total
Contribution
Production Units 0 857 2857 2402857 Beneficial
Contribution
$2351
Machine Hours requirement and Availability - Constraints
Department Model 101 Model 102 Model 103 Used Maxi Hours % Utilz
Hours Hours Hours capacity per month
Hours
1 2 0.8 4000 4000 100
Engine Assembly
2 2 1.5 6000 6000 100
Metal Stamping
2 1 2857.14 5000.00 57.14
Model 101 assembly
3 2571.43 4500.00 57.14
Model 102 assembly
Calculation of Cost and Contribution
Standard Product Model Model 102 / Model 103 / Total for
Costs 101 / Unit Unit Unit Production
24000 20000 17142857.14
Direct Material
4000 4500 3857142.857
Direct Labor
8600000
Overhead -Fixed
8000 8500 5230 22228571.43
Overhead - Variable
36000 33000 5230 51828571.43
Total cost / Unit
39000 38000 7581 54231428.57
Selling price / unit
Per Unit Contribution 3000 5000 2351
before F/OH
Page 13 of 19
14. Case Study – Merton Truck Company
Overhead Calculations (US $)
Department F OH per V OH /Unit V OH /Unit V OH /Unit
month model 101 model 102 model 103
1700000
Engine Assembly 2100 4000 1680
2700000
Metal Stamping 2400 2000 1800
Model 101/103 2700000
assembly 3500 1750
1500000
Model 102 assembly 2500
8600000
Total Overheads 8000 8500 5230
Page 14 of 19
15. Case Study – Merton Truck Company
Question 4 - Additional Capacity of 2000 Engine Ass.
Model 101
Model 102
Total Contribution
Production Units
1500
1500
2350000
Additional Contribution
- $ 50000
Machine Hours
requirement and
Availability -
Constraints
Department
Model 101
Hours
Model 102
Hours
Used capacity
Page 15 of 19
18. Case Study – Merton Truck Company
Question 5 Model 101 production – 3 times Model 102
Model 101
Model 102
Total Contribution
Production Units
2250
750
1900000
Additional Contribution
- $ 500000
Machine Hours
requirement and
Availability
Department
Model 101
Hours
Model 102
Hours
Used capacity
Hours
Maxi Hours per month
% Utilz
Page 18 of 19
19. Case Study – Merton Truck Company
**************End of assignment *****************
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