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作業研究(I)

(Modified from Red Brand Case: Stanford University, 1965.)

On Monday, September 12, 2005, Mr. Michael Gordon, Vice President of operations,

asked the Controller William Cooper, the Sales Manager Charles Myers, and Dan Tucker the

Production Manager to meet with him to discuss the amount of tomato products to pack that

season. The tomato crop, which had been purchased at planting, was beginning to arrive at the

cannery, and packing operations would have to be started by the following Monday. Red Brand

Canners (RBC) was a medium-size company that canned and distributed a variety of fruit and

vegetable products under private brands in the western states.

Cooper and Myers were the first to arrive in Mr. Gordon’s office. The production

manager came in a few minutes later and said that he had picked up produce inspection’s latest

estimate of the quality of the incoming tomatoes. According to their report, about 20% of the

crop was grade “A” quality and the remaining portion of the 3 million pound crop was grade

“B”.

Gordon asked Myers about the demand for tomato products for the coming year. Myers

replied that they could sell all of the whole canned tomatoes they could produce. The expected

demand for tomato juice and tomato paste, on the other hand, was limited. The sales manager

then passed around the latest demand forecasts, which is shown in Exhibit 1. He reminded the

group that the selling price has been set in light of the long-term marketing strategy of the

company, and potential sales have been forecasted at these prices.

EXHIBIT 1

Demand Forecasts

SELLING PRICE DEMAND FORCAST

PRODUCT

PER CASE (CASES)

1

24 − 2 Whole

2 $4.00 800,000

Tomatoes

1

24 − 2 Tomato Juice 4.50 50,000

2

1

24 − 2 Tomato Paste 3.80 80,000

2

Bill Cooper, after looking at Myers’ estimates of demand said that it looked like the

company “should do quite well on the tomato crop this year.” With the new accounting system

that had been set up, he has been able to compute the contribution for each products, and

according to his analysis the incremental profit on the whole tomatoes was greater than for any

other tomato products. In May, after RBC had signed contracts agreeing to purchase the grower’s

production at an average delivered price of 6 cents per pound, Cooper had computed the tomato

products’ contributions (see Exhibit 2).

1

國立交通大學運輸科技與管理學系

作業研究(I)

Dan Tucker brought to Cooper’s attention that although there was ample production

capacity, it was impossible to produce all whole tomatoes because too small portion of the

tomato crop was “A” quality. RBC used a numerical scaling to record the quality of both raw

produce and prepared products. This scale ran from 0 to 10, with the higher number representing

better quality. Rating tomatoes according to this scale, grade “A” tomatoes averaged 9 points per

pound and grade B tomatoes averaged 5 points per pound. Tucker noted that the minimum

average input quality for canned whole tomatoes was 8 and for juice it was 6 points per pound.

Paste could be made entirely from grade “B” tomatoes. This meant that whole tomato production

was limited to 800,000 pounds.

Gordon stated that this was not a real limitation. He had been recently solicited to

purchase 80,000 pounds of grade “A” tomatoes at 8.5 cents per pound and at that time he turned

down the offer. He felt, however, that the tomatoes were still available.

EXHIBIT 2

Product Item Profitability

PRODUCT

1 1 1

24 − 2 24 − 2 24 − 2

2 2 2

COSTS WHOLE TOMATOES TOMATO JUICE TOMATO PASTE

Selling Price (per case) $4.00 $4.50 $3.80

Variable Costs

Direct Labor 1.18 1.32 0.54

Variable Overhead 0.24 0.36 0.26

Variable Selling 0.40 0.85 0.38

Packaging Material 0.70 0.65 0.77

Fruit* (cost per case) 1.08 1.20 1.50

Total Variable Cost 3.60 4.38 3.45

Net Profit (per case) 0.40 0.12 0.35

*Product usage is as given bellow.

POUNDS

PRODUCT PER CASE

Whole Tomatoes 18

Tomato Juice 20

Tomato Paste 25

2

國立交通大學運輸科技與管理學系

作業研究(I)

EXHIBIT 3

Marginal Analysis of Tomato Products

Z = cost per pound of “A” tomatoes in cents

Y = cost per pound of “B” tomatoes in cents

(1) (600,000 lb x Z) + (2,400,000 lb x Y) = (3,000,000 lb x 6)

Z Y

(2) =

9 5

Z = 9.32 cents per pound

Y = 5.18 cents per pound

CANNED TOMATO TOMATO

PRODUCT

WHOLE TOMATOES JUICE PASTE

Selling Price $4.00 $4.50 $3.80

Variable Cost

(excluding Tomato Cost) 2.52 3.18 1.95

$1.48 $1.32 $1.85

Tomato Cost 1.49 1.24 1.30

Marginal Profit ($ 0.01 ) $0.08 $0.55

Myers, who had been doing some calculations, said that although he agreed that the

company “should do quite well this year” it would not be by canning whole tomatoes. It seemed

to him that the tomato cost should be allocated based on quantity and quality, rather than by

quantity only as Cooper had done. Therefore, he re-computed the marginal profit on this basis

(see Exhibit 3). From his result, RBC should use 2,000,000 pounds of the grade “B” tomatoes for

paste, and the remaining 400,000 pounds of grade “B” along with all of the 600,000 pounds of

grade “A” tomatoes for juice. If the demand expectations were realized, a contribution of

$48,000 would be made on this year’s tomato crop.

Questions: PART A

1. Why does Tucker state that the whole tomato production is limited to 800,000 pounds?

(i.e., where does the number 800,000 come from?)

2. What is wrong with Cooper’s suggestion to use the entire crop for whole tomatoes?

3. How does Myers reach the conclusion that the company should use 2,000,000 pounds of grade

‘B’ tomatoes for paste and the rest of the grade “B” and all of grade “A” tomatoes to produce

juice? What is wrong with Myers reasoning?

formulate as an LP the problem of determining the optimal canning policy for this season’s crop.

Define your decision variables in terms of pounds of tomatoes. Express the objective function

coefficients in cents per pound.

5. How should your model be modified to include the possibility of the additional purchases

suggested by Gordon?

3

國立交通大學運輸科技與管理學系

作業研究(I)

Alternative Questions:

Suppose Produce Inspection could use three grades to estimate the quality of the tomato

crop. Grade “A” tomatoes average nine points per pound, “B” tomatoes average six points per

pound, and “C” tomatoes average three points per pound. Using this system their report would

indicate that 600,000 pounds are grade “A” quality, 1,600,000 pounds are grade “B”, and the

remaining 800,000 pounds are grade “C”. Paste has no minimum average quality requirement.

6. What is the maximum production in pounds of canned whole tomatoes? Can Cooper’s

suggestion be implemented?

Myers extends his analysis to three grades in Exhibits 4.

Based on Exhibit 4, Myers recommends using all grade “C” tomatoes and 1,200,000

pounds of grade “B” tomatoes for paste, and all grade “A” tomatoes and all remaining grades “B”

tomatoes for juice.

7. How does Myers compute his tomato costs in Exhibit 4? How does he reach his

conclusion to use 800,000 pounds of grade “C” and 1,200,000 pounds of grade “B” for paste,

and the rest of the tomatoes for juice? What is wrong with Myers reasoning?

formulate as an LP the problem of determining the optimal canning policy for this season’s crop.

Define your decision variables in terms of pounds of tomatoes. Express the objective function in

cents.

9. How should your model be modified to include the possibility of the additional purchases

suggested by Gordon?

EXHIBIT 4

Myers’s Marginal Analysis

X = cost per pound of “C” tomatoes in cents

(1) (600,000 lb x z) + (1,600,000 lb x Y) + (800,000 lb x X) = (3,000,000 lb x 6)

Z Y

(2) =

9 6

Y C

(3) =

6 3

Z = 9.32 cents per pound

Y = 6.21 cents per pound

X = 3.10 cents per pound

CANNED TOMATO TOMATO

PRODUCT

WHOLE TOMATOES JUICE PASTE

Selling Price $4.00 $4.50 $3.80

Variable Cost

(excluding Tomato Cost) 2.52 3.18 1.95

$1.48 $1.32 $1.85

Tomato Cost 1.49 1.24 0.78

Marginal Profit ($ 0.01 ) $0.08 $1.07

4

國立交通大學運輸科技與管理學系

作業研究(I)

(Modified from Red Brand Case: Stanford University, 1965.)

Questions: PART B

In the following questions, the analysis of the Red Brand Canners case continues. Assuming only

two grades of tomatoes, you are asked to solve several formulations on the computer and then

analyze the outputs.

1. Run on your own computer your LP formulation of the Red Brand Canners production

problem. Do not include the option of purchasing up to 80,000 additional pounds of grade “A”

tomatoes.

2. What is the net profit obtained after netting out the cost of the crop?

3. Myers has proposed that the net profit obtained from his policy would be $48,000. Is this true?

If not, what is his net profit (taking into account, as in question 2, the cost of the crop).

4. Suppose Cooper suggests that, in keeping with his accounting scheme as advanced in Exhibit 2,

the crop cost of 6 cents per pound should be subtracted from each coefficient in the objective

function. Change your formulation accordingly, and again solve the problem. You should obtain

an optimal objective value which is greater than that obtained in question 2. Explain this

apparent discrepancy (assume that unused tomatoes will spoil).

5. Suppose that unused tomatoes could be resold at 6 cents per pound. Which solution would be

preferred under these conditions? How much can the resale price be lowered without affecting

this preference?

6. Use the sensitivity output from question 1 to determine whether the additional purchase of up to

80,000 pounds of grade “A” tomatoes should be undertaken. Can you tell how much should be

purchased?

7. Use a reformulated model to obtain an optimal product mix using the additional purchase

option. The solution to your reformulated model should explicitly show how the additional

purchase should be used.

8. Suppose that in question 1 the Market Research Department feels it could increase the demand

for juice by 25,000 cases by means of an advertising campaign. How much should Red Brand be

willing to pay for such a campaign?

9. Suppose in question 1 that the price of juice increased 10 cents per case. Does your computer

output tell you whether the optimal production plan will change?

10. Suppose that RBC is forced to reduce the size of the product line in tomato-based products to 2.

Would additional computer runs be required to tell which product should be dropped from the

line?

5

國立交通大學運輸科技與管理學系

作業研究(I)

11. Suppose that in question 1 an additional lot of grade “B” tomatoes is available. The lot is

50,000 pounds. How much should RBC be willing to pay for this lot of grade “B” tomatoes?

For the following questions assume 3 grades of tomatoes, as in the alternate question in Part A.

12. Run on your own computer your LP formulation of Question 8 of the Alternate Questions for

Red Brand Canners.

13. What is the net profit obtained after netting out the cost of the crop?

14. Myers claims the net profit from his policy of producing 2,000,000 lb paste and 1,000,000 lb

juice is $89,600. Is this correct? If not, what is his net profit (taking into account, as in question

13, the cost of the crop)?

15. Suppose Cooper suggests that, in keeping with his accounting scheme as advanced in Exhibit 2

the crop cost per pound should be subtracted from each coefficient in the objective function.

Change your formulation accordingly, and again solve the problem, assuming a crop cost of 7

cents per pound. You should obtain a solution that is different from that obtained in question 12.

Which solution has a higher net profit (assume unused tomatoes will spoil)? Is it correct to

include tomato costs in the objective function?

16. If in question 15 unused tomatoes could be resold for 7 cents a pound, which solution would be

preferred? How much can the resale price be lowered without affecting this preference?

17. Use the sensitivity output from question 12 to determine whether the additional purchase of up

to 80,000 pounds of grade “A” tomatoes should be undertaken. Can you tell how much should be

purchased?

18. Use a reformulated model to obtain an optimal product mix using the additional purchase

option. The solution to your reformulated model should explicitly show how the additional

purchase should be used.

19. Suppose that in question 12 the Market Research Department feels they could increase the

demand for paste by 3,000 cases by means of an advertising campaign. How much should Red

Brand be willing to pay for such a campaign?

20. Suppose in question 12 that the price of canned whole tomatoes decreased by 16 cents per case.

Does your computer output tell you whether the optimal production plan will change?

21. Suppose that the Market Research Department suggests that if the average quality of paste is

below 4 the product will not be acceptable to customers. Would an additional computer run be

necessary to determine the optimal production plan if this constraint were added to the model?

22. Suppose that in question 12 an additional lot of grade “C” tomatoes is available. The lot is

200,000 lb. How much would RBC be willing to pay for this lot of grade “C” tomatoes?

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