This website uses cookies to ensure you have the best experience. Learn more

Merton Truck Company Case Essay

1741 words - 7 pages

Executive Summary

The Problem: Merton Truck Company has been experiencing difficulties related to their financial performance, and they do not know which is the optimal product mix to maximize profits and performance. Group 2 was asked to make recommendations and analyze the given situation to eliminate the difficulties and come up with the right product mix and the optimal solutions considering different alternatives and scenarios.

The Solution: Linear Programming was used to analyze the different alternatives to arrive at the optimal solution. The optimal product mix was calculated to be 2000 units of model 101 and 1000 units of model 102. In the next pages you will see the answers ...view middle of the document...

A third variable in respect of the proposed model 103 truck is introduced later.

Constraints
The problem has four constraints. They reflect limitations imposed by capacity in the engine assembly line, metal stamping line, model 101 assembly line and model 102 production line.

Objective
The objective aim of the analysis is to maximize contribution/profits. The objective function calculates the profits by determining the optimal units of each truck to be produced and multiplying same with its contribution margin.

Solution Analysis
Question 1
In this section, we are calculating the optimal product mix under different scenarios.
Part A:
Fixed costs will not be affected by the mix of products so it shall be deducted after we calculate the total profit
if we disregard the fixed over head we shall have the following costs (include only variable overhead):

Per unit Model 101 Model 102
Direct Material 24000 20000
Direct Labor 4000 4500
Variable overhead 8000 8500
Cost: 36000 33000
Subtract from Selling Price
Selling Price 39000 38000
Cost 36000 33000
Profit (without FO) 3000 5000

Using Excel Solver we can calculate the Total production units of models 101 and 102, and the
Maximized profit.

Model 101 102
(x1) (x2)
Profit per unit 3000 5000
Production 2000 1000 Total
Profit 6000000 5000000 11000000

constraints Model 101 Model 102 usage RHS Leftover
Engine Assembly 1 2 4000 TRUE 4000 0
Metal stamping 2 2 6000 TRUE 6000 0
Model 101 assembly 2 0 4000 TRUE 5000 1000
Model 102 assembly 0 3 3000 TRUE 4500 1500

However now we need to deduct the fixed overhead costs which are $8.6 million from the $11.00 million. Maximum profit after deducting the fixed overhead costs is $2.4 million
Part B:
When there are potential changes in the parameter of LP models, Sensitivity Analysis is required. Here we have an increase in the RHS value of the Engine assembly constraint from 4000 to 4001. Each extra unit of capacity of Engine Assembly is worth $2000 (shadow price of engine assembly capacity) because all the hours were used up.
The contribution per unit or the objective coefficient for model 102 is 5000 $ so to maximize the profit we should produce one more unit of model 102
Part C:
Each extra unit of capacity of engine assembly is worth $2000 (shadow price of engine assembly capacity).
100 extra units of capacity of engine will be worth $ 200,000 which is 100 times the value of one extra unit of capacity ($2000)
Part D:
The allowable increase is 500 units so it is safe to say that a change might occur in the value of any additional unit in the capacity only if we exceed that limit. See appendix A for more details
Question 2
Under this question Merton Trucks management is considering the option of outsourcing engine assembly in order to maximize returns.
In order to relieve the capacity problem in the engine...

Other Papers Like Merton Truck Company Case

Credit Risk Essay

1037 words - 5 pages Commercial Banking The first category of credit risk models are the ones based on the original framework developed by Merton (1974) using the principles of option pricing (Black and Scholes, 1973). * the default process of a company is driven by the value of the company’s assets and the risk of a firm’s default is therefore explicitly linked to the variability of the firm’s asset value. * The basic intuition behind the Merton model is

State Of Confusion Essay

1031 words - 5 pages State of Confusion The state of Confusion has the constitutional right to regulate different aspects of safety requirements. One statute that has come under scrutiny is the requirement of all trucks and towing trailers to use B-type truck hitches if that truck is to enter the state. One such company is based in a different state is challenging the statute as unconstitutional. The United States District Court of the state of Confusion will

Paccar Analysis

2048 words - 9 pages Paccar Inc was founded in Seattle in 1905 as the Seattle Car Manufacturing Company. It was originally formed as a supplier of railcar and logging equipment to the Washington State timber industry. Through merger the company was renamed the Pacific car and Foundry Company, and, in 1945, it entered the on-highway truck market through the acquisition of the Seattle-based Kenworth Truck company. This was followed by the purchase of another North

Volvo Penetrating the Us Market

544 words - 3 pages market share increase and profitability. The expected increase in truck demand in 1998 was a therefore a missed opportunity for Volvo. Issues & recommendations: 1. Network of dealers and After sale approach Although Volvo is vertically integrated (ie developing and producing all major drive-train components), the company failed to design an horizontal integration business strategy. Network of dealers mainly drawn from existing cars sell network

Food Truck

5877 words - 24 pages owners, such as slow seasons, bad weather, and sluggish economy. Read on to find out how you can start your own food truck business. Difficulty: Hard Time Required: Two Months or More Here's How: 1. Find out if a Food Truck Business is Legal in Your Neighborhood. This may sound like a no-brainer, but you’d be surprised how many places don’t allow food trucks or put a cap on the number of food truck permits allowed at any given time. Case in

State of Confussion

860 words - 4 pages case can be filed in the jurisdiction of civil court. The Confusion statue can become constitutional or unconstitutional depending on certain standings. The civil suit must be determined by the courts if the case is constitutional or unconstitutional since the company has the right to set his or her own rules. The court will have to make a valid judgment on decision because the statue can go either way of being constitutional or

Truck Transportation Industry Analysis

3016 words - 13 pages and carry more goods. GROWTH FACTORS In the truck transportation industry there are many things that cause growth for a company. Some of the factors are: acquiring new technologies that put you ahead of your competitors, a limit in regulations in a particular state that allow for you to transport more good for a higher weight scale. By the U.S Bureau of Labor they estimate that employment in transportation of good and services will increase

State of Confusion

1128 words - 5 pages operators of trucks will have to go a different route than the truck operators will normally do in Confusion, there will be a fee to all truck drivers and their businesses, which will cost them money, and also time. What court will have Jurisdiction over Tanya’s suit? Why? Federal court will become jurisdiction in reference to Tanya Truckers legal lawsuit case. The Trade Article grants the government the authority to regulate transportation

Rogers Cable

1274 words - 6 pages , so his decision to shift to a competitor will cause hefty financial loss to the company. Under the “First Time Right” initiative to resolve the repeat and re-work problems, we need to come up with a financially viable solution to retain customers and market leadership. The Problem / Objective To find a financially viable way to reduce the truck rolls and increase coordination among the business partners and technicians, for a better

State of Confusion

992 words - 4 pages State of Confusion Paper This paper will cover a law suit that Tanya Trucker is bringing to the State of Confusion court system. Tanya lives in the State of Denial. The state of Confusion has enacted a statute requiring all trucks and towing trailers who use its highways to use a B-type truck hitch. Tanya, who owns a trucking company, is concerned with the cost of changing her towing hitches will adversely affect her business. Before Tanya

State of Confusion Paper

1149 words - 5 pages , 98 percent of the fatalities were occupants of the car. Tanya Trucker owns a trucking company in the state of Denial and is upset with the Confusion statute and the additional costs compliance will be to her company. She plans to file a lawsuit against Confusion to attempt to overturn the statute. The case would be tried in the Confusion state courts, because it is a state statute and is probably less than the $75,000 threshold needed

Related Essays

Merton Truck Company Essay

1517 words - 7 pages Memorandum To: Richard Merton, President, Merton Truck Company From: Khushdeep Kaur Date: October 22, 2013 ------------------------------------------------- RE: Merton truck company financial performance and product mix concerns Introduction: As requested an analysis was done to find out the most suitable product mix for Merton Truck Company in an effort to find out the combination that maximizes contribution and whether Truck 101 is

Revenue Recognition Essay

747 words - 3 pages sold on the black market (as well as to retrieve the truck/trailer before it is vandalized). They have engaged the services of Truck Locators, a provider of locating services to the trucking industry. Truck Locator’s Truck Finder services is a one-way messaging service that routes messages from the truck on the road to the trucking companies offices. The trucking company is provided with detailed information: GPS location of both the tractor

American Trucking Company Essay

783 words - 4 pages before it is sold on the black market (as well as to retrieve the truck/trailer before it is vandalized). They have engaged the services of Truck Locators, a provider of locating services to the trucking industry. Truck Locator’s Truck Finder services is a one-way messaging service that routes messages from the truck on the road to the trucking companies offices. The trucking company is provided with detailed information: GPS location of both

Biovail Case Essay

2643 words - 11 pages pharmaceutical products and utilized advanced drug delivery technologies. This company had listed on the Toronto and New York Stock Exchange (NYSE). In the case, on September 30, 2003 there was a truck carrying a shipment of Wellbutrin® XL from Biovail’s manufacturing facility in Manitabo to Biovail’s Distributor, North Carolina was involved in a multi-vehicle traffic accident near Chicago. The company announced that the loss of the quarterly earnings