Question

Consider the design problem of the omicron company. They manufacture home gardening equipment. Because of the seasonal nature of their product line they build up a large inventory before their season begins. They have no way to check and alter their design decisions. (The same effect holds true for Christmas items such as toys and style goods) Omicron is restyling their plastic tubing used for garden hoses. The design alternatives that they are considering utilize the same facilities as their present product and therefore the problem of limited resources can be neglected. The question that omicron wishes to resolve is whether to make the plastic hose green, red, or yellow. These are strategies S1, S2, S3 respectively and in addition a fourth strategy make 50% red and 50% green is specified and called S4. (Ofcourse many combinations of all colors would be possible and could be easily handled by our methods.) The decision as to the best strategy is strongly influenced by an uncontrollable factor, viz., what color will be in style in the coming year. Estimates are prepared and the data are assembled as follows: Matrix of estimated sales volume (in Feet) N1 N2 N3 50,000 Green S1 100,000 50,000 50,000 50,000 150,000 Red S2 100,000 40,000 Yellow S3 30,000 Green & Red S4 125,000 125,000 75,000 Where, N1 is the state of natue, red is in style; N2 describes the fact that green is in style, and N3 stands for the condition that neither red nor green is in style. The hose sells for 15 cents a foot no matter what color is used. However, the per foot cost of each strategic alternative is different. It is 5 cents for S1, 4 cents for S2, 5 cents for S3, and 8 cents for S4. Applying the formula: Profit Sales volume (price per unit - cost per unit) Complete the following: Make up a profit matrix a. b. Map profit vs a chart Show the switch points C. d. Advise on selections based on maximax and maximin criteria Determine the best choice for a-0.6 both graphically and by equations e.

Answer 1

A) PROFIT= SALES VOLUME(PRICE PER UNIT - COST PER UNIT)

Sales volume (given in question)

Price per foot = 15 cents

Cost per foot-> green =5 , red =4 , yellow= 5 , green & red = 8

PROFIT MATRIX -

		N1	N2	N3
Green	S1	10,00,000	5,00,000	5,00,000
Red	S2	5,50,000	11,00,000	5,50,000
Yellow	S3	3,00,000	4,00,000	15,00,000
Green & red	S4	8,75,000	8,75,000	5,25,000