Description
Cost Management: Profit Maximization under Constraints
1
Cost Management
Profit Maximisation under constraints
Identify the real constraint in this profit maximisation exercise!
? There are two products : P & Q
2
? The resources required by each and the
process of how resources build these products are described in the Slides 4, 5 & 6. ? You need to figure out what is the best possible product mix to maximise the profit for the week. For which u need to maximise CONTRIBUTION per UNIT OF THE REAL CONSTRAINT!
3
? Product P and Q : Market constraints…only 100 of P and
50 of Q can be sold per week. ? Product P requires RM1, RM2 & a purchased Part all put together worth $45. ? Product Q requires RM2, RM3 together worth $40. ? The diagram shows the way the resources flow in the making of the two products!
Case : What is the maximum net profit?
P Q
4
Rs. 90/U 100U/Wk
D 15 min./U
Pur. Part Rs.5 /U
Rs. 100/U 50U/Wk
D 5 min./U C 5 min./U B 15 min./U
RM2 Rs.20/U
C 10 min./U A 15 min./U
RM1 Rs.20/U
B 15 min./U A 10 min./U
RM 3 Rs.20/U
5
Available Resources
A - One B - One C - One D - One Each resource is available 5 days a week, 8 hours a day (2400 minutes). Fixed Cost: Rs.6000 per week.
6
What is the real constraint?
? See slide 8 for the detailed data sheet…..
? And here is where you will find your queries ?
Where’s the root catch to help us decide how many of P & Q to make and sell?
[time in minutes]
7
Max Time A 2400
Time pu for P 15
Total Time for P(100) 1500
Time pu For Q 10
Total Time For Q (50) 500
GTotal time 2000
B
C D Total
2400
2400 2400 9600
15
15 15 60
1500
1500 1500 6000
30
5 5 50
1500
250 250 2500
3000
1750 1750 8500
P
Q 100 40 60
What is contribution?
SP pu VC pu C pu
90 45 45
Goal Conflict?
C/Total time
C/Time of B
.75
3
1.2
2
8
The concept...
Product Selling Price p.u. Variable Co st p.u. Co nt ribut io n p.u. X 100 75 25
I
Y 50 30 20
II
Z 20 8 12
Constraint: No. of units
If he can sell only 1000 units
Ranking
III
Constraint: Rs. Sales
If he can sell only goods worth Rs.100000
Co ntributio n/ Sales Ranking Hrs/ Unit Co ntributio n/ Hr(Rs) Ranking
III
25%
40%
II
60%
I
If he has a capacity of only 10000 Labour Hrs
5 5
III I
2 10
II
2 6
Constraint: Labour Hrs
9
In case there is a constraint, the option which saves cost per unit of constraint or increases contribution per unit of constraint has to be considered. Though be careful to indentify the real constraint ?
doc_783727263.pptx
Cost Management: Profit Maximization under Constraints
1
Cost Management
Profit Maximisation under constraints
Identify the real constraint in this profit maximisation exercise!
? There are two products : P & Q
2
? The resources required by each and the
process of how resources build these products are described in the Slides 4, 5 & 6. ? You need to figure out what is the best possible product mix to maximise the profit for the week. For which u need to maximise CONTRIBUTION per UNIT OF THE REAL CONSTRAINT!
3
? Product P and Q : Market constraints…only 100 of P and
50 of Q can be sold per week. ? Product P requires RM1, RM2 & a purchased Part all put together worth $45. ? Product Q requires RM2, RM3 together worth $40. ? The diagram shows the way the resources flow in the making of the two products!
Case : What is the maximum net profit?
P Q
4
Rs. 90/U 100U/Wk
D 15 min./U
Pur. Part Rs.5 /U
Rs. 100/U 50U/Wk
D 5 min./U C 5 min./U B 15 min./U
RM2 Rs.20/U
C 10 min./U A 15 min./U
RM1 Rs.20/U
B 15 min./U A 10 min./U
RM 3 Rs.20/U
5
Available Resources
A - One B - One C - One D - One Each resource is available 5 days a week, 8 hours a day (2400 minutes). Fixed Cost: Rs.6000 per week.
6
What is the real constraint?
? See slide 8 for the detailed data sheet…..
? And here is where you will find your queries ?
Where’s the root catch to help us decide how many of P & Q to make and sell?
[time in minutes]
7
Max Time A 2400
Time pu for P 15
Total Time for P(100) 1500
Time pu For Q 10
Total Time For Q (50) 500
GTotal time 2000
B
C D Total
2400
2400 2400 9600
15
15 15 60
1500
1500 1500 6000
30
5 5 50
1500
250 250 2500
3000
1750 1750 8500
P
Q 100 40 60
What is contribution?
SP pu VC pu C pu
90 45 45
Goal Conflict?
C/Total time
C/Time of B
.75
3
1.2
2
8
The concept...
Product Selling Price p.u. Variable Co st p.u. Co nt ribut io n p.u. X 100 75 25
I
Y 50 30 20
II
Z 20 8 12
Constraint: No. of units
If he can sell only 1000 units
Ranking
III
Constraint: Rs. Sales
If he can sell only goods worth Rs.100000
Co ntributio n/ Sales Ranking Hrs/ Unit Co ntributio n/ Hr(Rs) Ranking
III
25%
40%
II
60%
I
If he has a capacity of only 10000 Labour Hrs
5 5
III I
2 10
II
2 6
Constraint: Labour Hrs
9
In case there is a constraint, the option which saves cost per unit of constraint or increases contribution per unit of constraint has to be considered. Though be careful to indentify the real constraint ?
doc_783727263.pptx