Reference no: EM132973845
Question - Higgins Co (HC) manufactures and sells hand-crafted pool cues and snooker cues. The cues both use the same type of good quality wood (ash) which can be difficult to source in sufficient quantity. The supply of ash is restricted to 5,400 kg per period. Ash costs £40 per kg.
The cues are made by skilled craftsmen (highly skilled labour) who are well known for their workmanship. The skilled craftsmen take years to train and are difficult to recruit. HC's craftsmen are generally only able to work for 12,000 hours in a period. The craftsmen are paid £18 per hour.
HC sells the cues to a large market. Demand for the cues is strong, and in any period, up to 15,000 pool cues and 12,000 snooker cues could be sold. The selling price for pool cues is £41 and the selling price for snooker cues is £69.
Manufacturing details for the two products are as follows:
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Pool Cues
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Snooker Cues
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Craftsmen time per cue
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0.5 hours
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0.75 hours
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Ash per cue
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270 g
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270 g
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Other variable costs
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£1.20
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£4.70
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HC does not keep inventory
Required -
(a) Calculate the contribution earned from each cue.
(b) Determine the optimal production plan for a typical period assuming that HC is seeking to maximise the contribution earned. You should use a linear programming graph, identify the feasible region and the optimal point and accurately calculate the maximum contribution that could be earned using whichever equations you need.
(c) Explain why there is no slack at the optimal production point for the constrained resources and calculate slack for the nonoptimal resource.
Due to the growth in popularity of snooker in the Far East, Higgins Co. is concerned that although there is currently strong demand for their products, this may not be the case in the future as mass-produced cues will become more readily available from abroad.
(d) Discuss the possible consequences this could have on both the pricing strategy adopted by Higgins Co. in the future and their manufacturing strategy.