Effect on profits of the requirement that the number of unit

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Reference no: EM1390389

Case Problem 2 - PRODUCTION STRATEGY

Better Fitness, Inc. (BFI), manufactures exercise equipment at its plant in Freeport, Long Island. It recently designed two universal weight machines for the home exercise market. Both machines use BFI-patented technology that provides the user with an extremely wide range of motion capability for each type of exercise performed. Until now, such capabilities have been available only on expensive weight machines used primarily by physical therapist.

At a recent trade show, demonstration of the machines resulted in significant dealer interest. In fact, the number of orders that BFI received at the trade show far exceeded its manufacturing capabilities for the number of orders that BFI received at the trade show far exceeded its manufacturing capabilities for the current production period. As a result, management decide to begin production of the two machines. The two machines, which BFI has named the BodyPlus 100 and the BodyPlus 200, require different amounts of resources to produce.

The BodyPlus 100 consists of a frame unit, a press station, and a pec-dec station. Each frame produced uses 4 hours of machining and welding time and 2 hours of painting and finishing time. Each press station requires 2 hours of machining and welding time and 1 hour of painting and finishing time, and each pec-dec station uses 2 hours of machining and welding time and 2 hours of painting and finishing time. In addition, 2 hours are spent assembling, testing, and packaging each BodyPlus 100. The raw material costs are $450 for each frame, $300 for each press station and $250 for each pec-dec station; packaging costs are estimated to be $50 per unit.

The BodyPlus 200 consists of a frame unit, a press station, a pec-dec station, and a leg-press station. Each frame produced uses 5 hours of machining and welding time and 4 hours of painting and finishing time. Each press station requires 3 hours machining and welding time and 2 hours of painting and finishing time, and each leg-press station requires 2 hours of machining and welding time and 2 hours of painting and finishing time. In addition, 2 hours are spent assembling, testing, and packaging each BodyPlus 200. The raw material costs are $650 for each frame, $400 for each press station, $250 for each pec-dec station, and $200 for each leg-press station; packaging costs are estimated to be $75 per unit.

For the next production period, management estimates that 600 hours of machining
And welding time, 450 hours of painting and finishing time, and 140 hours of assembly, testing, and packaging time will be available. Current labor costs are $20 per hour for machining and welding time, $15 per hour for painting and finishing time, and $12 per hour for assembly, testing and packaging time. The market in which the two machines must compete suggests a retail price of $2400 for the BodyPlus 100 and $3500 for the BodyPlus 200, although some flexibility may be available to BFI because of the unique capabilities of the new machines. Authorized BFI dealers can purchase machines for 70% of the suggested retail prices.
BFIâ€^TMs president believes that the unique capabilities of the BodyPlus 200 can help position BFI as one of the leaders in high-end exercise equipment. Consequently, he has stated that the number of units of the BodyPlus 200 produced must be least 25% of the total production.
Production Strategy case 2

Managerial Report

Analyze the production problem at Better Fitness Inc., and prepare a report for BFIâ€^TMs president presenting your findings and recommendations. Include (but do not limit your discussion to) a consideration of the following items:

1. The recommended number of BodyPlus 100 and BodyPlus 200 machines to produces.
2. The effect on profits of the requirement that the number of units of the BodyPlus 200 produces must be at least 25% of the total production.
3. Where efforts should be expended in order to increase profits.

Include a copy of your linear programming model and graphical solution in an appendix to your report.

Reference no: EM1390389

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