Lawn king manufactures two types of riding lawn mowers

Assignment Help Operation Management

Reference no: EM131745198

Lawn King manufactures two types of riding lawn mowers. One is a low-cost mower sold primarily to residential home owners; the other one is an industrial model sold to landscaping and lawn service companies The company is interested in establishing a pricing policy for the two mowers that will maximize the gross profit for the product line. A study of the relationship between sales prices and quantities sold of the two mowers has validated the following price-quantity relationships. Q1 = 950 - 1.5p1 + 0.7p2 & Q2 = 2500 + 0.3p1 - 0.5p2 where q1 = number of residential mowers sold, q2 = number of industrial mowers sold, p1 = selling price of the residential mower in dollars, and p2 = selling price of the industrial mower in dollars

The accounting department developed cost information on the fixed and variable cost of producing the two mowers. The fixed cost of production for the residential mower is $10,000 and the variable cost is $1,500 per mower. The fixed cost of production for the industrial mower is $30,000 and the variable cost is $4,000 per mower.

a) Lawn King traditionally priced the lawn mowers at $2,000 and $6,000 for the residential and industrial mowers, respectively. Gross profit is computed as the sales revenue minus production cost. How many mowers will be sold, and what is the gross profit with this pricing policy.

b) Following the approach of Section 8.1, develop an expression for gross profit as a function of the selling prices for the two mowers.

c) What are the optimal prices for Lawn King to charge? How many units of each mower will be sold at these prices and what will gross profit be?

d) Try a different formulation for this problem. Write the objective function as: Max p1q1 + p2q2 - c1 - c2 where c1 and c2 represent the production costs for the two mowers. Then add four constraints to the problem, two based on the price-quantity relationships and two based on the cost functions. Solve this new constrained optimization problem to see whether you get the same answer. What are the advantages of this formulation, if any?

Reference no: EM131745198

Questions Cloud

Organization with long-standing scheduling system : Assume for a moment that you work for a healthcare organization with a long-standing scheduling system that is flawed.

Experience with apple csr and business ethics : Discuss your experience(s) with Apple CSR and Business Ethics.

Customary wavy line the amount in the words : Justin gave a check for $5 to Samuel, but in doing so he forgot to fill in the customary wavy line following the amount in the words.

Disadvantages of collaborating on development project : What are some advantages and disadvantages of collaborating on a development project?

Lawn king manufactures two types of riding lawn mowers : Lawn King manufactures two types of riding lawn mowers. One is a low-cost mower sold primarily to residential home owners;

Does ryan have a conflict of interest : Ryan and Kim are married and commute to and from work together each day. Does Ryan have a conflict of interest? Explain?

Assist nguyen in defeating this other creditor claim : Nguyen has asked Varda to prepare a loan amortization schedule on his behalf that will assist Nguyen in defeating this other creditor’s claim.

Do you have conflict of interest in testifying : Do you have a conflict of interest in testifying under oath on behalf of your client? Explain?

Employee rating and appraisal systems : Some managers maintain that employee rating and appraisal systems must include the evaluation of subjective employee characteristics such as personality

User Account

All Pages