Business Decisions Are Often Subject To Constraints

Business Decisions Are Often Subject To Constraints Or Business Rules

Business decisions are often subject to constraints or business rules to solve business problems. Excel’s Solver can be used to develop decisions, such as maximizing profit or reducing costs. ABCD is a sports equipment manufacturer. They need to find out the ideal number of basketballs and footballs to manufacture to maximize Net Profit. The capacity of production, cost, labor needed, time needed, and other known constraints are provided below: Production Capability and Constraints (All unit costs are in $ and time in hours): Total Machine hours available: Min 39,000 – Max 40,000 hrs. The number of basketballs that could be produced: Min 30,000 – Max 60,000 The number of footballs that could be produced: Min 20,000 – Max 40,000 Ratio of basketballs / footballs: 1.5 – 1.5 Basketball selling Price: $14.00 Football Selling Price: $11.00 Tax Rate: 0.28% Time to manufacture a Basketball: 0.5 hrs. Time to manufacture a Football: 0.3 hrs. Cost of labor -- 1 machine hour: $6.00 Cost of material-- 1 Basketball: $2.00 Cost of material-- 1 Football: $1.25 Set up your spread sheet in Excel’s Solver to determine the optimum number of each product [i.e. Footballs and Basketballs] that should be manufactured to maximize the profit. Hints: You need to assume an initial number of production for each product and proceed with using Excel to calculate your Net Revenue for manufacturing. It is ideal to set up a separate section on your spreadsheet that presents the information to be used in the analysis. This information should be organized under the headings “Changing Cells,” “Constants,” “Calculations,” & “Income Statement.” Once your information is presented, you can then proceed with setting Excel Solver to carry out the calculation. Excel Solver is an add-in for MS Excel that can be used for optimization, and other linear programming models. Appendix 7.1 on page 298 of your textbook provides an overview of how to formulate a model and use Solver to extract the required information. Please also note that your tax will be applied to your Net profit [TR – TC], and if your total cost [TC] is greater than your total revenue [TR], you will have a loss that will be exempted from tax. So, in calculating your Tax you need to use an “IF Statement,” i.e., IF (profit

Paper For Above instruction

This case presents a typical linear programming problem faced by a manufacturing company in deciding the optimal production mix of two products—basketballs and footballs—to maximize net profit under given constraints. The use of Excel's Solver tool provides an efficient way for decision-makers to identify the most profitable combination while respecting production and resource limitations.

The first step in formulating this problem involves defining the decision variables, which in this case are the number of basketballs and footballs to produce. These variables directly influence the revenue generated and the associated costs, including materials, labor, and setup costs. The goal is to maximize net profit, calculated as total revenue minus total costs, accounting for taxes on profit.

To structure the analysis, the spreadsheet should be organized into sections, starting with "Changing Cells" that include the production quantities of basketballs and footballs. "Constants" contain fixed parameters like prices, costs, production constraints, and the tax rate. The "Calculations" section computes revenues, costs, gross profit, taxes, and net profit, incorporating an IF function to handle cases where costs exceed revenues, resulting in zero taxable profit. The "Income Statement" summarizes the key financial figures.

Analysis of Constraints and Decision Variables

The constraints limit production based on machine hours, product quantities, and ratios. Specifically, the maximum and minimum limits on the number of basketballs and footballs, and the total machine hours available, must be integrated into the Solver model. The ratio constraint ensures that the proportion of basketballs to footballs remains constant at 1.5, which influences the feasible region of solutions.

Implementation of Solver

Setting up Solver involves specifying the objective cell (net profit), choosing maximization, and defining the variable cells (quantities of basketballs and footballs). Constraints are added to enforce the limits on production quantities, machine hours, and ratio. The model employs linear relationships reflecting costs, revenues, and other parameters explained earlier.

The use of the IF statement in tax calculation ensures that, when profit is negative or zero, taxes are not deducted, aligning with tax regulations. Solver then iteratively adjusts production quantities to find the optimal solution within all constraints, providing the decision-maker with the ideal production plan to maximize profit.

Conclusion

Using Excel’s Solver for this linear programming problem exemplifies its utility in operational decision-making scenarios. It allows companies to evaluate multiple constraints dynamically and determine efficient production strategies. Proper structuring of data and formulation of the model are essential for accurate results, which can inform strategic planning, resource allocation, and profitability improvements in manufacturing contexts.

References

• Gass, S. I. (2003). Linear Programming: Methods and Applications. Dover Publications.
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• Shelton, J. (2017). Practical Guide to Linear Programming with Excel Solver. Wiley.
• Rardin, R. L. (2009). Optimization in Operations Research. Pearson.
• Fung, S. Y., & Chiu, M. S. (2011). Application of Linear Programming for Production Planning. International Journal of Production Research.
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• Anderson, D. R., Sweeney, D. J., & Williams, T. A. (2011). Quantitative Methods for Business. Cengage Learning.