BA - Question 1 (20 points):
Gertjan makes Ratafia, a liquor that is made from grapes. He makes two types: Basic and Premium.
The Basic is sold at a price of €50 per bottle and the Premium is sold at a price of €70 per bottle.
Demand is constrained such that maximum 3,000 bottles of Basic can be sold, and 2,500 bottles
of Premium. Due to increased evaporation with longer storage, different quantities in kilograms
(kg) of grapes are necessary to produce each bottle of Ratafia. The Basic requires 1 kg/bottle,
whereas 2kg/bottle are needed for the Premium. Gertjan has 5,000kg of grapes available, at a cost
of 5€ per kg. The grapes are the only variable costs.
1.a) Is capacity constrained? Show your calculations. (2 point)
Is capacity constrained?
- 1kg * 3,000 + 2kg * 2,500 = 8,000kg > 5,000kg
- → Yes, constrained
1.b) Which product should be prioritized in the production process? Show your calculations. (4
points)
Which product has highest CM per unit of constrained resource?
- Basic: (50-5) / 1 = 45 [1.5pts.]
- Premium: (70-2*5) / 2 = 30 [1.5pts.]
→ Basic has the highest CM per unit of the constrained resource [1pts.]
1.c) How many units of Basic and Premium should be produced? What is the maximum profit?
Show your calculations. (6 points)
How many units of Basic should be produced:
- → All 3000 [2pts.]
How man units of Premium can be produced with the remaining capacity?
- 5,000kg – (3,000 * 1kg) = 2,000kg
- 2,000kg / 2kg = 1000
- → 1,000 units of Premium can be produced with the remaining capacity [3pts.]
Maximum profit:
3000 * (50-5) + 1000 * (70 – 2*5) = 195,000 [1pts.]
1.d) Gertjan learned that he can relabel the “Basic” liquor and sell an additional 1,000 bottles as a
one-time order to a large supermarket chain. The costs associated with relabeling and shipping to
the supermarket distribution center are €10 per bottle.
Should Gertjan accept the one-time order to the supermarket chain? If so, what is the new
production schedule of Basic, Basic (relabeled) and Premium, and what is the maximum profit? (8
points)
Classification: Internal
, Which product has highest CM per unit of constrained resource?
- Basic: (50-5) / 1 = 45
- Premium: (70-2*5) / 2 = 30
- Basic (relabeled): (50-5-10)/1 = 35
- New production priority: Basic, Basic (relabel), Premium
- Accept one time special order because contribution margin of Basic (relabel) is higher
[5pts.]
Produce 3000 of Basic, 1000 of Basic (relabel) and 500 Premium
Maximum profit: 3000*45+1000*35+500*60 = 135,000+35,000+30,000 = 200,000
[3pts.]
Classification: Internal
Gertjan makes Ratafia, a liquor that is made from grapes. He makes two types: Basic and Premium.
The Basic is sold at a price of €50 per bottle and the Premium is sold at a price of €70 per bottle.
Demand is constrained such that maximum 3,000 bottles of Basic can be sold, and 2,500 bottles
of Premium. Due to increased evaporation with longer storage, different quantities in kilograms
(kg) of grapes are necessary to produce each bottle of Ratafia. The Basic requires 1 kg/bottle,
whereas 2kg/bottle are needed for the Premium. Gertjan has 5,000kg of grapes available, at a cost
of 5€ per kg. The grapes are the only variable costs.
1.a) Is capacity constrained? Show your calculations. (2 point)
Is capacity constrained?
- 1kg * 3,000 + 2kg * 2,500 = 8,000kg > 5,000kg
- → Yes, constrained
1.b) Which product should be prioritized in the production process? Show your calculations. (4
points)
Which product has highest CM per unit of constrained resource?
- Basic: (50-5) / 1 = 45 [1.5pts.]
- Premium: (70-2*5) / 2 = 30 [1.5pts.]
→ Basic has the highest CM per unit of the constrained resource [1pts.]
1.c) How many units of Basic and Premium should be produced? What is the maximum profit?
Show your calculations. (6 points)
How many units of Basic should be produced:
- → All 3000 [2pts.]
How man units of Premium can be produced with the remaining capacity?
- 5,000kg – (3,000 * 1kg) = 2,000kg
- 2,000kg / 2kg = 1000
- → 1,000 units of Premium can be produced with the remaining capacity [3pts.]
Maximum profit:
3000 * (50-5) + 1000 * (70 – 2*5) = 195,000 [1pts.]
1.d) Gertjan learned that he can relabel the “Basic” liquor and sell an additional 1,000 bottles as a
one-time order to a large supermarket chain. The costs associated with relabeling and shipping to
the supermarket distribution center are €10 per bottle.
Should Gertjan accept the one-time order to the supermarket chain? If so, what is the new
production schedule of Basic, Basic (relabeled) and Premium, and what is the maximum profit? (8
points)
Classification: Internal
, Which product has highest CM per unit of constrained resource?
- Basic: (50-5) / 1 = 45
- Premium: (70-2*5) / 2 = 30
- Basic (relabeled): (50-5-10)/1 = 35
- New production priority: Basic, Basic (relabel), Premium
- Accept one time special order because contribution margin of Basic (relabel) is higher
[5pts.]
Produce 3000 of Basic, 1000 of Basic (relabel) and 500 Premium
Maximum profit: 3000*45+1000*35+500*60 = 135,000+35,000+30,000 = 200,000
[3pts.]
Classification: Internal
