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 productions 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 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 of 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 <=0, then put Tax=0, otherwise calculate Tax).