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problem 1: An insurance company wants to enter the health care market and offer its potential customers both a staff model health maintenance organization (HMO) and commercial indemnity insurance. The company is deciding how to assign its marketing efforts between those options to maximize its profits. The analysts have estimated that the company will realize a profit of $1,200 per enrollee from the HMO, and $600 per enrollee from commercial plans.

Moreover, for the coming year the company is forced to rely on its present resources in terms of sales force. The administrative support of the HMO will take two hundred hours and the commercial administration will take, on average, four hundred hours; presently, the company can allocate 1.6 million hours to sales. To break even, the HMO needs that the contribution margins (contribution margin is sales revenue less variable costs; it is the amount available to pay for fixed costs and then give any profit after variable costs have been paid) for enrollees should exceed $1.5 million. The estimated contribution margins are $500.00 and $300.00, for HMO and for commercial insurance enrollees, correspondingly. With a limited number of physicians participating in the staff model HMO at the present time, the HMO can handle at most 5,000 enrollees.

a) Formulate the problem.
b) Solve graphically (submit on scanned graph paper).
c) Solve in excel.

problem 2: The Electro-Poly Corporation is the world’s leading manufacturer of slip rings. A slip ring is an electrical coupling device which permits current to pass via a spinning or rotating connection—like a gun turret on a ship, aircraft or tank. The company recently received a $750,000 order for different quantities of three types of slip rings. Each slip ring needs a certain amount of time to wire and harness. The given table summarizes the needs for the three models of slip rings.

381_slip rings.jpg

Unfortunately, Electro-Poly doesn’t have sufficient wiring and harnessing capacity to fill the order by its due date. The company has only 10,000 hours of wiring capacity and 5,000 hours of harnessing capacity available to devote to this order. Though, the company can subcontract any part of this order to one of its competitors. The unit costs of producing each model in-house and buying the finished products from a competitor are summarized in the given table.

136_least possible cost.jpg

Electro-Poly wants to find out the number of slip rings to make and the number to buy to fill the customer order at the least possible cost.

a) Formulate the above problem. 
b) Solve in Excel.

Operation Management, Management Studies

  • Category:- Operation Management
  • Reference No.:- M93052

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