Introduction to Management Science: A Modeling and Case Studies Approach with Spreadsheets 5th Editi

           = $0 {if Q=0} and
           = –$5,000,000 + $1,000Q – $750Q = –$5,000,000 + $250Q {if Q > 0}.

Mathematical model:
Now interpret Q as the number to produce with the make option.  The model is to find the value of Q so as to

Maximize Incremental Profit
           = $0 {if Q=0} and
           = –$5,000,000 + $250Q {if Q > 0}

subject to
           Q ≤ s (sales forecast)
           Q ≥ 0.


              d)   

              e)    Make-option cost = $10,000,000 + $1000Q
Buy-option cost = $5,000,000 + $1250Q
Break-even point = $5,000,000 / ($1250 – $1000) = 20,000 units.


              f)

If s ≤ 20,000, then set Q = 0 (so buy instead of make).
If s > 20,000, then set Q = s (so make option with Q = s).
Since s = 30,000, use make option and produce 30,000 watches.
1.9         An answer for the selected application can be found by referring to the corresponding question in the chapter indicated in Table 1.1 and then reading its answer in this Solutions Manual.
1.10       Find the answers as described above for Problem 1.9.
1.11     This article describes the dramatic story of how management science (referred to as operations research or OR in the article) played a fundamental role in enabling the Federal Express Corporation (FedEx) to become the world’s largest express transportation company. The five major reasons why management science has been so successful at FedEx are described on pages 33-34 of the article. Here is one way of summarizing the reasons.

            (1) Because of the high levels of interdependencies among the parts of the FedEx business, its route structures and operations are amenable to modeling and analysis.

            (2) Throughout the history of the company, the founder and CEO has strongly supported using management science to help deal with issues of crucial importance to the firm.


            (3) From the beginning, the management science team used practical (not esoteric) modeling to focus on issues that were crucial to the business.

            (4) Through continual dialogues, the management science team and executive management jointly arrived at shared understandings of the trade-offs and compromises needed to achieve the company’s overall corporate goals.

            (5) The management science team constantly updated the relevant facts and assumptions for its analysis.



Case
1.1         a&b) The break-even quantity is 100 units.

              c)    Profit = [0 if Q = 0] and [-$250,000 + $4500 * MIN(Q, s) – $2000 * Q if Q > 0].


              d)