As usual, values in blue cells are given, whereas other values are calculated from these. Management at Shelby just met to discuss next month’s operating plan. Although the shelves are selling well, the overall profitability of the company is a concern. The plant’s engineer suggested that the current production of model S Shelves be cut back. According to him, “Model S shelves are sold for $1800 per unit, but our costs are $1839. Even though we’re selling only 400 units a month, we’re losing money on each one. We should decrease production of model S.” The controller disagreed. He said that the problem was the model S assembly department trying to absorb a large overhead with a small production volume. “The model S units are making a contribution to overhead. Even though production doesn’t cover all of the fixed costs, we’d be worse off with lower production.”
Your job is to develop an LP model of Shelby’s problem, then run Solver, are finally make a recommendation to Shelby management, with a short verbal argument supporting the engineer or the controller.