Case Overview

Red Brand Canners used to be a medium-size company canning and distributing a variety of fruit and vegetable products in one year, they signed an agreement at planting time, to purchase the entire tomato crop in a large field at an average delivered price of 6 cents per lb. At harvest time, Produce Inspection estimates that the total crop will be 30, 00,000 pound, of which 20% is expected to be Grade A and the remaining portion expected to be Grade B. The company makes three different tomato products, and they set the selling prices of these products in light of the long-term marketing strategy of the company. Moreover, the company uses a numerical scale to record the quality of both the raw produce and prepared products. The scale runs from 0 to 10 points, higher numbers representing better quality. On this scale, Grade A tomatoes were valued at 9 points/lb and Grade B tomatoes 5 points/lb. furthermore the demand for 50000 cases of tomato juice, 80000 case of tomato paste and 8, 00,000 cases for whole tomatoes.

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Case Solution
Part 01
Question 01: Why does Daiyan states that the whole tomato production is limited to 800000 pounds? Answer: The demand of whole cane tomatoes is 8, 00,000 pounds and the average input quality of grade A tomato is 8. The availability of grade A tomato is 6, 00,000 pounds which grade is 9 and mix in some grade B tomatoes which grade is 5. Let, X = 2, 00,000 pounds which denote grade B tomatoes that can be mixed in. Then, (600,000*9+X*5)/ (600,000+X) =8. Total weight is 8, 00,000 pounds. Question 02: What is wrong with Wazeds suggestion to use the entire crop for whole tomatoes? Answer: Wazeds suggestion restricts the usage of tomatoes to only 800,000 lbs (shown in exhibit 1). The leftover tomatoes could be used profitably to at least make tomato paste. It might also be more profitable to make use of the A tomatoes to produce some tomato juice as well, and end up with a mix products that together produce the most profit.

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Question 03: How does Mahbun compute his tomato costs in Exibit 3? How does he reach his conclusion to use 2000000 pounds of B tomatoes for paste, the remaining 400000 pounds of B tomatoes, and the entire A in juice? What is wrong with Mahbubs reasoning? Answer: In Exhibit 3, Wazeds attempt to prorate the unit cost per tomato (18 cents) based on the quality of tomato (grade A or B). The first equation (1) indicates that the sum of 600,000 lb multiplied by the unit cost per lb for grade A tomatoes (Z) and 2,400,000 lb multiplied by the unit cost per lb for grade B tomatoes (Y) equals the total cost paid (3,000,000 lbs multiplied by 18 cents per lb). The second equation (2) defines the relative relationship between the unit prices for grade A and B tomatoes based on the relative quality points for the two grades. Solving the two equations yields the values for the unit prices for the two grades. Based on this one can state that the unit cost per lb for tomatoes of quality of 1 is equal to the value of Z/9 or Y/5. This is then used to find the adjusted fruit cost. For example, the cost per case of whole tomatoes would be: (Z/9) $/lb *8*18 lb/case or $4.47 per case. Similarly, for tomato juice the cost per case would be: (Z/9) $/lb * 6 * 20 lb/ case = $3.72 per case. Since Wazeds believes that tomato paste is the most profitable option, he would like to sell as much tomato paste that demand allows, which is 80,000 cases or 2,000,000 lbs (80,000 cases*25 lb per case). Beyond that Wazeds ranks tomato juice as the next profitable item and so the remaining 400,000 lbs of grade B tomatoes and 600,000 lbs of grade A tomatoes should be used for making tomato juice. A shortcoming in analysis is that the grade A tomatoes implicitly cost the company more than the grade B tomatoes has nothing with the current task at hand which is to maximize the operating profit for the season given the resources (tomatoes) at hand. Indeed, tomatoes have already been purchased and, hence, their purchase price is a sunk cost. It does not make sense to penalize the production of whole tomatoes because of the cost already incurred in purchasing grade A tomatoes.

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Question 04: Without including the possibility of the additional purchases suggested by Martin, formulate as an LP the problem of determining the optimal canning policy for this seasons crop. Define your decision variables in terms of pounds of tomatoes. Express the objective function coefficients in cents per pound. Answer: The problem can be formulated in LP as follows; X1 X2 X3 X4 X5 X6 = = = = = = pounds pounds pounds pounds pounds pounds of of of of of of whole A tomatoes whole B tomatoes juice A tomatoes juice B tomatoes paste A tomatoes paste B tomatoes

Max: .0822 X1+.0822 X2+.066 X3+.066 X4+.074 X5+.074 X6 Subject to ; Contraint Contraint Contraint Contraint Contraint Contraint Contraint 01: 1 X1+1 X2 < 14, 400,000 02:1 X3+1 X4< 1, 000,000 03:1 X5+1 X6 < 2, 000,000 04:1 X1+1 X3+1 X5 < 600,000 05:1 X2+1 X4+1 X6 < 2, 400,000 06:1 X1-3 X2 > 0 07:3 X3-1 X4 > 0

The first constraint refers to the 14 million pounds of whole tomatoes 8, 00,000 pounds cases at 18 pounds per case that constitutes maximum demand. Similarly, the maximum demand for tomatoes juice is 50,000 cases at 20 pounds per case at 1 million pounds and maximum demand for tomato paste is 80,000 cases at 25 pounds per case or 2 million pounds and these are constraint 2 and 3. Constraint 4 and 5 reflect availability of grade A and grade B tomatoes. Constraint 6 and 7 are the quality constraints. The coefficient of the objective function is the unit profit. A case of whole tomatoes grade A and B sells for taka 4. The variable cost is taka 2.52 and unit profit is (4.00-2.52)/18 = .0822. Similarly the unit profit for juice is .066 and paste is .074.

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Question 05: How should your model be modified to include the possibility of the additional purchase suggested by Martin? Answer: The additional purchase of 80,000 pounds of grade A quality tomatoes costing is taka .085. Let, X7 = pounds purchased into canned X8 = pounds purchased into juice X9 = pounds purchased into paste Subtract from objective function; X7 = (.0822 - .085) = .0028 X8 = (.066 - .085) = .019 X9 = (.074 - .085) = .011 The new objective function is; Max: .0822 X1+.0822 X2+.066 X3+.066 X4+.074 X5+.074 X6 (.0028 X7 + .019 X8 + .011 X9) Subject to; Contraint Contraint Contraint Contraint Contraint Contraint Contraint Contraint 01: 1 X1+1 X2+1 X7 < 14, 400,000 02:1 X3+1 X4+1 X8 < 1, 000,000 03:1 X5+1 X6+1 X9 < 2, 000,000 04:1 X1+1 X3+1 X5 < 600,000 05:1 X2+1 X4+1 X6 < 2, 400,000 06: X7 + X8 + X9 < 80,000 07:1 X1-3 X2 + X7 > 0 08:3 X3-1 X4+3 X8 > 0

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