Memo
To: Chris Eastus
From: Francis Bennett
Date: June 22, 2014
Re: Optimization of Production under Bistide Constraint
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Recommendation

The purpose of this memo is to provide managerial guidance as to the ideal production schedule under current and anticipated Bistide supply. I will make three recommendation for the optimal production level to maximize operating income for: A) Current Bistide levels of 5000 pounds per month; B) Increased supply of 6000 pounds of Bistide per month; C) Increased supply with production constraints. * Scenario A) I recommend producing 200 A1, 200 B2, and 800 C3. * Scenario B), I recommend production increases to: 200 A1, 200 B2, and 1133 C3; and the maximum allowance for the additional resources should be $10,000, or $10.00 per pound. * Scenario C) I recommend producing 250 A1, 200 B2, and 1000 C3; allowing no more than $8,800 for the additional resources, or $8.80 per pound.

Scenario A

Under Scenario A, minimum production levels for each product are set at 200 units, and the maximum supply of the constrained resource Bistide are 5000 pounds monthly. Producing the most product possible with the highest contribution margin per pound of constrained resource would result in a product mix of 200 A1s, 200 B2s, and 800 C3s. This production schedule will yield an operating income of $16,000 monthly, or $192,000 annually.

Scenario B

By acquiring an additional 1000 pounds of Bistide per month from a second vendor, the ideal production schedule to maximize operating income is to produce 200 A1s, 200 B2s, and 1133 C3s. The increase to operating income would be up to an additional $10,000 per month less the cost of the additional Bistide. Therefore the cost of the additional Bistide needs to be less than $10,000, or