Math 208 - Tutorial 2

Mina Moeini
Mina moeini@sfu.ca
January 14, 2025

1 The Electro- Poly Problem

Electro-Poly is a leading maker of slip rings. They can make some slip rings and buy
the remaining units to fulfill the order. Making slip rings requires wiring and harnessing
operations. Currently, Electro-Poly has only 10,000 hours of wiring and 5,000 hours of
harnessing available. The number of units ordered, resource consumption, and costs are
shown in the table below. What should Electro-Poly do?

Model 1 Model 2 Model 3

Number of slip rings ordered 3,000 2,000 900
Hours of wiring per unit 2 1.5 3
Hours of harnessing per unit 1 2 1
Cost per unit to make $50 $83 $130
Cost per unit to buy $61 $97 $145

Resources available:
• Wiring: 10,000 hours
• Harnessing: 5,000 hours
Determine how Electro-Poly should allocate resources and whether to make or buy each
model to minimize costs while fulfilling the order.

Solution
Problem Parameters
The problem parameters are the resources required to make or buy a specific slip ring model
and the maximum availability of resources.

1
 • Let wm , hm be the wiring and harnessing hours required per unit of model m, m ∈
M = {1, 2, 3}, where each model corresponds to Model 1, Model 2, and Model 3
respectively.

• Let W = 10, 000, H = 5, 000 be the maximum available hours for wiring and harness-
ing, respectively.

• Let cmake
m and cbuy
m be the costs to make and buy a unit of model m, respectively.

• Costs for each model:

– Model 1: cmake
1 = 50, cbuy
1 = 61
– Model 2: cmake
2 = 83, cbuy
2 = 97
– Model 3: cmake
3 = 130, cbuy
3 = 145

Problem Decision Variables

The decision variables are:

• xm : the number of units of model m to make, m ∈ M .

• ym : the number of units of model m to buy, m ∈ M .

Problem Constraints
The total production and purchase must meet the demand for each model:

x1 + y1 = 3, 000

x2 + y2 = 2, 000
x3 + y3 = 900
The total resource usage must not exceed the available limits:

2x1 + 1.5x2 + 3x3 ≤ 10, 000 (Wiring constraint)

1x1 + 2x2 + 1x3 ≤ 5, 000 (Harnessing constraint)

Non-negativity constraints:

xm ≥ 0, ym ≥ 0 ∀m ∈ M

2
Problem Objective
The objective is to minimize the total cost of fulfilling the order. The cost includes both
making and buying slip rings:

minimize 50x1 + 61y1 + 83x2 + 97y2 + 130x3 + 145y3

The overall model is as follows:

Minimize: 50x1 + 61y1 + 83x2 + 97y2 + 130x3 + 145y3

Subject to: x1 + y1 = 3, 000, (1)
x2 + y2 = 2, 000, (2)
x3 + y3 = 900, (3)
2x1 + 1.5x2 + 3x3 ≤ 10, 000, (4)
1x1 + 2x2 + 1x3 ≤ 5, 000, (5)
xm ≥ 0, ym ≥ 0 ∀m ∈ M. (6)

3
2 Make or Buy (From Baker 2nd edition)
A sudden increase in the demand for smoke detectors has left Acme Alarms with insufficient
capacity to meet demand. The company has seen monthly demand from its retailers for its
electronic and battery-operated detectors rise to 20,000 and 10,000 units, respectively. Acme
wishes to continue meeting this demand.

Production Process and Relevant Data

Acme’s production process involves three departments: Fabrication, Assembly, and Shipping.
The relevant quantitative data on production and prices are summarized below:
Department Monthly Hours Available Hours/Unit (Electronic) Hours/Unit (Battery)
Fabrication 2000 0.15 0.10
Assembly 4200 0.20 0.20
Shipping 2500 0.10 0.15
Cost/Price Electronic Detector Battery Detector
Variable Cost/Unit ($) 18.80 16.00
Retail Price/Unit ($) 29.50 28.00
The company also has the option to obtain additional units from a subcontractor, who
has offered to supply up to 20,000 units per month in any combination of electronic and
battery-operated models at a charge of $21.50 per unit. For this price, the subcontractor
will test and ship its models directly to the retailers without using Acme’s production process.

Questions
(a) What is the maximum profit and the corresponding make/buy levels? (This is a
planning model, and fractional decisions are acceptable.)

(b) Trace the effects of increasing Fabrication capacity by 10 percent. How will the optimal
make/buy mix change? How will the optimal profit change?

Solution
Problem Parameters
The problem parameters are the monthly available hours for each department, the hours per
unit required for each department to create electronics and batteries, the variable cost per
unit for both items, the retail price for both items, and the demand:

• Hd , d ∈ D = {f, a, s}: The monthly hours available for fabrication, assembly, and
shipping.

• Ed , d ∈ D: The hours per unit (electronics) for each department.

4
 • Bd , d ∈ D: The hours per unit (battery) for each department.

• Ce , Cb : The variable cost for electronics and batteries.

• Re , Rb : The retail price for electronics and batteries.

• S: The price per unit from purchasing electronics or batteries from the subcontractor.

• De , Db : The demand for electronics and batteries.

Problem Decision Variables

The problem decision variables are to select how many electronics and batteries to make or
buy:

• Let xe,m and xb,m be the number of electronics and batteries we will make, respectively.

• Let xe,b and xb,b be the number of electronics and batteries we will buy, respectively.

Problem Constraints
The constraints are based on the number of monthly available hours for production, the total
demand, and the total number of electronics and battery models we can buy. We denote
this as Pmax . The constraints are as follows:

Ed xe,m + Bd xb,m ≤ Hd , d ∈ D, (7)

xe,b + xb,b ≤ Pmax , (8)
xe,b + xe,m = De , (9)
xb,b + xb,m = Db . (10)

Non-Negativity Constraints
xe,m , xb,m , xe,b , xb,b ≥ 0

Problem Objective
The objective is to maximize the overall profit (Revenue - Cost):

Maximize: Re (xe,m + xe,b ) + Rb (xb,m + xb,b ) − Ce xe,m − Cb xb,m − S(xe,b + xb,b ). (11)

The overall model is:

5
 Maximize: Re (xe,m + xe,b ) + Rb (xb,m + xb,b ) − Ce xe,m − Cb xb,m − S(xe,b + xb,b )
Subject to: Ed xe,m + Bd xb,m ≤ Hd , d ∈ D, (12)
xe,b + xb,b ≤ Pmax , (13)
xe,b + xe,m = De , (14)
xb,b + xb,m = Db . (15)

Part a)
The optimal production levels are as follows:

Category Amount
Electronics (make) 6666.66
Batteries (make) 1000
Electronics (buy) 13 333.33
Batteries (buy) 0

The maximum profit is $298, 000.

By increasing fabrication by 10%, we obtain the following result:

Category Amount
Electronics (make) 8000
Batteries (make) 10 000
Electronics (buy) 12 000
Batteries (buy) 0

The maximum profit is $301, 600.

More electronics are made.

6
3 Leasing Warehouse Space (From Baker second edi-
tion)
Cox Cable Company needs to lease warehouse storage space for five months at the start
of the year. The company knows how much space will be required in each month, and it
can purchase a variety of lease contracts to meet these needs. For example, it can purchase
one-month leases in each month from January to May. It can also purchase two-month leases
starting from January through April, three-month leases from January through March, four-
month leases from January and February, or a five-month lease starting in January.
In total, there are 15 possible leases it could use. The company must decide which
leases to purchase and how many square feet to purchase on each lease. Since the space
requirements differ month-to-month, it may be economical to lease only the amount needed
each month on a month-by-month basis. On the other hand, the monthly cost for leasing
space for additional months is much less than for the first month, so it may be desirable
to lease the maximum amount needed for the entire five months. Another option is an
intermediate approach of changing the total amount of space leased (by adding a new lease
and/or having an old lease expire) at least once, but not every month. Two or more leases
for different terms can begin at the same time.

Space Requirements and Leasing Costs

The space requirements (in square feet) and the leasing costs (in dollars per thousand square
feet) are as follows:

Month Space Requirements (sq ft) Lease Length (months) Cost ($ per 1000 sq ft)
January 15, 000 1 280
February 10, 000 2 450
March 20, 000 3 600
April 5, 000 4 730
May 25, 000 5 820

Problem Objective
The task is to find a leasing schedule that:

• Provides the necessary amount of space in each month.

• Minimizes the total leasing cost.

Questions
(a) Determine the optimal leasing schedule and the optimal total cost.

7
 (b) Trace the effects of increasing the space required for January. How will the leasing
schedule change? How will the total cost change?

Solution
This is a covering problem, looking to minimize the total lease cost while having enough
storage space.

Problem Parameters
The problem parameter is the lease cost and the monthly requirements. Let ci be the cost
of a 1,000 square foot i-month rental, where i ∈ {1, 2, . . . , 5}. Let mi be the required storage
space for month i, where i ∈ {1, 2, . . . , 5}.

Problem Decision Variables

The decision variables are the quantity of each rental lease. Let xi,j be the number of rentals
from the start of month i to the end of month j, where i ≤ j and i, j ∈ {1, 2, . . . , 5}.

Problem Constraints
The problem constraint is to ensure that enough space is rented for each month. This can
be written as: X
xi,j ≥ mk , ∀k ∈ {1, 2, . . . , 5}.
i≤k≤j, i,j∈{1,2,...,5}

Non-Negativity Constraints
xi j ≥ 0

Problem Objective
The objective is to minimize the total cost of the rental. Recall that the cost parameter is
per thousand square feet while the required space is in squared feet.
5 4 3 2 1
!
1 X X X X X
min c1 xi,i + c2 xi,i+1 + c3 xi,i+2 + c4 xi,i+3 + c5 xi,i+4
1000 i=1 i=1 i=1 i=1 i=1

The overall model is:

8
 5 4 3 2 1
!
1 X X X X X
Minimize: c1 xi,i + c2 xi,i+1 + c3 xi,i+2 + c4 xi,i+3 + c5 xi,i+4
1000 i=1 i=1 i=1 i=1 i=1
X
Subject to: xi,j ≥ mk , ∀k ∈ {1, 2, . . . , 5}. (16)
i≤k≤j, i,j∈{1,2,...,5}

Part a)
Using Excel Solver, the optimal rental schedule is as follows:

• A 15 000 square feet, 5-month rental starting in January.

• A 5000 square feet, 1-month rental in March.

• A 10 000 square feet, 1-month rental in May.

The total optimal cost is $16, 500.

Part b)
Increasing the January required storage amount to 50 000 square feet resulted in the following
rental schedule:

• A 20 000 square feet, 5-month rental starting in January.

• A 30 000 square feet, 1-month rental in January.

• A 5000 square feet, 1-month rental in May.

The total cost changes to $26, 200.