Merton Truck Company

In: Business and Management

Submitted By khush1
Words 1500
Pages 6
Memorandum
To: Richard Merton, President, Merton Truck Company
From: Khushdeep Kaur
Date: October 22, 2013
-------------------------------------------------
RE: Merton truck company financial performance and product mix concerns

Introduction:
As requested an analysis was done to find out the most suitable product mix for Merton Truck Company in an effort to find out the combination that maximizes contribution and whether Truck 101 is really losing money or not. Analysis also aimed at finding out that whether the company should rent additional capacity by purchasing additional engines from an outside supplier to relieve the capacity problem in the engine assembly department. The calculations were based on the revenue for each model, machine hours required for each job, total machine hours available per month and variable cost per truck.
Discussion:
Currently Merton’s is producing 1000 model 101 trucks per month and 1500 model 102 trucks per month. At this level Model 102 assembly and engine assembly were operating at capacity and metal stamping at 83.3% capacity and Model 101 assembly at 40% capacity.
Data used for analysis:
Data regarding given capacity of the engine assembly line, machine hours availability and requirement for completing various manufacturing jobs, standard product costs for each model and the overhead budget for 2012.
Method:
For finding the product mix that maximizes contribution a linear programming model was prepared using, maximize monthly contribution as the objective function, number of model 101 trucks and number of model 102 trucks as the decision variables, the analysis was bound to the constraints of requirement and availability of machine hours for engine assembly, metal stamping, Model 101 assembly and Model 102 assembly (refer attachments figure 1)
Contribution per unit was found out by using the total revenue…...

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