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MANVI MOTORS

The Manvi Motors of Malaysia produces cars under an agreement with Suzuki of Japan andtrucks under an agreement with General Motors of the USA. The company was estalished in!"#$ and now employs appro%imately !&&& people and can generally produce an average of $'

cars and trucks per day.

(apital investment constraints have limited the nature of Manvi)s manufacturing facilities.(onse*uently+ it is not ale to manufacture many of the items re*uired for the assemly of carsand trucks. These items are imported from Suzuki or GM. ,owever+ oth Suzuki and GM mustlimit the *uantities of parts shipped to Manvi ecause of constraints on their own capacities.Suzuki and GM have guaranteed to provide parts sufficient for '&& cars and $&& trucksrespectively per month.

GM has -ust announced several price increases+ which have raised the direct manufacturing costwhich includes all laor and material costs/ of a Manvi truck from 01&& to 0!&&& converted to

US dollars.

Suzuki has not raised prices on purchased parts+ so the direct manufacturing cost of a Manvi carhas remained stale at 01&&.

The Ministry of 2conomics controls the selling price of Manvi)s output3 cars sell at 045&& andtrucks sell at 06&&&.

Manvi)s vehicles have a reputation as well7made and dependale products+ suitale for theMalaysian market. 8emand is so great that the company can sell all the cars and trucks it canproduce+ and the company e%pects no change in this situation. Manvi presently has unfilled

orders already paid for/ for !'& cars and !&& trucks.

The manufacturing process for oth cars and trucks consists essentially of two departments+which limits the numer of vehicles that can e produced during any month. These departmentsare farication and engine assemly. An agreement with the Ministry of 9aor has set theminimum laor usage comined in oth departments to e at !4+&&& worker7hours.

The farication department is organized as a -o7shop+ which produces hundreds of differentparts on 4' machine tools. A recent analysis has shown that this shop can plan on no more than!$+&&& worker7hours of capacity in the coming month. 2ach car manufactured re*uires $&worker7hours of farication: each truck re*uires 4& worker7hours.

The assemly department is set up as a conventional assemly line. !&+&&& worker7hours ofcapacity will e availale in the assemly department in the coming month. 2ach car re*uires $'worker7hours of assemly: each truck re*uires only !& worker7hours.

The fi%ed overhead costs are estimated at 0!&+&&& in the farication department and 0!$+&&& inthe assemly department.

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At this morning)s management meeting+ ;arah ,ormozi+ the production manager e%pressedconsiderale concern over GM)s price increases. The ne%t month)s production schedule was toe announced tomorrow+ and she asked Sunil f it is+ > think we will -ust have

to asor the price increase until the Ministry of 2conomics allows us to increase our sellingprice. >n that case we will go ahead with the previous plan ? $&& cars and $&& trucks@.

!/ as the current policy of producing $&& cars and $&& trucks the est for Manvi Motorsunder the old cost structureB

$/ hat is the est product mi% for Manvi Motors under the new cost structureB5/ >f an additional worker7hour in any of the departments will cost the same amount+ in

which department would you recommend making this additional worker7hour availaleB4/ >f $&& additional worker hours were availale in the farication department for 05&&&+

should ;arah pay this amount and get the additional hoursB'/ hat are !&&& additional hours in the assemly department worthB hat aout !!&&

hoursB6/ >f the net profit from a truck is decreased y 0'&& will the est product mi% e anydifferentB ill the total profit changeB

#/ An error in record keeping indicates that the numer of ack7ordered trucks is only 1'.ill this change the est product mi%B

1/ ;arah has received word that the Minister of 9aor will rela% the laor restriction y$&&& worker7hours. ill this change the decision regarding the est product mi%B

Manvi Motors is considering introducing a new Manvi van. The new model re*uires 5& hours inthe farication department and $& hours in the assemly department. 2ach Manvi van will give anet profit of 04&&&.

!/ Should any vans e producedB$/ ,ow much would it cost in terms of profit if+ for some reason+ the management insisted

that at least one van e madeB5/ ,ow high would the profit from each van have to e efore it ecame attractive to

produce anyB