Problem: Acme Manufacturing makes a variety of household appliances at a single manufac¬turing facility. The expected demand for one of these appliances during the next four months is shown in the following table along with the expected production costs and the expected capacity for producing these items.
Month
|
|
1
|
2
|
3
|
4
|
|
Demand
|
420
|
580
|
310
|
540
|
|
Production Cost
|
$49.00
|
$45.00
|
$46.00
|
$47.00
|
|
Production Capacity
|
500
|
520
|
450
|
550
|
Acme estimates that it costs $1.50 per month for each unit of this appliance carried in inventory at the end of each month. Currently, Acme has 120 units in inventory on hand for this product. To maintain a level workforce, the company wants to produce at least 400 units per month. They also want to maintain a safety stock of at least 50 units per month. Acme wants to determine how many of each appliance to manufacture during each of the next four months to meet the expected demand at the lowest possible total cost.
1. Draw a network flow model for this problem.
2. Create a spreadsheet model for this problem and solve it using Solver.
3. What is the optimal solution?
4. How much money could Acme save if they were willing to drop the restriction about producing at least 400 units per month?