Question

Potato-Potato Cycles manufactures and sells motorcycles in a variety of engines and configurations. The company has recently launched two new models: R30 and R40. The suggested retail price is $21,000 for R30 and $36,000 for R40. Note that because construction of cycles is continuous, portions of bikes can be constructed each month (solution not limited to integers). It takes 9 labour-hours to assemble each R30 plus 0.7 hours in the packaging department for the R30 model. Each R40 model requires 10 hours of assembly and 2.3 hours in packaging. For the next month, the plant manager can dedicate up to 1000 labour-hours for assembly and up to 190 labour-hours for packaging. The hourly labour costs are $40 per hour for assembly time and $20 per hour for packaging. The costs for the parts used for assembly are $5,700 for the R30 and $6,950 for the R40 model. The number of already committed and anticipated orders far exceeds management’s forecast for both models. Management has met with the marketing department and they have decided that at least 35% of the total production must be allocated to the R40 models. Furthermore, they have decided that at least 22 of the R40 models must be fabricated in their first production month.

Question: Suppose Potato-Potato can buy additional packaging time at the same rate. Should it do so? State why or why not. How much more should they consider buying if they do purchase additional packaging time at a favourable cost? (assuming they don’t want buy any additional resources other than packaging)

Answer 1