Scribd
Upload
21 views3 pages

Mansci

Management science lecture and problems

Uploaded by

mejaneisip479
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
21 views3 pages

Mansci

Management science lecture and problems

Uploaded by

mejaneisip479
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 3

HOW TO DEVELOP A QUANTITATIVE APPROACH MODEL

PROFIT = REVENUES – EXPENSES


Expenses can often be determined by summing fixed cost and variable cost. Variable cost is expressed as
variable cost per unit x the number of units. Thus , we can also express profit in the following
mathematical model:
PROFIT = Revenue – (Fixed cost + Variable Cost)
PROFIT = (Selling price per unit x number of units sold) – [Fixed Cost + (Variable Cost per unit x number of
units sold)
PROFIT = sX – (f + vX)
PROFIT = sX – f – vX
Where: s = selling price per unit
f = fixed cost
v = variable cost per unit
X = number of units sold
Bill Pritchett’s Precious Time Pieces, buys, sells and repairs old clocks and clock parts. Bill sells rebuilt
springs for a price per unit of P10.00. the fixed cost of the equipment to build the springs is P1,000. The
variable cost per unit is P5.00 for spring material. In this example:
s = P10.00 per unit
f = P1,000.00
v = P5.00 per unit
X = number of springs sold
So: Profit = P10 (X) – P1,000 –P5(X)
If sales is 0 : Profit = P10 (0) – P1,000 – P5 (0) thus resulting to LOSS =( P1,000.00)
If sales is 1,000 units: Profit = P10 (1000) – P1000 – P5 (1000)
Profit = P4,000.00
In addition to the profit models, decision makers are often interested in break-even point (BEP). The BEP
is the number of units sold that will result in P0.00 profits. We set profits equal to P0.00 and solve for X,
the number of units ate break-even point.
0 = sX – f – vX
This can be written as:
0 = (s – v) X - f
Solving for X:
f = (s-v)X
X=f/s–v or
BEP = Fixed Cost
-----------------------------------------------------------
(Selling Price per unit) – (Variable Cost per unit)

BEP = f
----------
s–v
TO SOLVE FOR PRITCHETT’S BEP:

BEP = P1000.00
----------------- = 200 units at break-even point
P10 - P5

Problem:
Linda Reyes has started her own company, TRENDY SHIRTS, which manufactures printed shirts
for special occasions. Since she has just begun this operation, she rents the equipment from a local
printing shop when necessary. The cost of using the equipment is P350. The materials used in one shirt
costs P8.00, and Linda can sell these for P15.00 each.
(a) If Linda sells 20 shirts, what will her total revenue be? What will her total variable cost be?

(b) How many shirts must Linda sell to break-even? What is the total revenue for this?

1. Conflicting viewpoints – It is important to consider the points of view of different parties before defining
the problem.
2. Impact on other department – Problems do not exist in isolation and are not owned by just one
department. The problem statement should therefore be broad as possible and include inputs from all
departments that have a stake in the solution. Consider the benefits to all areas of the organization.
3. Beginning assumptions – People have a tendency to state problems in terms of solutions. For example:
the statement that inventory is low implies a solution that inventory levels should be raised. The
quantitative analyst who starts off with this assumption will probably indeed find that inventory levels
should be raised. The Quantitative Analyst should ask questions about why this solution is desired. By
probing further, the true problem will surface and can be defined properly.
4. Outdated solution – The problem can change as the model is being developed. One of the benefits of
mathematical models is that once the original model has been developed, it can be used over and over
again whenever similar problems arise. This allows a solution to be found very easily in a timely manner.
Implementation: Not just the Final Step
It should be clear that implementation is not just another step that takes place after the modeling process
is over. Each one of these steps greatly affects the chances of implementing the results of a quantitative
study.
Management support and user involvement are important in implementation.
Lack of commitment and resistance to change, as well as lack of commitment by Quantitative analysts may
pose as problems in the implementation of the solution.

You might also like