Problem Diagnosis
The main issue that is being faced by the management of Amore Frozen Foods Company is that the management is not able to meet the target fill rate of 8 ounces for each serving. The company had recently installed three BNC filling machines, A, B and C but as the production speed of these machines changes now and then, and the machines were not able to achieve a target fill rate of 8 Oz. Sometimes the machines filled the servings with less than 8 Oz and many times the machines filled the servings with more than 8 Oz. In the initial setting, when he set the filling level for each of the machine at 8 Oz then the machines were producing a significant number of the servings that had an average weight of less than 8 Oz. These less weight servings were then sent to the thrift stores of the company where they were sold at a reduced price of $3.5 per case.
This is because they were sold below the market value. On the other hand, if the servings were filled more than 8 Oz then this was impacting negatively over the thin margins of the noodle products. Therefore, now the issue lied in determining the most optimal setting for the production rate and target fill rate to achieve optimal results and yielding the maximum contribution for this product line.
Analysis of Decision Alternatives
In order to identify the most optimal fill rate at which the management would not be forced to send the filled servings to their thrift stores and achieve a higher profit, a range of fill rates will have to be examined and based on their respective probabilities of achieving the target fill rate of 8 Oz, the most optimal fill rate could be chosen. The fill rates would be chosen from 7 Oz to 9 Oz so that the most nearest fill rate to 8 Oz could be selected as the target fill rate. All the revenues and the costs associated with the Beef Noodle product will have to be calculated in order to determine the optimal contribution at the range of the fill rates and then we would be able to identify the fill rate at which we achieve a maximum contribution level.
The target fill rate range has been chosen from 7 Oz to 9 Oz. In order to calculate the contribution first of all the revenue per case and all the relevant costs need to be identified. It has been stated in the case that all the cases that are filled at an average weight of 8 Oz or above that are sold at a retail price of $ 4.5 per case. This is the main source of the revenue. Those noodle servings that are under filled are sold at a 20% discounted price of $ 3.5 per case as given in the case. These are the two main sources of revenue.Beef Noodle Casserole Case Solution
Furthermore, the relevant cost in this case is the cost of the ingredient or the beef noodle product which according to Amore was stable at a rate of $ 0.018 per ounce. The non-food costs of $ 0.9 have been ignored considering them as fixed costs. There is no mention of the rework costs for the under filled cases as these cases are sent to the thrift stores, therefore, the rework costs have been assumed to be $ 0 in the case. All these revenue and cost variables were calculated with regard to their relative impact upon the range of the fill rates.
The probability for the completely filled cases over the 8 Oz target fill rate has then been calculated. The remaining portion of the 100% probability corresponds to those cases that are not filled above or at 8 Oz but below this target fill rate. As the fill rates increased the target revenue also increased. Based on these probabilities and the two revenue rates of $ 4.5 per case for the correctly filled and $ 3.5 per case for the under-filled the respective contributions have been calculated for the range of the fill rates............
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