Cha Cha Pte Ltd is a home-grown company that supplies pre-mixed tea leaves to the regional

| August 30, 2017

Question 1

Cha Cha Pte Ltd is a home-grown company that supplies pre-mixed tea leaves to the regional

hotels and restaurants. Their two best seller tea leaf blends are Fragrance026 and Scent012.

Due to the upcoming festive season, there is a consolidated order commitment for at least 150

kg of Fragrance026, and 200 kg of Scent012. To produce 1 kg of Fragrance026, it should

contain at most 55 percent dried figs while each kg of Scent012 should contain at least 65

percent of orange peel. The source for orange peel comes from two mixtures; mixture Alpha

and mixture Beta. Mixture Alpha contains 70 percent orange peel and 20 percent dried figs,

while mixture Beta contains 25 percent orange peel and 60 percent dried figs. Mixture Alpha

costs 85 cents per kg and mixture Beta costs 40 cents per kg. The company CEO would like

to know the cost-effective way of mixing Alpha and Beta.

(a) Develop the portfolio selection case as a linear programming problem. Please explain

clearly how you choose the decision variables, formulate the objective function and


(16 marks)

(b) Solve for the optimal solution using Microsoft Excel Solver. Show the relevant

solution output and sensitivity output.

(6 marks)

(c) Interpret the reports and discuss the following scenarios (without re-solving it using

Microsoft Excel Solver):

(i) If the cost of Mixture Alpha is 50 cents, explain if there will be any changes to

the original optimal mix?

(2 marks)

(ii) If the order for Fragrance026 is actually 50kg instead of 150kg, what would be
the implications on the total cost on acquiring mixture Alpha and Beta?
(4 marks)

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