CHOCOLATIER LTD:

CASE STUDY ONE

A Research Paper Submitted to

Enrico Cordoba of the Decision Science Department
Ramon V. Del Rosario College of Business
De La Salle University

In Partial Fulfilment
of the Requirements
For the Course
Management Science

By
Agbada, Patricia
Lagasca, Gregory
Lim, Patricia
Militante, Isabella
Padilla, Francesca
Roxas, Raeven
Santiago, April
Sebollena, Bianca
Tan, Patrick
Viceral, Paolo

July 4, 2013

I. Summary
Chocolatier Ltd. was started ten years ago by Miguel Dizon and Raul
Gomez. The two decided to split the tasks among themselves but agreed that
overall planning and major decisions should be overseen by both of them.
They have decided to sell the chocolates at a medium-high price range.
They were successful and had an advantage over the competition, so they
decided to open 20 retail outlets. In reviewing costs, Gomez discovered that cost
per pound of candy was increasing with each newly opened outlet.
Furthermore, sales were beginning to diminish in some stores. There was
a new low-priced competitor in town. The two then realized that they should
create a new line, which was priced lower yet had the same quality as their
premium products.
Gomez discovered two new recipes could be developed that could be sold
at a lower price: Chocodant and Chocomer. Gomez did not believe that the new
lines would make good business. He said, every 100 pounds of the premium line
now yields P86.00, while Chocodant will yield only P63.00 and Chocomer
P54.00. Gomez was also concerned about whether they had adequate supply
for the new recipes and if its a good move to go with an inferior candy that might
destroy their respectable image.
The two have yet to decide on Gomezs memo and were set to meet again
in a few days.

II. Objectives of the Study

The objectives of the group in analyzing this case are:
1. To analyze and understand the current situation of Chocolatier Ltd.
2. To identify the decision variables and the constraints by creating a
mathematical model of the problem

3. To find the alternative ways of action that the owners of Chocolatier Ltd.
can take to maximize profit
4. To determine which one of the alternative ways contains the optimal
solution by using Linear Programming
5. To come up with a recommendation based on the solutions on whether the
owners of Chocolatier Ltd. should sell the new products
III. Alternative Courses of Action
Alternative Courses of Action are possible solutions, but does not give the
optimal solution to the problem. In the case of Mr. Gomez and Mr. Dizons
Chocolatier Ltd., they seek out to address a financial crisis; through the use of
introducing new cheaper chocolate lines. However, in introducing these new lines,
the company incurs more costs to their operating value chain. But if the new lines did
become successful, the company will again have an edge against the competitor.
According to Mr. Gomez, the companys image as a premium chocolate
provider, might put their brand name at risk because of the new variants of
chocolates. Another solution they can do is that they must minimize costs by making
their equipments more efficient and also they must find an alternative/substitute
ingredient for their present ingredients or better yet, they must find ways to utilize it
much better by cutting off their usage of ingredients by formulating more recipes.

IV. Mathematical Model

Let :

X1= Number of pounds of Premium Line

X2= Number of pounds of Chocodant
X3= Number of pounds of Chocomer

Max.

Z=

0.86x1 + 0.63x2 + 0.54x3

Subject to:

6x1 + 4x2 + 3x3 2640

633x2 + 271x3 171, 543
300x2 + 500x3 150, 000
6x1 + 4x2 + 3x3 + 1s1 + 0s2 + 0s3 2640

0x1 + 633x2 + 271x3 + 0s1 + 1s2+ 0s3 171, 543

0x1 + 300x2 + 500x3 + 0s1 + 0s2 + 1s3 150, 000
V. Solution

If Chocolatier Ltd. produces 290 pounds of the Premium line chocolate and
300 pounds of Chocomer, they will be able to maximize profit by Php 411.40.

VI. Sensitivity Analysis

VII. Recommendations
The Company faces a low-cost competitor that is entrenching them by
stealing sales normally for Chocolatier Ltd. In response to their dilemma, Chocolatier
Ltd, should produce Premium Line and Chocomer to maximize profit. By doing so,
Chocolatier Ltd. will reduce the cocoa beans in producing the Premium Line in half
and distributing the other half in producing the Chocomer variant.