Linear Programming Flashcards

1
Q

What is Linear Programming?

A

Technique of allocating resources to achieve the best results/objectives.
Different constraints and profit margins per business.
Use when 1 or more limiting factor.

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2
Q

What are the Methods to Solve a Linear Programming Problem?

A
  • Graphical approach, draw limiting resource equations, find edge of feasible region. Can use Excel.
    2. Simplex algorithm.
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3
Q

What Are Major Assumptions About Linear Programming?

A

Additivity
Divisibility
Constant unit VC
FC stays the same regardless
Estimates of sales D are certain

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4
Q

What is Additivity?

A

Unit A requires 3hrs labour & 15kg material.
Unit B requires 2hrs labour & 5kg material.
A+B = 5hrs labour & 20kg material.

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5
Q

What is Divisibility?

A

Total resources required are directly proportional to volume output.
12 units of C required 24hrs labour & 36kg material.
One unit of C requires 2hrs labour and 3kg materials.

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6
Q

Contribution =

A

Sale Price – Variable Costs

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7
Q

What is the Graphical Approach

A

Cannot be used if there is more than 2 variables.
No. of constraints is insignificant.

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8
Q

What is the Iso-Profit Line within the Graphical Approach?

A

Shows Optimum Solution. Where it leaves feasible region, sub quantities into equation to find maximum values.

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9
Q

What is the Optimal Solution?

A

Used to find constraints, costs, and prices are known a at a fixed quantity.
Can also be used to test.
Also used to test how solution changes if quantity of scarce resource changes.

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10
Q

How is a Constraint Binding?

A

If changing it alters the optimal solution.

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11
Q

What is Sensitivity Analysis?

A

Tests how optimal solution changes if there was more/less scarce resources.
Worth while changing Q?

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12
Q

What are Shadow Prices?

A

Change in contribution created by changing number of units of a limiting resource.
Determines max worth paying for additional scarce resources.
Important for cost control & transfer pricing.

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13
Q

Assumptions & Limitations of Linear Programming:

A
  • FC remain the same
  • Unit VC is constant
  • Estimates = certainty
  • Units of output are divisible
  • In practice, difficult to determine which resources are likely to be in short supply, how much will be available, and whether all possible uses have been identified
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14
Q

When can Contribution be Worked out?

A

After item is sold.

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