- This topic has 8 replies, 2 voices, and was last updated 8 years ago by
.
- Posts
Dear sir,
In your lectures, it has been shown that point B is the optimum.
Will there be cases where the contribution line will not be in one corner of the feasible area; I mean that should the contribution line always touch one corner of the feasible area or it can be anywhere else within the feasible area?Thanks.
It has to be one of the corners because the contribution line has to be as far away from the origin as possible order to achieve maximum contribution.
Dear sir,
I do have watched your lectures for limiting factors; but I still have some doubt.
In example 2, could you explain why slack for materials and labour is 0Thanks.
Because the optimum point lies on both the material and labour lines. Therefore all the material and labour is being used, and therefore there is no spare/slack.
concerning example 3,
1.you have said that it would not be worth increasing the demand of E by one more unit. Could you briefly re explain why so?
2. The shadow price is $1.125. In wordings could you briefly explain what does this represent?
Thanks.
1. Because you are not able to sell the current full demand, so it is of no benefit to have higher demand.
As I explain in the lecture, the shadow price is the most extra you would be prepared to pay in order to get one extra unit of the limited resource.
Q manufactures 2 product:
-A
Selling price selling price $20.00
Direct material($2.00 per kg) $6.00
Direct labour $4.00
Variable overhead $2.00-B
Selling price $18.00
Direct material($2.00 per kg) $5.00
Direct labour $3.00
Variable overhead $1.50Maximum demand for A is 500 units per week and for B is unlimited.
What would be the shadow price of these materials be if materials were limited to 2,000 kg per week?
The answer is $3.40 per kg
-How to obtain the answer?
(The workings are being shown in the book but with no explanation)The contribution per unit for A is $8 and for B is $8.50.
Each unit of A uses 3 kg of material and each unit of B uses 2.5 kg of material.
Therefore the contribution per kg from A is 8/3 = $2.67, and from B is $3.40.
Therefore they should produce as many B’s as they can from the limited material available (since the demand is unlimited).
If they are able to buy more of the material, then because they would use it to make more B’s, they would be prepared to pay up to $3.40 a kg extra to get it. Therefore the shadow price is $3.40 per kg..
- You must be logged in to reply to this topic.