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Objective Function of Linear Programming

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Objective Function of Linear Programming

  • This topic has 3 replies, 2 voices, and was last updated 2 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • March 27, 2023 at 4:34 pm #681914
    asjy
    Participant
    • Topics: 6
    • Replies: 2
    • ☆

    Hello Sir, I have a question regarding BPP Workbook Chapter 9 Activity 8

    A company produces two products: M and N and is currently drawing up its production plan for
    the forthcoming month. Information is available as follows:

    One unit of Product M
    Selling Price: $40
    Material P ($4/kg): 4kg
    Material Q ($5/kg): 2kg
    Labor ($8/hour): 0.5hrs
    Fixed Overhead: $2

    One unit of Product N
    Selling Price: $50
    Material P ($4/kg): 3kg
    Material Q ($5/kg): 3kg
    Labor ($8/hour): 1hrs
    Fixed Overhead: $3

    Next month only 2,000 units of Material P will be available. Labor is also limited, at 500 hours per month. The company holds no inventory and aims to maximize profits. If m is the number of units of Product M sold per month and n is the number of units of Product N
    sold per month, which of the following is the correct objective function?

    Here the question said that it aims to maximize profits, but the answer key on the workbook used only contribution in the calculation, without taking into account the fixed overhead cost. Can you please explain why the fixed cost is not included meanwhile the company aims to maximize profits?

    March 28, 2023 at 7:06 am #681922
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54674
    • ☆☆☆☆☆

    Total fixed overheads are, by definition, fixed regardless of the level of production (whether or not they have been absorbed into the unit cost. This is from Paper MA). Therefore in order to maximise the total profit they need to maximise the total contribution.

    March 28, 2023 at 8:26 am #681929
    asjy
    Participant
    • Topics: 6
    • Replies: 2
    • ☆

    Okay Sir, thank you for the explanation. It seems like I have forgotten some part of MA

    March 28, 2023 at 5:30 pm #681946
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54674
    • ☆☆☆☆☆

    You are welcome 🙂

  • Author
    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘Objective Function of Linear Programming’ is closed to new replies.

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