McVictor Industries solved the following linear programming problem as the basis for its budget for the next operating period. Fixed costs are budgeted as $80 per unit.
Objective Function: Maximize $250×Regular + $130×Premium
Subject to:
Assembly hours constraint:
10 hours × Regular + 25 hours × Premium ≤ 10,000 hours
Testing hours constraint:
10 hours × Regular + 5 hours × Premium ≤ 5,000 hours
Excel's Solver function produced the results shown below:
Answer Report:
Sensitivity Report:

a)What quantity of each product should McVictor produce?
b)What is the contribution margin with this sales mix?
c)Suppose McVictor wants to relax the constraint in Testing. Up to what maximum amount per hour would the company be willing to pay?
d)If McVictor relaxes the constraint in Testing, will the contribution margin increase? Explain.
e)What would happen if Assembly hours decrease by more than 5,000?
f)By how much could the contribution margin of Regular increase before the sales mix would change?
g)Identify reasons why the managers cannot be certain that they have accurately estimated the resource constraints.

Question

McVictor Industries solved the following linear programming problem as the basis for its budget for the next operating period. Fixed costs are budgeted as $80 per unit.
Objective Function: Maximize $250×Regular + $130×Premium
Subject to:
Assembly hours constraint:
10 hours × Regular + 25 hours × Premium ≤ 10,000 hours
Testing hours constraint:
10 hours × Regular + 5 hours × Premium ≤ 5,000 hours
Excel's Solver function produced the results shown below:
  Answer Report:
  Sensitivity Report:
  
a)What quantity of each product should McVictor produce?
b)What is the contribution margin with this sales mix?
c)Suppose McVictor wants to relax the constraint in Testing. Up to what maximum amount per hour would the company be willing to pay?
d)If McVictor relaxes the constraint in Testing, will the contribution margin increase? Explain.
e)What would happen if Assembly hours decrease by more than 5,000?
f)By how much could the contribution margin of Regular increase before the sales mix would change?
g)Identify reasons why the managers cannot be certain that they have accurately estimated the resource constraints.

Quizplus · Accepted Answer

The Answer of McVictor Industries solved the following linear programming problem as the basis for its budget for the next operating period. Fixed costs are budgeted as $80 per unit.
Objective Function: Maximize $250×Regular + $130×Premium
Subject to:
Assembly hours constraint:
10 hours × Regular + 25 hours × Premium ≤ 10,000 hours
Testing hours constraint:
10 hours × Regular + 5 hours × Premium ≤ 5,000 hours
Excel's Solver function produced the results shown below:
  Answer Report:
  Sensitivity Report:
  
a)What quantity of each product should McVictor produce?
b)What is the contribution margin with this sales mix?
c)Suppose McVictor wants to relax the constraint in Testing. Up to what maximum amount per hour would the company be willing to pay?
d)If McVictor relaxes the constraint in Testing, will the contribution margin increase? Explain.
e)What would happen if Assembly hours decrease by more than 5,000?
f)By how much could the contribution margin of Regular increase before the sales mix would change?
g)Identify reasons why the managers cannot be certain that they have accurately estimated the resource constraints.

McVictor Industries Solved the Following Linear Programming Problem as the Basis