The Shadow Price of a Slack Variable in a Linear

question 115

Multiple Choice

The shadow price of a slack variable in a linear programming solution that maximizes the total contribution margin reflects:

• A) The amount of excess capacity available for the associated constraint
• B) The decrease in contribution margin that occurs if a unit of the associated product is produced
• C) The contribution margin returned by the firm's profitable product
• D) The increase in contribution margin that would occur if another unit of the constrained resource were available

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Definitions:

Equivalent Units

A concept in cost accounting used to express the amount of work done by an incomplete process on units of output, making partial units comparable to complete units.

Process Costing

An accounting methodology used for homogenous products that averages production costs over all units produced.

Conversion Costs

The sum of labor and overhead costs required to convert raw materials into finished goods.

Forming Department

A specific division within a manufacturing environment where materials undergo the initial stages of production.