Assume That the Shadow Price of a Non-Binding "≤" Constraint

question 23

Multiple Choice

Assume that the shadow price of a non-binding "≤" constraint is 5.This implies that:

• A)if the right-hand side value of the constraint increases by 1 unit,the objective function value will increase by 5 units
• B)if the right-hand side value of the constraint increases by 1 unit,the objective function value will decrease by 5 units
• C)if the right-hand side value of the constraint increases by 1 unit,the objective function value will remain unchanged
• D)if the right-hand side value of the constraint decreases by 1 unit,the objective function value will increase by 5 units
• E)if the objective function coefficient increases by 1 unit,the shadow price will increase by 5 units

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Definitions:

Predetermined Factory Overhead Rate

The rate used to apply factory overhead costs to the goods manufactured. The rate is determined by dividing the estimated total factory overhead costs by the estimated activity base at the beginning of the fiscal period.

Factory Overhead Costs

Expenses related to running a factory that cannot be directly attributed to specific units produced, such as maintenance and utilities.

Value-Added Time

The portion of the production process where actual value is added to the product, as opposed to non-value-added activities.

Processing Time

The amount of time required to complete a particular process, often used in manufacturing and computer operations.