McVictor Industries Solved the Following Linear Programming Problem as the Basis

question 18

Essay

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.

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Definitions:

Trial Balance

A financial record-keeping sheet that consolidates the balances of various ledgers into uniform debit and credit column totals.

Journalizing

The process of recording transactions in a journal or ledger in the field of accounting.

Posting Process

In accounting, this is the step where transactions are transferred from the journal to the respective accounts in the ledger, updating the account balances.

Trial Balance

A worksheet in bookkeeping that assembles the balances from each ledger into corresponding totals in debit and credit categories.