ACCA

Paper F5
Performance Management

Online Progress Test 2


Answer
















Q2 (a)

Define the variables

Let B represent the number of Basic services to be provided
Let P represent the number of Premiere services to be provided

Let C represent contribution

Objective function
C = 7.5B + 15P

Formulate the constraints

specialised cleaning materials 0.1B + 0.15P 60
Labour time 0.5B +1P 300
Machine time 0.5B + 0.25P 150
Minimum number of Basics B 25
Minimum number of Premieres P 50


Using the graph the optimal solution is where machine hours and labour hours cross.

solving simultaneous equations:

Machine time 0.5B + 0.25P 150
Labour time 0.5B +1P 300

After solving the above equations simultaneously,
B = 200, and
P = 200


b) Contribution maximized where 200 Basics and 200 Premieres are provided given a
contribution of:

(200 x 7.50) + (200 x 15) = $4,500.

Shadow Price for machine hours:

Machine time 0.5B + 0.25P 151
Labour time 0.5B +1P 300

After solving above equations simultaneously, we get;

Revised Optimal solution = 202.67B + 198.67P and;

Revised contribution of = (202.67 x 7.50) + (198.67 x 15)
= $4,500.075

shadow price = $4,500.075 - $4,500
= 7.5 cents