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Grand Strand Oil Company

Consider the Grand Strand Oil Company, which produces regular grade and premium-grade gasoline
products by blending three petroleum components. The gasolines are sold at different prices, and the
petroleum components have different costs. The firm wants to determine how to blend the three
components into the two products in such a way as to maximize profits. Data available show that the
regular-grade gasoline can be sold for $1.20 per gallon and the premium- grade gasoline for $1.40 per
gallon. For the current production-planning period, Grand Strand can obtain the three components at
the costs and in the quantities shown in Table 1. The product specifications for the regular and premium
gasolines, shown in Exhibit Table 2, restrict the amounts of each component that can be used in each
gasoline product. Current commitments to distributors require Grand Strand to produce at least 10,000
gallons of regular grade gasoline.
Table 1. Petroleum component of cost and supply
Petroleum component Cost / gallon Amount available
Component 1 $0.50 5000 gallons
Component 2 $0.60 10000 gallons
Component 3 $0.82 10000 gallons

Table 2. Component Specifications for Grand Strand’s Products


Product Specifications
Regular gasoline At most 30% Component 1
At least 40% Component 2
At most 20% Component 3
Premium gasoline At least 25% Component 1
At most 40% Component 2
At least 30% Component 3
Foster Generators
Let us consider the problem faced by Foster Generators, Inc. Currently, Foster has two plants: one in
Cleveland, Ohio and one in Bedford, Indiana. Generators produced at the plants (origins) are shipped to
distribution centers (destinations) in Boston, Chicago, St. Louis, and Lexington, Kentucky. Recently, an
increase in demand has caused Foster to consider adding a new plant to provide expanded production
capacity.
After some study, the location alternatives for the new plant have been narrowed to York, Pennsylvania
and Clarksville, Tennessee. To help them decide between the two locations, managers have asked for a
comparison of the projected operating costs for the two locations. As a start, they want to know the
minimum shipping costs from three origins (Cleveland, Bedford, and York) to the four distribution
centers if the plant is located in York. Then, finding the minimum shipping cost from the three origins
including Clarksville instead of York to the four distribution centers will provide a comparison of
transportation costs; this will help them determine the better location.
Table 1. Foster Generators Production Capacities
Origin Plant Production capacity (units)
1 Cleveland 5000
2 Bedford 6000
3 York 2500

Table 2. Foster Generators Monthly Forecast


Origin Plant Production capacity (units)
1 Boston 6000
2 Chicago 4000
3 St. Louis 2000
4 Lexington 1500

Table 3. Foster Generators Transportation Cost per Unit ($/unit)


Destination
Plant
Boston Chicago St. Louis Lexington
Cleveland 3 2 7 6
Bedford 7 5 2 3
York 2 5 4 5
Carson Stapler
The Carson Stapler Manufacturing Company forecasts a 5,000-unit demand for its Sure-Hold model
during the next quarter. This stapler is assembled from three major components: base, staple cartridge,
and handle. Until now Carson has manufactured all three components. However, the forecast of 5,000
units is a new high in sales volume, and the firm doubts that it will have sufficient production capacity to
make all the components. It is considering contracting a local firm to produce at least some of the
components. The production-time requirements per unit are given in Exhibit C.22 at the bottom of the
page. After considering the firm’s overhead, material, and labor costs, the accounting department has
determined the unit manufacturing cost for each component. These data, along with the purchase price
quotations by the contracting firm are given in Exhibit C.23. Formulate a linear programming model for
the make-or-buy decision for Carson that will meet the 5,000-unit demand at a minimum total cost.
Table 1. Production data
Production time (hours) Total department
Department time available
Base Cartridge Handle
(hours)
A 0.03 0.02 0.05 400
B 0.04 0.02 0.04 400
C 0.02 0.03 0.01 400

Table 2. Cost data


Component Manufacturing Cost ($) Purchase Cost ($)
Base $0.75 $0.95
Cartridge 0.40 0.55
Handle 1.10 1.40
Logan Manufacturing
Logan Manufacturing wants to mix two fuels (A and B) for its trucks to minimize cost. It needs no fewer
than 3,000 gallons to run its trucks during the next month. It has a maximum fuel storage capacity of
4,000 gallons. There are 2,000 gallons of Fuel A and 4,000 gallons of Fuel B available. The mixed fuel
must have an octane rating of no less than 80.
When fuels are mixed, the amount of fuel obtained is just equal to the sum of the amounts put in. The
octane rating is the weighted average of the individual octanes, weighted in proportion to the respective
volumes.
The following is known: Fuel A has an octane of 90 and costs $1.20 per gallon. Fuel B has an octane of 75
and costs $0.90 per gallon.
a. Write the equations expressing this information.
b. Solve the problem using the Excel Solver, giving the amount of each fuel to be used. State any
assumptions necessary to solve the problem.
University of Arizona
A diet is being prepared for the University of Arizona dorms. The objective is to feed the students at the
least cost, but the diet must have between 1,800 and 3,600 calories. No more than 1,400 calories can be
starch, and no fewer than 400 can be protein. The varied diet is to be made of two foods: A and B. Food
A costs $0.75 per pound and contains 600 calories, 400 of which are protein and 200 starch. No more
than two pounds of Food A can be used per resident. Food B costs $0.15 per pound and contains 900
calories, of which 700 are starch, 100 are protein, and 100 are fat.
a. Write the equations representing this information.
b. Solve the problem for the amounts of each food that should be used.
c. Interpret all the numbers in the excel output
Answer: Grand Strand Oil Company

Let xij = gallons of component i used in gasoline j

where

i = 1, 2, or 3 for component 1, 2, or 3

and

j = r if regular or
= p if premium

The six decision variables become


x1r = gallons of component 1 in regular gasoline
x2r = gallons of component 2 in regular gasoline
x3r = gallons of component 3 in regular gasoline
x1p = gallons of component 1 in premium gasoline
x2p = gallons of component 2 in premium gasoline
x3p = gallons of component 3 in premium gasoline

With the notation for the six decision variables just defined, the total gallons of each type of gasoline
produced can be expressed as the sum of the gallons of the blended components:

Regular gasoline = x1r + x2r + x3r


Premium gasoline = x1p + x2p + x3p

Similarly, the total gallons of each component used can be expressed as these sums:

Component 1 = x1r + x1p


Component 2 = x2r + x2p
Component 3 = x3r + x3p

The objective function of maximizing the profit contribution can be developed by identifying
the difference between the total revenue from the two products and the total cost of the three
components. By multiplying the $2.20 per gallon price by the total gallons of regular gasoline,
the $2.40 per gallon price by the total gallons of premium gasoline, and the component cost per
gallon figures in Exhibit C.5 by the total gallons of each component used, we find the objective
function to be

Max 2.20(x1r + x2r + x3r) + 2.40(x1p + x2p + x3p) - 1.00(x1r + x1p) - 1.20(x2r +x2p) - 1.64(x3r + x3p)
By combining terms, we can then write the objective function as

Max 1.20x1r + 1.00x2r + 0.56x3r + 1.40x1p + 1.20x2p + 0.76x3p

Limitations on the availability of the three components can be expressed by these three constraints:

x1r + x1p ≤ 5,000 (component 1)


x2r + x2p ≤ 10,000 (component 2)
x3r + x3p ≤ 10,000 (component 3)

Six constraints are now required to meet the product specifications stated in Exhibit C.5. The
first specification states that component 1 must account for at most 30 percent of the total
gallons of regular gasoline produced. That is,

x1r/(x1r + x2r + x3r) ≤ 0.30 or


x1r ≤ 0.30(x1r + x2r + x3r)

When this constraint is rewritten with the variables on the left side of the equation and a
constant on the right side, the first product-specification constraint becomes

0.70x1r - 0.30x2r - 0.30x3r ≤ 0

The second product specification listed in Exhibit C.5 can be written as

x2r ≤ 0.40(x1r + x2r + x3r)

and thus

- 0.40x1r + 0.60x2r + 0.40x3r ≤ 0

Similarly, the four additional blending specifications shown in Exhibit C.5 can be written as
follows:

- 0.20x1r - 0.20x2r + 0.80x3r ≤ 0


0.75x1p - 0.25x2p - 0.25x3p ≤ 0
- 0.40x1p + 0.60x2p - 0.40x3p ≤ 0
- 0.30x1p - 0.30x2p + 0.70x3p ≤ 0
The constraint for at least 10,000 gallons of the regular-grade gasoline is written

x1r + x2r + x3r ≤ 10,000

Thus, the complete LP model with six decision variables and 10 constraints can be written as
follows:

Max 1.20x1r + 1.00x2r + 0.56x3r + 1.40x1p + 1.20x2p + 0.76x3p

subject to

x1r + x1p ≤ 5,000 (component 1)


x2r + x2p ≤ 10,000 (component 2)
x3r + x3p ≤ 10,000 (component 3)
0.70x1r - 0.30x2r - 0.30x3r ≤ 0
- 0.40x1r + 0.60x2r - 0.40x3r ≤ 0
- 0.20x1r - 0.20x2r + 0.80x3r ≤ 0
0.75x1p - 0.25x2p - 0.25x3p ≤ 0
- 0.40x1p + 0.60x2p - 0.40x3p ≤ 0
- 0.30x1p - 0.30x2p + 0.70x3p ≤ 0
x1r + x2r + x3r ≤ 10,000
x1r, x2r, x3r, x1p, x2p, x3p ≥ 0
Answer: Foster Generators

Table 1. Transportation table for Foster Generators

Destination Origin
Origin Boston Chicago St. Louis Lexington Supply
3 2 7 6
Cleveland 5,000
x11 x12 x13 x14
7 5 2 3
Bedford 6,000
x21 x22 x23 x24
2 5 4 5
York 2,500
x31 x32 x33 x34
Destination
Demand 6,000 4,000 2,000 1,500 13,500

A convenient way of summarizing the transportation-problem data is with a table such as the one for
the Foster Generators problem in Table 1. Note that the 12 cells in the table correspond to the 12
possible shipping routes from the three origins to the four destinations. We denote the amount shipped
from origin i to destination j by the variable xij. The entries in the column at the right of the table
represent the supply available at each plant, and the entries at the bottom represent the demand at
each distribution center. Note that total supply equals total demand. The entry in the upper-right corner
of each cell represents the per-unit cost of shipping over the corresponding route. Looking across the
first row of this table, we see that the amount shipped from Cleveland to all destinations must equal
5,000, or x11 + x12 + x13 + x14 = 5,000. Similarly, the amount shipped from Bedford to all destinations must
be 6,000, or x21 + x22 + x23 + x24 = 6,000. Finally, the amount shipped from York to all destinations must
total 2,500, or x31 + x32 + x33 + x34 = 2,500.

We also must ensure that each destination receives the required demand. Thus, the amount shipped
from all origins to Boston must equal 6,000, or x11 + x21 + x31 = 5 6,000.

For Chicago, St. Louis, and Lexington, we have similar constraints:

Chicago: x12 + x22 + x32 = 4,000


St. Louis: x13 + x23 + x33 = 2,000
Lexington: x14 + x24 + x34 = 1,500

If we ship x11 units from Cleveland to Boston, we incur a total shipping cost of 3x11. By summing the costs
associated with each shipping route, we have the total cost expression that we want to minimize:

Total cost = 3x11 + 2x12 + 7x13 + 6x14 + 7x21 + 5x22 + 2x23 + 3x24 + 2x31 + 5x32 + 4x33 + 5x34
By including non-negativity restrictions, xij ≥ 0 for all variables, we have modeled the transportation
problem as a linear program.
Answer: Carson Stapler

Let

x1 = number of units of the base manufactured


x2 = number of units of the cartridge manufactured
x3 = number of units of the handle manufactured
x4 = number of units of the base purchased
x5 = number of units of the cartridge purchased
x6 = number of units of the handle purchased

Min 0.75x1 + 0.40x2 + 1.10x3 + 0.95x4 + 0.55x5 + 1.40x6

subject to

0.03x1 + 0.02x2 + 0.05x3 ≤ 400 (Dept. A)


0.04x1 + 0.02x2 + 0.04x3 ≤ 400 (Dept. B)
0.02x1 + 0.03x2 + 0.01x3 ≤ 400 (Dept. C)
x1 + x4 = 5,000
x2 + x5 = 5,000
x3 + x6 = 5,000

x1, x2, x3, x4, x5, x6 ≥ 0


Answer: Logan Manufacturing

a.
A + B ≥ 3,000
A + B ≤ 4,000
A ≤ 2,000
B ≤ 4,000
90A + 75B ≥ 80 (A + B), or 10A − 5B ≥ 0

b.
Optimum:
A = 1,000:
B = 2,000.
Answer: University of Arizona

a.
600A + 900B ≤ 3,600
600A + 900B ≥ 1,800
200A + 700B ≤ 1,400
400A + 100B ≥ 400
A≤2
Minimize .75A + .15B

b.
A = 0.54, B = 1.85, Obj = 0.68.