LP Practice Problems1

1. Furnco manufactures desks and chairs. Each desk uses 4 units of wood, and
each chair uses 3 units of wood. A desk contributes $40 to profit, and a chair
contributes $25. Marketing restrictions require that the number of chairs
produced be at least twice the number of desks produced. There are 20 units of
wood available.
Using the graph below, determine a production plan that maximizes Furnco’s
profit.

Furnco
10

6
Chairs

0
0 1 2 3 4 5 6

Desks

(a) Draw isoprofit lines where the total profit equals 125, 150, 175, and 200.

(b) Determine a daily production plan that maximizes total profit.

(c) What is the optimal total profit?

1
Based on problems 3.3, 3.5, 4.20, and 4.27 (pp. 89-144) in Practical Management Science, by Wayne
Winston and S. Christian Albright (2nd Ed., Duxbury Press, 2001). Used with permission.
2. A farmer in Iowa owns 45 acres of land. She is going to plant each acre with wheat or
corn. Each acre planted with wheat yields $200 profit; each with corn yields $300 profit.
The labor and fertilizer used for each acre are given in the table below. 100 workers and
120 tons of fertilizer are available.
Wheat Corn
Labor 3 workers 2 workers
Fertilizer 2 tons 4 tons
Using the graph below, determine the planting scheme that will maximize profit
for the farmer.

Iowa Farmer
50

40

30
Corn

20

10

0
0 10 20 30 40 50 60
Wheat

(a) Draw isoprofit lines where the total profit equals $6,000, $8,000, $10,000,
and $12,000.

(b) Shade in the feasible region.

(c) Determine the planting scheme that maximizes total profit.

(d) What is the optimal total profit?

Competitive Advantage from Operations 2 Professor Juran

3. A bank is attempting to determine where its assets should be invested during
the current year. At present, $500,000 is available for investment in bonds, home
loans, auto loans, and personal loans. The annual rates of return on each type of
investment are known to be the following: bonds, 10%; home loans, 16%; auto
loans, 13%; and personal loans, 20%. To ensure that the bank’s portfolio is not too
risky, the bank’s investment manager has placed the following three restrictions
on the bank’s portfolio:
 The amount invested in personal loans cannot exceed the amount
invested in bonds.
 The amount invested in home loans cannot exceed the amount
invested in auto loans.
 No more than 25% of the total amount invested may be in personal
loans.
Below are various elements of the Excel model used to solve the problem: the
spreadsheet model, the Solver parameters, the Solver options, the answer report
and the sensitivity report.

A B C D E F G H I J
1 Bonds Home Loans Auto Loans Personal Loans
objective function:
2 25.0% 25.0% 25.0% 25.0% 14.75% =SUMPRODUCT(B2:E2,B3:E3)
3 Investment Returns 10.0% 16.0% 13.0% 20.0%
4 =SUM(B8:E8)
=E2
5
6 =SUMPRODUCT(B9:E9,B2:E2)
7 Bonds Home Loans Auto Loans Personal Loans
8 Total Funds = 100% 25.0% 25.0% 25.0% 25.0% 100.0% <= 100.0%
9 Personal <= Bonds -100.0% 0.0% 0.0% 100.0% 0.0% <= 0.0%
10 Home <= Auto 0.0% 100.0% -100.0% 0.0% 0.0% <= 0.0%
11 Personal Loans Limit 0.0% 0.0% 0.0% 100.0% 25.0% <= 25.0%

Competitive Advantage from Operations 3 Professor Juran

 A B C D E F G
1 Microsoft Excel 9.0 Answer Report
2 Worksheet: [spract-lp4.xls]Bank Portfolio
3 Report Created: 11/29/01 5:06:50 PM
4
5
6 Target Cell (Max)
7 Cell Name Original Value Final Value
8 $G$2 15.0% 14.8%
9
10
11 Adjustable Cells
12 Cell Name Original Value Final Value
13 $B$2 Bonds 50.0% 25.0%
14 $C$2 Home Loans 0.0% 25.0%
15 $D$2 Auto Loans 0.0% 25.0%
16 $E$2 Personal Loans 50.0% 25.0%
17
18
19 Constraints
20 Cell Name Cell Value Formula Status Slack
21 $F$8 Total Funds = 100% 100.0% $F$8<=$H$8 Binding 0.0%
22 $F$9 Personal <= Bonds 0.0% $F$9<=$H$9 Binding 0.0%
23 $F$10 Home <= Auto 0.0% $F$10<=$H$10 Binding 0.0%
24 $F$11 Personal Loans Limit 25.0% $F$11<=$H$11 Binding 0.0%

Competitive Advantage from Operations 4 Professor Juran

 A B C D E F G H
1 Microsoft Excel 9.0 Sensitivity Report
2 Worksheet: [spract-lp4.xls]Bank Portfolio
3 Report Created: 11/29/01 5:06:50 PM
4
5
6 Adjustable Cells
7 Final Reduced Objective Allowable Allowable
8 Cell Name Value Cost Coefficient Increase Decrease
9 $B$2 Bonds 25.0% 0.0% 10.0% 4.5% 1.0%
10 $C$2 Home Loans 25.0% 0.0% 16.0% 1.0% 3.0%
11 $D$2 Auto Loans 25.0% 0.0% 13.0% 1.0% 9.0%
12 $E$2 Personal Loans 25.0% 0.0% 20.0% 1E+30 1.0%
13
14 Constraints
15 Final Shadow Constraint Allowable Allowable
16 Cell Name Value Price R.H. Side Increase Decrease
17 $F$8 Total Funds = 100% 100.0% 14.5% 100.0% 1E+30 50.0%
18 $F$9 Personal <= Bonds 0.0% 4.5% 0.0% 25.0% 50.0%
19 $F$10 Home <= Auto 0.0% 1.5% 0.0% 50.0% 50.0%
20 $F$11 Personal Loans Limit 25.0% 1.0% 25.0% 25.0% 25.0%

(a) What is the optimal allocation of funds to the various investment types?

(b) What is the expected return on investment from the optimal portfolio?

(c) What would be the improvement in the return on investment if the limit
on the total amount invested in personal loans were increased to 30%?

(d) If the return on bonds increases from 10% to 13%, what will happen to the
optimal allocation of funds?

Competitive Advantage from Operations 5 Professor Juran

4. Sunco Oil manufactures three types of gasoline (gas 1, 2, and 3). Each type is
produced by blending three types of crude oil (crude 1, crude 2, and crude 3).
Sunco can purchase up to 5,000 barrels of each type of crude daily.
The selling price per barrel of gasoline and the purchase price per barrel of crude oil are
given in Table 4.1 below.
Selling Price per Barrel Purchase Price per Barrel
Gas 1 $70 Crude 1 $45
Gas 2 $60 Crude 2 $35
Gas 3 $50 Crude 3 $25
Table 4.1
The three types of gasoline differ in their octane rating and their sulfur content. The crude
oil blended to form gas 1 must have an average octane rating of at least 10 and contain at
most 1% sulfur. The crude oil blended to form gas 2 must have an average octane rating
of at least 8 and contain at most 2% sulfur. The crude oil blended to form gas 3 must have
an average octane rating of at least 6 and contain at most 1% sulfur. The octane rating and
sulfur content of the three types of crude oil are given in Table 4.2 below.
Octane Rating Sulfur Content
Crude 1 12 0.5%
Crude 2 6 2.0%
Crude 3 8 3.0%
Table 4.2
It costs $4 to transform 1 barrel of oil into 1 barrel of gasoline, and Sunco’s
refinery can produce up to 14,000 barrels of gasoline daily. Sunco’s customers
require the following amounts of each gasoline: gas 1, 3000 barrels per day; gas 2,
2000 barrels per day; gas 3, 1000 barrels per day. The company considers it an
obligation to meet these demands.
Sunco also has the option of advertising to stimulate demand for its products.
Each dollar spent daily in advertising a particular type of gas increases the daily
demand for that type of gas by 10 barrels. For example, if Sunco decides to spend
$20 daily in advertising gas 2, the daily demand for gas 2 will increase by 200
barrels. Below are the answer report and the sensitivity report from a Solver
optimal solution to this problem.

Competitive Advantage from Operations 6 Professor Juran

 A B C D E F G H I J K L
1 Purchase prices per barrel of crude Purchase costs $487,500
2 Crude 1 $45 Production costs $54,000
3 Crude 2 $35 Advertising costs $750
4 Crude 3 $25 Sales revenue $830,000
5 Profit $287,750
6 Cost to transform
7 $4 Purchase/production plan
8 Gas 1 Gas 2 Gas 3 Total purchased Max Available
9 Increase in demand from advertising Crude 1 2088.89 2111.11 800.00 5000 <= 5000
10 10 Crude 2 777.78 4222.22 0.00 5000 <= 5000
11 Crude 3 133.33 3166.67 200.00 3500 <= 5000
12 Requirements for gasolines
13 Gas 1 Gas 2 Gas 3 Demand for gasolines
14 Minimum octane 10 8 6 Gas 1 Gas 2 Gas 3
15 Maximum Sulfur 1% 2% 1% Original demand 3000 2000 1000
16
17 Constraint on total production Advertising $0 $750 $0
18 Total produced Max Capacity Extra demand 0 7500 0
19 13500 <= 14000 Total demand 3000 9500 1000
20 = = =
21 Octane constraints Gas 1 Gas 2 Gas 3 Amount produced 3000 9500 1000
22 Actual total octane 30800 76000 11200
23 >= >= >=
24 Required 30000 76000 6000 Sulfur content
25 Crude 1 0.5%
26 Sulfur constraints Gas 1 Gas 2 Gas 3 Crude 2 2.0%
27 Actual total Sulfur 30 190 10 Crude 3 3.0%
28 <= <= <=
29 Required 30 190 10 Octane ratings
30 Crude 1 12
31 Sale price per barrel of gasoline Crude 2 6
32 Gas 1 Gas 2 Gas 3 Crude 3 8
33 $70 $60 $50

Competitive Advantage from Operations 7 Professor Juran

 A B C D E F G
1 Microsoft Excel 9.0 Answer Report
2 Worksheet: [spract-lp5.xls]Sheet1
3 Report Created: 12/3/01 2:54:08 PM
4
5
6 Target Cell (Max)
7 Cell Name Original Value Final Value
8 $G$5 Profit $287,750 $287,750
9
10
11 Adjustable Cells
12 Cell Name Original Value Final Value
13 $G$9 Crude 1 Gas 1 2088.89 2088.89
14 $H$9 Crude 1 Gas 2 2111.11 2111.11
15 $I$9 Crude 1 Gas 3 800.00 800.00
16 $G$10 Crude 2 Gas 1 777.78 777.78
17 $H$10 Crude 2 Gas 2 4222.22 4222.22
18 $I$10 Crude 2 Gas 3 0.00 0.00
19 $G$11 Crude 3 Gas 1 133.33 133.33
20 $H$11 Crude 3 Gas 2 3166.67 3166.67
21 $I$11 Crude 3 Gas 3 200.00 200.00
22 $G$17 Advertising Gas 1 $0 $0
23 $H$17 Advertising Gas 2 $750 $750
24 $I$17 Advertising Gas 3 $0 $0
25
26
27 Constraints
28 Cell Name Cell Value Formula Status Slack
29 $B$19 Total produced 13500 $B$19<=$D$19 Not Binding 500
30 $B$22 Actual total octane Gas 1 30800 $B$22>=$B$24 Not Binding 800
31 $C$22 Actual total octane Gas 2 76000 $C$22>=$C$24 Binding 0
32 $D$22 Actual total octane Gas 3 11200 $D$22>=$D$24 Not Binding 5200
33 $B$27 Actual total Sulfur Gas 1 30 $B$27<=$B$29 Binding 0
34 $C$27 Actual total Sulfur Gas 2 190 $C$27<=$C$29 Binding 0
35 $D$27 Actual total Sulfur Gas 3 10 $D$27<=$D$29 Binding 0
36 $G$19 Total demand Gas 1 3000 $G$19=$G$21 Binding 0
37 $H$19 Total demand Gas 2 9500 $H$19=$H$21 Binding 0
38 $I$19 Total demand Gas 3 1000 $I$19=$I$21 Binding 0
39 $J$9 Crude 1 Total purchased 5000 $J$9<=$L$9 Binding 0
40 $J$10 Crude 2 Total purchased 5000 $J$10<=$L$10 Binding 0
41 $J$11 Crude 3 Total purchased 3500 $J$11<=$L$11 Not Binding 1500

A B C D E F G H
1 Microsoft Excel 9.0 Sensitivity Report
2 Worksheet: [spract-lp5.xls]Sheet1
3 Report Created: 12/3/01 2:54:09 PM
4
5
6 Adjustable Cells
7 Final Reduced Objective Allowable Allowable
8 Cell Name Value Cost Coefficient Increase Decrease
9 $G$9 Crude 1 Gas 1 2088.89 0.00 21 0 3.19744E-14
10 $H$9 Crude 1 Gas 2 2111.11 0.00 11 3.19744E-14 47.025
11 $I$9 Crude 1 Gas 3 800.00 0.00 1 51.125 0
12 $G$10 Crude 2 Gas 1 777.78 0.00 31 1.27898E-14 0
13 $H$10 Crude 2 Gas 2 4222.22 0.00 21 1E+30 1.27898E-14
14 $I$10 Crude 2 Gas 3 0.00 0.00 11 0 1E+30
15 $G$11 Crude 3 Gas 1 133.33 0.00 41 0 2.13163E-14
16 $H$11 Crude 3 Gas 2 3166.67 0.00 31 2.13163E-14 30.9
17 $I$11 Crude 3 Gas 3 200.00 0.00 21 204.5 0
18 $G$17 Advertising Gas 1 $0 ($209) -1 209 1E+30
19 $H$17 Advertising Gas 2 $750 $0 -1 1E+30 104.5
20 $I$17 Advertising Gas 3 $0 ($409) -1 409 1E+30
21
22 Constraints
23 Final Shadow Constraint Allowable Allowable
24 Cell Name Value Price R.H. Side Increase Decrease
25 $B$19 Total produced 13500 0 14000 1E+30 500
26 $B$22 Actual total octane Gas 1 30800 0 0 800 1E+30
27 $C$22 Actual total octane Gas 2 76000 -3.55271E-15 0 800 2800
28 $D$22 Actual total octane Gas 3 11200 0 0 5200 1E+30
29 $B$27 Actual total Sulfur Gas 1 30 3090 0 5 2
30 $C$27 Actual total Sulfur Gas 2 190 3090 0 5 31.66666667
31 $D$27 Actual total Sulfur Gas 3 10 3090 0 5 5
32 $G$19 Total demand Gas 1 3000 20.8 0 500 400
33 $H$19 Total demand Gas 2 9500 -0.1 0 1E+30 7500
34 $I$19 Total demand Gas 3 1000 40.8 0 500 250
35 $J$9 Crude 1 Total purchased 5000 57.25 5000 200 200
36 $J$10 Crude 2 Total purchased 5000 20.9 5000 400 1400
37 $J$11 Crude 3 Total purchased 3500 0 5000 1E+30 1500

Competitive Advantage from Operations 8 Professor Juran

 (a) What is the optimal amount of profit for Sunco?

(b) How much of Crude Oil 2 should Sunco purchase?

(c) How much of the Crude Oil 2 will be used to make Gas 3?

(d) The marketing director insists that Sunco needs to spend $500 advertising
Gas 1. What will this do to the net profit?

(e) 500 barrels of Crude Oil 2 are available on the spot market. How much
should Sunco offer per barrel for this commodity?

(f) Assuming that the seller agrees to Sunco’s price, how many barrels of
Crude Oil 2 should they buy?

(g) 500 barrels of Crude Oil 3 are available on the spot market. How much
should Sunco offer per barrel for this commodity?

(h) Assuming that the seller agrees to Sunco’s price, how many barrels of
Crude Oil 3 should they buy?

Competitive Advantage from Operations 9 Professor Juran