ADM2302 A, B, C, D, and E Assignment # 2

Assignment # 2
Linear Programming Formulation and Sensitivity Analysis

ADM2302 students are reminded that submitted assignments must be neat, readable, and
well-organized. Assignment marks will be adjusted for sloppiness, poor grammar, spelling,
for technical errors as well as if you submit a PDF file. This assignment can be done in a
group of one, two, or three students. Plagiarism on assignments will not be accepted, each
student must sign the statement of integrity. Solutions to the Case Study are to be
prepared using the Report to Management format provided in the ADM2302 Course
Outline.

This assignment can NOT be hand written.

The assignment is to be submitted electronically as a single Word Document file via

Brightspace by the NEW DUE DATE Tuesday October 22nd prior to 23:59. Front page of
the Word document has to include title of the assignment, course code and section,
student name and student number. Second page is the individual/group statement of
integrity that must be signed.

E-mail questions related to the assignment should be sent to the Teaching Assistant or
posted on the Brightspace course website “Discussion page” (viewed by all).

Section A: Afshin Kamyabniya (akamy007@uottawa.ca)

Section B: Parisa Keshavarz (pkesh064@uottawa.ca)
Section C: Makbule Kandakoglu (mkand098@uottawa.ca)
Section D: Ghazaleh Hassanzadeh Kamalabadi (ghass052@uottawa.ca)
Section E: Niki Khorasanizadeh (mkhor084@uottawa.ca)

Problem 1: Linear Programming Basic Formulation (20 points)

A manufacturer produces two products, A and B, and is trying to work out his production
schedule for the next two months. He currently has on hand 1,000 units of A and 800 units
of B and estimates sales over the period as shown in the following table:
Estimated Sales, Units/Months
A B
1 2,000 3,000

2 3,000 4,000
Regular Shift Production Cost, $10 $6
$/Unit

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ADM2302 A, B, C, D, and E Assignment # 2

If the production facilities were devoted entirely to producing product A, they could turn out
a maximum of 4,000 units/month on regular shift operation and up to 1,000 units/month
additional on overtime operation. Similarly, if only product B was produced, regular shift
capacity would be 6,000 units/month with 2,000 units/months additional available from
overtime operation.
The production facilities can be devoted to any proportions of products A and B - e.g., 1,000
units of A (= 1/4 capacity) plus 4,500 units of B (= 3/4 capacity) would just use the total
regular shift capacity for a month.

Overtime production of product A costs $5/unit more than regular shift production, while for
product B the added cost is $3/unit. Management would like to end the two-month period
with at least an inventory of 500 units of product A and 1,500 units of product B.
It costs $3 to store one unit of Product A for a month and $2 to store one unit of product B
for a month.

a. Formulate algebraically the linear programming model for this production

scheduling problem. Define the decision variables, objective function, and
constraints. (12 points)
b. Formulate this same linear programming problem on a spreadsheet and SOLVE
using Excel solver (Provide the corresponding “Excel Spreadsheet” and the
“Answer Report”). Include “managerial statements” that communicate the
results of the analyses. (8 points)

CASE STUDY: Yeltsin Farms (50 points)

Report to Management Format (16 points)

Igor Yeltsin operated a farm under the former Russian collective farm system. The
collective farm raised hogs for distribution by the central government as its main activity.
Previously, Igor was told how many hogs to raise each year by Moscow’s central planning
agency and was allocated the necessary animal feed to raise the hogs. With the new market-
driven economy, Igor receives no instructions on how to operate his hog farm and must
survive as best he can on his own by buying animal feed, raising hogs, and selling them to
any buyers he can find. Hogs were fed a combination of corn and potatoes mixed to assure
that minimum amounts of two primary nutrients were met: crude protein and calories. Corn
and potato supplies have become less certain, and Igor has contracted to buy waste food
scraps from a nearby food processing plant to supplement the previous hog diet of corn and
potatoes. Igor has turned to you, a recently arrived United Nations consultant, for help in
managing his farm in the new and very uncertain Russian market economy.

On his own, Igor contracted to sell up to 100 hogs to a Moscow butcher in the next month
for a fixed price of 450 rubles per hog. In addition, Igor contracted to buy up to 800
kilograms of waste food from the processing plant for a price of 10 rubles per kilogram.
He believes he can buy any amount of corn for 19 rubles per kilogram and can purchase
up to 600 kilograms of potatoes from a nearby potato farm for 15 rubles per kilogram.

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ADM2302 A, B, C, D, and E Assignment # 2

The table below presents the monthly requirements per hog in units of protein and
thousands of calories (i.e. Kilo-calories). It also presents, for the three sources of animal
feed, the amount of crude protein and Kilo-calories supplied per kilogram.

MINIMUM
REQUIREMENT AMT. SUPPLIED AMT. SUPPLIED AMT. SUPPLIED
PER HOG PER PER KILOGRAM PER KILOGRAM PER KILOGRAM
NUTRIENT MONTH OF CORN OF FOOD WASTE OF POTATOES
Crude Protein 174 18 9 15
Kilo-calories 1400 30 120 80

To help Igor understand how to run his farm, another United Nations consultant has built
the following LP algebraic formulation and its corresponding Excel model: “Yeltsin.xlsx”
(posted on the course website below the link of assignment #2)

H= number of Hogs Sold

C= Corn Purchased (in Kg)
F= Food scraped Purchased (in Kg)
P=Potatoes purchased (in Kg)
Objective function:
Maximize net revenue=450H-19C-10F-15P
Subject to:
H<=100
F<=800
P<=600
18C+9F+15P>= 174H (amount of crude protein)
30C+120F+80P>= 1400 H (amount of kilo-calories)
H, C, F, P>=0

H C F P
Food
Corn scraped Potatoes
Hogs Sold purchased purchased purchased
Decisions 100.000 95.238 742.857 600.000 26,761.90
Price $450.00 -$19.00 -$10.00 -$15.00
Constraints: LHS RHS
Hogs supply limit 1 100 <= 100
Food scraped supply limit 1 742.857 <= 800
Potatoes supply limit 1 600 <= 600
Crude Protein Net Excess Nutrients -174 18 9 15 0 >= 0
Kilo-Calories Net Excess Nutrients -1400 30 120 80 0 >= 0

The Excel model above shown displays the optimum answer to maximize Igor’s operating
income. The corresponding solver Sensitivity Report is also presented:

Igor has many questions to ask about operating his farm, which you will expertly answer
by examining the Sensitivity Report and/or the Excel solver output provided above.

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ADM2302 A, B, C, D, and E Assignment # 2

Variable Cells
Final Reduced Objective Allowable Allowable
Cell Name Value Cost Coefficient Increase Decrease
$B$19 Decisions Hogs Sold 100.000 0 450 1E+30 261.048
$C$19 Decisions Corn purchased 95.238 0 -19 1.917 1
$D$19 Decisions Food scraped purchased 742.857 0 -10 0.5 24.694
$E$19 Decisions Potatoes purchased 600.000 0 -15 1E+30 1.095

Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$F$22 Hogs supply limit LHS 100 261.048 100 5.405 21.739
$F$23 Food scraped supply limit LHS 742.857 0 800 1E+30 57.143
$F$24 Potatoes supply limit LHS 600 1.095 600 166.667 109.091
$F$25 Crude Protein Net Excess Nutrients LHS 0 -1.048 0 46800 1500
$F$26 Kilo-Calories Net Excess Nutrients LHS 0 -0.005 0 6000 78000

Some of Igor’s questions cannot be answered from the Solver information given on the
previous page. If so, answer as best you can from the information, state why a more detailed
answer is not available, and if appropriate, modify the “Yeltsin.xlsx” model posted on the
course website below the link of assignment #2 and rerun Solver to produce the answers
he seeks.

Questions:

1. “If I follow your recommended approach to managing my farm so as to maximize

my operating income next month, how much will I earn from selling the 100 hogs?”
asks Igor. “How many hogs will I sell, and how much corn, food scraps, and
potatoes should I now purchase in that case?” (4 points)

2. “I am confused”, laments Igor. “You are telling me to buy fractional kilograms of

corn and food scraps for my hogs. I have to make my purchases in whole kilograms.
What should I do?” (4 points)

3. “I think I can persuade the butcher to buy another 5 hogs from me at the same 450
ruble price. Would my situation improve if I try to sell him 105 hogs instead of
100? By how much would my operating income be improved, if at all?” asks Igor.
(5 points)

4. “You have to understand that everything is very volatile just now”. Igor comments.
“For example, it could easily happen that the cost of the corn that I buy might
suddenly change. How much could the cost of corn increase before I would have to
change my plans?’ (4 points)

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ADM2302 A, B, C, D, and E Assignment # 2

5. “Business relationships are really uncertain in Russia just now. I am nervous that
the farm manager selling me the potatoes will not honor his promise to deliver the
600 kilograms. If he delivers only 500 kilograms of potatoes, how much will I be
hurt and what changes do I need to make in my decisions?” (6 points)

6. “Are there any alternate ways for me to achieve the same optimal operating income,
involving, for example, different purchases of corn, food, or potatoes?” If so, what
are they?” asks Igor. (4 points)

7. “An international salesman from the Ralston-Purina Company stopped by the farm
and wants to sell me prepackaged dry hog feed imported from Poland. He wants to
charge me 16 rubles per kilogram for the packaged hog food, which includes
transportation from Poland. He says each kilogram of his product provides 16 units
of crude protein and 150 kilocalories. Should I start importing hog feed from
Poland? And how much should I buy, if any, and what would be the impact of this
opportunity on my optimal operating income?” asks Igor. (7 points)

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