John Steven R.

Palivino

BSA 2-1

CHAPTER 2 – Linear Programming: Model Formulation and Graphical Solution

Many decisions are faced by managers of a business; they focus on the best way
to achieve the objectives of the firm: (1) maximize profit and (2) minimize cost. This
general type of problems seeking objective which is subject to restrictions can be done
using the management science technique called linear programming. Linear
programming is a model that consists of linear relationships representing a firm’s
decision/s, given an objective and resource constraints. The components of a linear
programming model are decision variables, objective function and constraints. Decision
variables are mathematical symbols that represent levels of activity by the firm. The
objective function is a linear mathematical relationship that describes the objective of
the firm in terms of the decision variables. The objective function always consists of
either maximizing or minimizing some value. Lastly, the model constraints are also
linear relationships of the decision variables; they represent the restrictions placed on
the firm by the operating environment. And also, a linear programming model has the
following general properties: linearity, proportionality, additivity, divisibility, and certainty.
The 3 steps in linear programing formulation process are: (1) define the decision
variables; (2) define the objective function; and (3) define the constraints. These steps
are used in both maximization model and minimization model. After completing the
linear program model for a problem and substituting the hypothetical solution into each
constraint, we can say that a solution is feasible or infeasible. When we say feasible
solution it does not violate any of the constraints while infeasible solution violates at
least one of the constraints. Models and solutions can be illustrated graphically;
graphical solutions are limited to linear programming problems with only two decision
variables. The graphical method provides a picture of how a solution is obtained for a
linear programming problem. There are 3 steps for solving a graphical linear
programming model: (1) Plot the model constraints as equations on the graph; then,
considering the inequalities of the constraints, indicate the feasible solution area - it is
the area on the graph that is bounded by the constraint equations.; (2) Plot the objective
function; then, move this line out from the origin to locate the optimal solution point – it
is the best feasible solution; and (3) Solve simultaneous equations at the solution point
to find the optimal solution values. This characteristic of linear programming problems
reduces the number of possible solution points considerably, from all points in the
solution area to just those points on the boundary. For maximization model, optimal
extreme point is the extreme point the objective function touches last as it leaves the
feasible solution area and then, constraint equations are solved simultaneously at the
optimal extreme point to determine the variable solution values. While for minimization
model, optimal solution point is also on the boundary of the feasible solution area;
however, the boundary contains the point(s) closest to the origin (zero being the lowest
cost possible). There are three types of linear programming constraints are ≤, = and ≥.
For maximization model, a slack variable is added to a ≤ constraint to convert it to an
equation (=). Since slack variable represents unused resources, it contributes nothing to
the objective function value. For minimization model, a surplus variable is subtracted
from a ≥ constraint to convert it to an equation (=). Whereas a slack variable is added
and reflects unused resources, a surplus variable is subtracted and reflects the excess
above a minimum resource requirement level. There are irregular types of linear
programming problem; these special types include problems with more than one optimal
solution, infeasible problems, and problems with unbounded solutions. Multiple optimal
solutions can benefit the decision maker because the number of decision options is
enlarged and greater flexibility to decision maker; alternate optimal solutions are at the
endpoints of the constraint line segment that the objective function parallels. An
infeasible problem has no feasible solution area; every possible solution point violates
one or more constraints. Infeasible problems do not typically occur, but when they do,
they are usually a result of errors in defining the problem or in formulating the linear
programming model. Lastly, in an unbounded problem the objective function can
increase indefinitely without reaching a maximum value. Unlimited profits are not
possible in the real world; an unbounded solution, like an infeasible solution, typically
reflects an error in defining the problem or in formulating the model.

For me, clear understanding of the general approach to problem solving enables
students to use other applied decision-making and planning techniques in this course.
In situation today, where resources are limited I think I can use what I’ve learned in this
lesson – not exactly with the use of linear programming techniques but the concept of it.
Maybe I can share my knowledge with my family in order to minimize our expenses,
only buy things that are really essential right now. Being able to make the right
decisions within and throughout our personal life is what this course would prepare
students – it’s far beyond mere academics. Also, accounting students like us can easily
couple our knowledge of relevant costs, contribution margin and variable costing
systems with linear programming skills to solve profit maximization or cost minimization
problems. Once we utilize our knowledge for relevant costs and variable costing
systems, we can generate more reliable cost accounting information for linear
programming problems, since we have been tackled cost accounting and control and
strategic cost management. The knowledge for relevant revenues and costs are
important on the profession we are taking in the future, learning linear programming
techniques/problems are critical for decisions such as capital budgeting, outsourcing,
adding or dropping product lines, and the further processing of joint products