NAGA COLLEGE FOUNDATION, INC.

M.T. Villanueva Avenue, Naga City

College of Accountancy and Finance
Management Science

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OVERVIEW:
The second module was about Linear Programming and its steps that seeks to
maximize or minimize linear function.

LEARNING OUTCOMES:
a. Define Linear Programming
b. Formulate Linear Programming Model
c. Solve Maximization model problem

is a model that consists of linear relationships representing a firm’s decision(s),

given an objective and resource constraint.
is a tool of management science for solving optimization problems.

Example Users of Linear Programming

➢ IBM uses linear programming to perform capacity planning and to make capacity
investment decisions for its semiconductor manufacturing operations.
➢ GE capital uses linear programming to help determine optimal lease structuring.
➢ Marathon Oil Company uses linear programming for gasoline blending and to
evaluate the economics of new terminal or pipeline.

Typical applications of Linear Programming

1. A manufacturer wants to develop a production schedule and an inventory policy
that will satisfy sales demand in future periods. Ideally, the schedule and policy will
enable the company to satisfy demand and at the same time minimize the total
production and inventory costs.
2. A financial analyst must select an investment portfolio from a variety of stocks and
bond investment alternatives. The analyst would like to establish the portfolio that
maximizes the return on investment.
3. A marketing manager wants to determine how best to allocate a fixed advertising
budget among alternative advertising media such as radio, television,
newspaper, and magazine. The manager would like to determine the media mix
that maximizes advertising effectiveness.

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 4. A company has warehouse in several locations throughout the United States. For
a set of customer demands, the company would like to determine how much
each warehouse should ship to each customer so that total transportation costs
are minimized.

Three Steps in applying the Linear Programming Techniques

1. Problem must be identified as being solvable by linear programming.
2. The unstructured problem must be formulated as a mathematical model.
3. The model must be solved by using established mathematical techniques.

Problem Formulation/Model Formulation

The process of translating the verbal statement of problem into ma mathematical
statement.
Formulating model is an art that can only be mastered with practice and
experience.

General Guidelines
1. Understand the problem thoroughly.
2. Define the decision variables.
3. Define the Objective.
4. Define each constraint.

Decision variables
are mathematical symbols that represent levels of activity.
Example, an electrical manufacturing firm desires to produce radios, toasters, and clocks.
Let
X = radios
Y = toasters
Z = clocks
The final values of x, y and z, as determined by the firm, constitute a decision.

Objective Functions
is a linear relationship that reflects the objective of an operation.
always consists of either maximizing or minimizing some value.
Example: maximize the profit or minimize the cost

Model Constraint
is a linear relationship that represents a restriction on decision making.
they represent the restrictions placed on the firm by the operating environment.
The restrictions can be in the form of limited resources or restrictive guidelines.
Example: only 40 hours of labor may be available to produce radios during production.
The actual numeric values in the objective function and the constraints, such as the 40
hours of available labor, are parameters.

Parameter
Numerical values that are included in the objective functions and constraints.

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Midoriya Company wants to
maximize the profit of his business. The two primary resources
used by the company are special pottery clay and skilled labor. Given these limited
resources, the company desires to know how many bowls and mugs to produce each
day.
Resource Requirements
Product Labor (hr/unit) Clay (lb/unit) Profit (P/unit)
Bowl 1 4 40
Mug 2 3 50

Summary of Linear programming Steps

Step 1: define the decision variables
How many bowls and mugs to produce

Step 2: define the objective function

Maximize the profit

Step 3: define the constraint

The resources (clay and labor) available

Decision variables
The quantities to be produced can be represented symbolically as
X = number of bowls
Y = number of mugs to produce

Objective Function
The company’s profit is the sum of the individual profits gained from each bowl
and mug
Max z = P40x + 50y
Where
Z = total profit for day
P40x = profit from bowls
P50y = profit from mugs

Model Constraints
For each bowl produced, 1 hour of labor is required. Similarly, each mug
requires 2 hours of labor.
1x + 2y
However, the amount of labor is limited to 40 hours per day; thus, the
complete labor constraint is
1x + 2y ≤ 40 hr
The amount of clay used daily for the production of bowls is 4 pounds; and
because each mug requires 3 pounds of clay,
4x + 3y ≤ 120lb

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NONNEGATIVITY CONSTRAINTS
restrict the decision variables to zero or positive values
x ≥ 0, y ≥ 0
THE COMPLETE LINEAR PROGRAMMING MODEL FOR THIS PROBLEM
CAN NOW BE SUMMARIZED AS FOLLOWS:

Max Z = P40x + 50y

Subject to
1x + 2y ≤ 40 hr
4x + 3y ≤ 120lb
x,y≥0

Solution:

Eliminate the x and solve for y

4[1x + 2y ≤ 40] 4
4x + 8y ≤ 160
- (4x + 3y ≤ 120)
5y ≤ 40
y≤8

Solve for y
x + 2y ≤ 40
x + 2(8) ≤ 40
x + 16 ≤ 40
x ≤ 40-16
x ≤ 24

USE THE VALUE OF X AND Y TO THE OBJECTIVE FUNCTION

Max Z = P40x + 50y
Z = P40 (24) + 50(8)
Z = 960 + 400
Z = P 1,360

https://www.youtube.com/
Introduction to Management Science by Taylor
Introduction to Management Science (Quantitative Approaches to Decision Making)

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