AC 313: ADVANCED COST ACCOUNTING

LINEAR PROGRAMING REVIEW QUESTIONS_2023_2024

QUESTION 01 []
A company produces two products in three departments. Details are shown below regarding the
time per unit required in each department, the available hours in each department and the
contribution per unit of each product:
Departments Hours per Unit Total Available
Product Chichi Product Chizzy Hours
Department A 8 10 11,000
Department B 4 10 9,000
Department C 12 6 12,000
Contribution per unit TZS 4 TZS 8

There is unlimited demand for Product Chichi, but demand for Product Chizzy is limited to 600
units per annum.
Required: Determine, using a step-by-step approach, what the optimum production plan is.

QUESTION 02 []
CAMAVINGA manufactures two products from different combinations of the same resources.
Unit selling prices and unit cost details for each product are as follows:

Product J (TZS/Unit) L (TZS/Unit)

Selling price 115 120
Direct material A (TZS 10 per kg) 20 10
Direct material B (TZS 6 per kg) 12 24
Skilled labour (TZS 14 per hour) 28 21
Variable overhead (TZS 4 per machine hour) 14 18
Fixed overhead* 28 36
Profit 13 11

*Fixed overhead is absorbed using an absorption rate per machine hour. It is an unavoidable
central overhead cost that is not affected by the mix or volume of products produced.
The maximum weekly demand for products J and L is 400 units and 450 units respectively and
this is the normal weekly production volume achieved by CAMAVINGA. However, for the next
four weeks the achievable production level will be reduced due to a shortage of available
resources. The resources that are expected to be available are as follows:
Direct material A 900 kg
Direct material B 1,750 kg
Skilled labour 1,250 hours
Machine time 2,400 machine hours
Required:
(a) Identify, using graphical linear programming, the weekly production schedule for
products J and L that will maximise the profits of CAMAVINGA during the next four weeks.
(b) The optimal solution to part (a) shows that the shadow prices of skilled labour and direct
material A are as follows:

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 Skilled labour TZS Nil
Direct material A TZS 11.70
Explain the relevance of these values to the management of CAMAVINGA.
(c) Explain, using the graph you have drawn in part (a), how you would calculate by how
much the selling price of Product J could increase before the optimal solution would
change.

Suggested solution to Part B & C

Part B
The shadow price equals the additional contribution that would be earned from one extra unit of
a scarce resource. In a situation such as this, where a number of resources are scarce, the shadow
price of any particular scarce resource will depend on whether or not the resource is binding.
The shadow price for skilled labour is NIL because although there is a shortage of skilled labour
it does not have a constraining effect on output of JR as other resources are more-scarce.
Since material A is one of the binding constraints, if the availability of material A could be
increased by one unit, this would change the optimal plan. The increase in contribution as a result
of this change is the value of the shadow price of material A. The shadow price thus represents
the maximum premium that should be paid for an additional unit of material A.

Part C
If there was a change in the selling price of product J then assuming that there were no changes
to the unit costs of either product or to the selling price of product L this would result in a change
to their relative unit contributions. This would change the slope of the iso contribution line, which
may result in a different optimal solution.
In order to calculate by how much the selling price of product J would have to increase it would
be necessary to identify each of the extreme points of the feasible region and then calculate the
relative unit contributions of products J and L that would cause each of these extreme points to
be chosen in preference to the existing optimal solution.

QUESTION 03 []
Berlin Co makes two types of Berlin computer, the Denver (X) and the Tokyo (Y). X currently
generates a contribution of TZS 30 per unit and Y generates a contribution of TZS 40 per unit.
There are three main stages of production: the build stage, the program stage and the test stage.
Each of these stages requires the use of skilled labour which, due to a huge increase in demand
for Berlin computers over recent months, is now in short supply. The following information is
available for the two products:
Stage Denver (X) Tokyo (Y)
Minutes per unit Minutes per unit
Build (TZS 10 per hour) 24 20
Program (TZS 16 per hour) 16 14
Test (TZS 12 per hour) 10 4

Berlin Co is now preparing its detailed production plans for the next quarter. During this period
it expects that the skilled labour available will be 30,000 hours (1,800,000 minutes) for the build
stage, 28,000 hours (1,680,000 minutes) for the program stage and 12,000 hours (720,000
minutes) for the test stage. The maximum demand for X and Y over the three-month period is
expected to be 85,000 units and 66,000 units respectively. Fixed costs are TZS 650,000 per month.

Due to rapid technological change, the company holds no inventory of finished goods.

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Required:
(a) On the graph paper provided, use linear programming to calculate the optimum number of
each product which Berlin Co should make in the next quarter assuming it wishes to maximise
contribution. Calculate the total profit for the quarter.
(b) Calculate the amount of any slack resources arising as a result of the optimum production
plan and explain the implications of these amounts for decision-making within Berlin Co.

QUESTION 04 []
An electronics firm is undecided as to the most profitable mix for its products. The products
now manufactured are product X, product Y and product Z with a profit (per 100 unit) of TZS.
10, TZS. 6 and TZS. 4 respectively. To produce a shipment of Product X containing 100 units
requires 1 hour of engineering, 10 hours of direct labours and 2 hours of administrative service.
To produce 100 Units of product Y requires 1 hour, 4 hours and 2 hours of engineering, direct
labour and administrative time respectively. To produce a shipment of product Z (100 units)
requires 1 hour of engineering, 5 hours of direct labour and 6 hours of administration. There are
100 hours of engineering services available, 600 hours of direct labour and 300 hours of
administration.

Required: What is the most profitable mix?

QUESTION 05 []
Mengi Investments (MI) is a manufacturer of specialized gas cylinders for domestic gas supply.
Currently there is readily available market for those cylinders. Domestic gas supply companies in
the country are MIs main customers. These customers do pick their respective consignments
from MI store which is located in the main factory compound. A complete cylinder costs the
company significantly in terms of raw materials, main processing machine hours and finishing
paints. Other variable costs are negligible. MI manufactures 38kg, 15kg and 3kg class gas
cylinders. These three classes of cylinders are made using the same machines and materials only
with a slight size setting of main processing machines. However, these machines produce only
one type of cylinders at ago. Company management wants to know the optimal number of
cylinders of each type to produce, per week, which maximizes its contribution margin. Selling
price of each 3kg cylinder is TZS 32,000 while for each of 15kg and 38kg cylinders is TZS 76,500
and TZS 132,000 respectively.
The main manufacturing process takes 5, 2.5 and 1 machine hours for each of 38kg, 15kg and 3kg
class gas cylinder respectively. Manufacturing machines cannot run for more than 150 hours a
week. Significant materials for these gas cylinders are a special type of steel sheets. Each 38kg gas
cylinder requires 2 square meters of a steel sheet while each of a 15kg and 3kg gas cylinders
require 1.5 and 0.5 square meters of steel sheets respectively. The current source of these special
steel sheets cannot supply more than 85 square meters of these sheets a week. Painting of each
gas cylinder of 38kg, 15kg and 3kg require 4, 3 and 2 liters of paints respectively. The regular
supplier can only supply the company with at most 190 liters of paints per week. Cost per unit of
each input is as follows: machine hour is TZS 10,000 per hour, steel sheet is TZS 8,000 per square
meter and paint is TZS 1,500 per liter.
Required: Assist management to find the ideal number of each type of cylinders to produce

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 QUESTION 06 []
The Professor Co is a company producing a variety of Professor Creams and lotions. The creams
and lotions are sold to a variety of retailers at a price of TZS 23·20 for each jar of face cream and
TZS 16·80 for each bottle of body lotion. Each of the products has a variety of ingredients, with
the key ones being silk powder, silk amino acids and aloe vera. Six months ago, silk worms were
attacked by disease causing a huge reduction in the availability of silk powder and silk amino
acids. The Professor Co had to dramatically reduce production and make part of its workforce,
which it had trained over a number of years, redundant.
The company now wants to increase production again by ensuring that it uses the limited
ingredients available to maximise profits by selling the optimum mix of creams and lotions. Due
to the redundancies made earlier in the year, supply of skilled labour is now limited in the short-
term to 160 hours (9,600 minutes) per week, although unskilled labour is unlimited. The
purchasing manager is confident that they can obtain 5,000 grams of silk powder and 1,600 grams
of silk amino acids per week. All other ingredients are unlimited. The following information is
available for the two products:
Cream Lotion
Materials required:
Silk powder (at TZS 2·20 per gram) 3 grams 2 grams
Silk amino acids (at TZS 0·80 per gram) 1 gram 0.5 grams
Aloe vera (at TZS 1·40 per gram) 4 grams 2 grams

Labour required:
Skilled (TZS 12 per hour) 4 minutes 5 minutes
Unskilled (at TZS 8 per hour) 3 minutes 1.5 minutes

Each jar of cream sold generates a contribution of TZS 9 per unit, whilst each bottle of lotion
generates a contribution of TZS 8 per unit. The maximum demand for lotions is 2,000 bottles per
week, although demand for creams is unlimited.
Fixed costs total TZS 1,800 per week. The company does not keep inventory although if a product
is partially complete at the end of one week, its production will be completed in the following
week.
Required:
(a) Use linear programming to calculate the optimum number of each product that the
Professor Co should make per week, assuming that it wishes to maximize contribution.
Calculate the total contribution per week for the new production plan. All workings MUST
be rounded to 2 decimal places.
(b) Calculate the shadow price for silk powder and the slack for silk amino acids. All workings
MUST be rounded to 2 decimal places.

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 QUESTION 07 []
A manufacturer of three products tries to follow a policy of producing those which contribute most
to fixed cost and profit. However, there is also a policy of recognising certain minimum sales
requirements. Currently these are:
Product Unit per week
A 20
B 30

C 60
There are three producing departments. The product time in hour per unit in each department and
the total times available for each week in each department are:

Time required per

Time required per product, in hours product, in hours
Product A B C
Machine
1 0.25 0.2 0.15 420
2 0.3 0.4 0.5 1048
3 0.25 0.3 0.25 529

The contribution per unit of product A, B and C is TZS. 10.50, Rs. 9.00 and TZS. 8.00 respectively. The
company has scheduled 20 units of A, 30 units of B and 60 units of C for production in the following
week.
Required:
a) Show Whether the present schedule is an optimum one from a profit point of view and if it is
not, what it should be;
b) The recommendations that should be made to the firm about their production facilities
(following the answer to (a) above).

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 QUESTION 08 []
Bella Corporation is a company that has been in the manufacturing business for a number of
years. This company is engaged in the production and sale of Product X, Product Y and product Z.
The popularity of products that are produced by Bella has excessively increased over the recent
period due to the Corona virus pandemic. As a result, the maximum possible sales that can be
achieved for the next year has been estimated to be as follows:

Maximum Sales
Product Requirements next year
X 60
Y 70
Z 80

However, in fear of possible scarcity of these products, number of customers has made inquiries
to place early orders for the next year and as a result the management of Bella Corporation has
entered into commitments to satisfy some of these orders especially for those customers that
regularly transact with them. The following are the minimum sales requirement next year based
on the contractual agreement entered by Bella:

Minimum Sales
Product Requirements next year
X 10
Y 20
Z 30
The three products are produced using three different machines available at Bella Corporation.
Due the Corona virus pandemic these machines have been estimated to be short of supply next
year such that Bella would not be able to extend the available Capacity in terms of available
machine hours. The following table shows the estimated available machine hours for each
machine and required machine hour per unit of each product:

Machine Time (Hrs) required per item of

Total available
X Y Z hours Per Month
Machine A 1 2 2 200
Machine B 2 1 1 220
Machine C 3 1 2 180

The selling price per unit and variable cost per unit for each product are shown below:

Product Selling Price Per unit Variable Cost Per unit

X 30 20
Y 45 25
Z 50 20

Required: From the information given above:

a) Compute a guaranteed contribution margin to Bella Corporation for the next year
b) Formulate an objective function and all its possible constraints
c) Using simplex method, present a production plan necessary to maximize Contribution
margin

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