NAME: ONAH MARY CHEKWUBE

MATIC NUMBER: MAC/2018/396

COURSE CODE: ACC 405/ACC 411

COURSE TITILE: MANAGEMENT ACCOUNTING II/OPERATION

ASSIGNMENT
APPLICATION OF LINEAR PROGRAMING ON FINANCIAL MANAGEMENT
AND PRODUCTION MANAGEMENT
Linear Programming
In today's corporate environment, linear programming (LP) is an effective tool that
facilitates the best feasible decision-making among departments. Its applications hold
significant potential for increasing productivity, reducing costs, and attaining goals in
finance and production management.

Production Management:
Linear Programming involvement is essential in streamlining production procedures as it
helps with:
1. Product Mix Optimization: Linear Programming helps determine the most
appropriate collection of items to create based on the availability of resources such
as personnel, machinery, and raw materials. This respects resource limitations
while maximizing output or profit. Linear Programming is able to determine the
best ratio for producing items in order to meet order quantities or optimize profit.
2. Resource Allocation: Linear Programming distributes limited resources such as
labor, equipment, and transportation to various projects, tasks, and stages of
production in an efficient manner. This guarantees effective use, reduces
downtime, and prevents bottlenecks.
3. Production Scheduling: Taking reliance, time constraints, and the availability of
resources into account, LP assists in determining the best order and timing for
production tasks. To maximize resource efficiency, prevent bottlenecks, and satisfy
demand by optimizing production schedules. This guarantees prompt delivery of
the items, cuts down on lead times, and decreases production time.
4. Inventory Management: Linear Programming is essential to the planning and
management of optimum inventory levels for finished goods, spare components,
and raw materials. It guarantees smooth production and effective cash flow by
weighing the costs of inventory keeping against the possibility of stockouts.
5. Capacity Planning: LP helps with demand forecasting so that production capacity
is allocated effectively. This promotes effective resource utilization and cost
savings for enterprises by assisting them in avoiding underinvestment or
overcapacity.
6. Machine Scheduling: To reduce overall setup, idle, and processing times, divide
up tasks for production among various machines.
 7. Waste Reduction and Process Optimization: To increase productivity and
sustainability, minimize waste and streamline production processes.

Financial Management:
Linear Programing can be used to select the best combination of financing to minimize
the total cost of capital and/or to maintain particular borrowing type restrictions.
LP makes a substantial contribution to making sound financial decisions by enabling:
 Capital Budgeting: LP assists in selecting the most lucrative investment
initiatives while taking projected returns and financial limitations into account. to
choose which investment initiatives to go on while taking into account resource
limitations, cost, and potential return. It allocates resources optimally to projects
that have the best potential of yielding a return on investment (ROI).
 Cash Flow Management: By predicting future cash inflows, LP helps Cash Flow
Management: By helping to predict future cash inflows and outflows, LP helps
companies maximize liquidity and make plans for any deficits that may occur.
This guarantees prompt payments, keeps borrowing expenses to a minimum, and
fosters financial stability.
 Portfolio Optimization: To optimize returns while minimizing risk, LP helps
diversify investment portfolios. Invest in a variety of assets (bonds, stocks, etc.) to
optimize expected return and reduce risk. It takes into account variables such as
predicted returns and asset correlations to build a well-balanced portfolio that
satisfies targeted risk-reward goals. LP can be used by an investor to ascertain the
best way to allocate funds among various assets, to get the ideal results.
 Loan Management: By taking interest rates, repayment schedules, and other
factors into account, LP assists firms in selecting the best loan arrangements. In
order to keep financial flexibility and reduce overall costs, it optimizes borrowing
decisions. Using LP, a business can evaluate loan offers from several banks to
determine which has the best terms for repayment and the lowest effective interest
rate.
 Pricing Optimization: LP assists companies in figuring out the best prices to
charge for their goods or services while taking the competition, cost, and demand
into account. In doing so, profits are maximized while market share and
competitiveness are maintained. Using pricing rivals' offers, production costs, and
anticipated demand for each item.
 Credit Risk Management: To reduce loan defaults, evaluate loan applicants'
creditworthiness and establish ideal credit limits.
  Asset Liability Management: Balance assets and liabilities in accordance with
interest rates, maturities, and cash flow requirements to control financial risk.

Benefits of Linear Programming: Applications for Production and Finance

Financial Management
 Optimizes Decisions: Offers formulas to optimize particular objective functions
(such as profit, return, or efficiency) within predetermined bounds.
 Enhances Planning and Forecasting: Makes data-driven planning and
forecasting possible, which helps with risk management and resource allocation.
 Minimizes Costs and Risks: Assists in minimizing monetary risks and
maximizing the use of resources, resulting in lower expenses and higher
profitability.
 Enables Transparency and Accuracy: Promotes improved interactions and
understanding by providing transparent, measurable decision-making procedures.
 Flexibility and Adaptability: Easily adjusted to various situations and capable of
taking into account modifications to variables and limitations.

Production Management
 Boosts Production Efficiency: Offers data-driven process optimization for
production, resulting in increased output and decreased expenses.
 Minimizes Waste and Inventory Costs: This approach maximizes the use of
resources and inventory levels, hence reducing waste and needless storage
expenses.
 Enhances Customer Satisfaction and Delivery Times: Facilitates effective
scheduling and logistics planning, resulting in faster delivery times and higher
levels of customer satisfaction.
 Improves Resource Allocation and Planning: This results to better resource
utilization through improved decision-making around resource allocation and
production planning.
 Offers Data-driven Insights: Provides insightful analysis of production data to
support process optimization and continuous improvement.
Applying the LP Model in Financial and Production Management: Difficulties and
Restrictions

Financial Management:
 Data availability and accuracy: Since financial data is always changing, models
must be updated frequently. If they are based on outdated or insufficient data, the
findings could be erroneous.
 Real world complexity: It is difficult to predict variables like market volatility,
human behavior, and economic uncertainty, and financial relationships aren't
necessarily linear.
 Intangible factors: Although they may influence financial decisions, the model is
unable to account for arbitrary aspects like employee morale, reputation, and brand
value.
 Solution Interpretation: Finding the ideal solution may not always transfer into
the best course of action in the real world. Interpretation and adaptation based on
experience and industry knowledge are frequently required.
 Restrictions on decision support: Although LP offers optimal solutions, it does
not provide risk assessments or insights into different scenarios, which are crucial
for informed financial decisions.
Production Management:
 Model Complexity: It might require a lot of effort and time to build a model that
fully captures all the relationships and constraints involved in production.
 Limited resource flexibility: In production setups with scarce or specialized
resources, this may not always be the case as LP assumes perfectly divisible and
readily available resources.
 Dynamic environment: Production settings necessitate more flexibility than LP's
static solutions since they are frequently vulnerable to unforeseen changes in
demand, material supply, or equipment malfunctions.
 Quality considerations: It might be difficult to incorporate defect rates and
quality management into LP models, which could result in solutions that put
quantity over quality.
 Human factors: The efficiency and output of production can be affected by
human limitations, worker weariness, and learning curves, all of which are not
taken into consideration by LP.