Applications of CVP & MC

ADM
PGDM I

Applications
1. Allocation of scare resources - key or
limiting factor analysis
2. Optimizing Product mix
3. Joint product profitability
4. Make or Buy decisions

Applications
5. Discontinue and diversification of
products
6. Accept or reject special offers
7. Temporary cessation or close down
operations

LINEAR PROGRAMMING PROBLEMS

LP Technique
Allocation of scare resources - key or limiting
factor analysis
Optimizing Product mix

Multiple product options available and constrains of

resources as well as max. production from one /more
products also exist.

Example: X Ltd. can produce three products- P Q

R. All three products use a particular machine
which can run for max.500 hrs. Products P Q R
use 3,4,5 hrs respectively for each unit of output.
One unit of a particular component C can be used
by P as well as R. Max. units of C available is 250
units. 350 lts. of chemical available for use in the
production process of two products- Q & R use 5
& 2 lts. respectively. Product R can be produced
max. 135 units. Maximise contribution if P Q R per
unit contribution are 5,7 & 9 . All products must be
produced.

Maximize 5x + 7y + 9z

Subject to
3x+4y+5z 500 ( machine hr constraint)
x + z 250 ( components )
5y+2z 350 ( chemicals )
z 135 ( max production )
x, y, z>0 ( all products )