Business Analytics - ADM 2302 M, N, P and Q

Midterm Exam - Winter 2016

Duration: 2 hours

Professors: Jonathan Li and Rim Jaber

Last Name: ________________________ First Name: _____________________

Student #: ________________________ Section: _____________________

Instructions:
1- Write down the exam copy number (that exists at the top right corner of this page)

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on the identification white card next to your name.

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2- Write in your last and first name, your Student ID number, and your section in the

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spaces above, and sign the Statement of Academic Integrity below.

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3- Verify that your exam copy has 7 pages (including this title page). If yours does
not, please inform the professor now.

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4- Answer all questions on this examination copy. Use the opposite (blank) side, if

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necessary. Only answers in this exam booklet will be marked. Show all work.
5- This is a closed-book exam: however, one double sided sheet (8.5" x 11") of notes
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and a calculator are permitted for arithmetic use only. The sheet of notes must be
handed over with the exam copy at the end of the exam period, or else your
copy will not be marked.
6- Read each question very carefully: only provide what is asked and do not hesitate
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to ask for clarifications when needed.

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7- NO COMMUNICATION DEVICES MAY BE WITHIN SIGHT.

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8- Good luck and keep smiling.

DO NOT WRITE ON THE TABLE BELOW

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Questions 1 2 3 4 Total
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Notes

Points 26 25 25 24 100
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Statement of Academic Integrity

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The School of Management does not condone academic fraud, an act by a student that may
result in a false academic evaluation of that student or of another student. Without limiting
the generality of this definition, academic fraud occurs when a student commits any of the
following offences: plagiarism or cheating of any kind, use of books, notes, mathematical
tables, dictionaries or other study aid unless an explicit written note to the contrary appears
on the exam, to have in his/her possession cameras, radios (radios with head sets), tape
recorders, pagers, cell phones, or any other communication device which has not been
previously authorized in writing.

Statement to be signed by the student:

I have read the text on academic integrity and I pledge not to have committed or attempted
to commit academic fraud in this examination.

Signed:______________________________________

Note: an examination copy or booklet without that signed statement will not be graded and
will receive a final exam grade of zero.

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 ADM 2302 M, N, P and Q Midterm Exam Winter 2016

Question 1: Graphical Method and miscellaneous topics (26 points)

Consider the following linear programming problem:

Maximize Z = $15x + $20y (total revenue)

Subject to :
(1) 8x + 5y ≤ 40
(2) 0.4x + y ≥ 4
x, y ≥ 0

a) Graph the constraint lines and mark them clearly with the numbers (1) and (2) to indicate which
line corresponds to which constraint. Darken the feasible region.(7 points)

b) Determine the values for x and y that will maximize the total revenue. Fill the blanks below.
Provide all necessary details to justify your answers. (5 points)

Optimal value of x = ___________.

Optimal value of y = ___________.

Optimal value of objective function Z = ____________.

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c) Based on the above optimal values, what is the amount of slack associated with the first

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constraint?

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(2 points)

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Solution:

a) 2 points for plotting each constraint; 3 points to darken the feasible region

b) X = 0 and Y = 8 (3 points), Z = 160 (2 points)

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 ADM 2302 M, N, P and Q Midterm Exam Winter 2016

c) Slack of the first constraint = 0 (2 points)

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 ADM 2302 M, N, P and Q Midterm Exam Winter 2016

d) Circle the proper answer to question (1) to (5). Fill in the blank in question (6)

(12 points total = 2 points each)

1. If a linear programming problem has redundant constraints, then removing the

redundant constraints will not affect the optimal solution.

True False

2. Divisibility assumption in linear programming implies

A) resources can be divided among products

B) products can be divided among customers
C) decision variables may take on integer values
D) decision variables may take on fractional values

3. Additivity assumption in linear programming implies

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A) resources can be added together to generate products

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B) products can be added at any time
C) resource usage for each level of decision variable can be added up to get total usage

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D) total profit for each decision variable can be added up to get total profit for the model

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E) C and D

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4. Consider the following constraints and choose the correct answer:
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Constraint T: 2 X 1 + 3 X 2 ≤ 100 Constraint S: 2 X 1.X 2 + 3X 2 ≤ 1000

A) constraint T can be used in a linear program

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B) constraint S can be used in a linear program

C) neither can be used in a linear program
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D) both may be used in a linear program

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E) both may be used in an integer linear program, but not in a linear program

5. Constraint T: 3X 1 + X 2 ≥ 90 Constraint S: 3X 1 + 2 X 2 ≤ 120 Constraint W:

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X1 − X 2 ≥ 0
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All variables are required to be non-negative. Let the objective function be Max: X 1 + X 2 . The
optimal solution for this problem is (24, 24). The non-binding constraint will be

A) constraint T
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B) constraint S
C) constraint W
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D) both T and S
E) no non-binding constraint

6. The method (algorithm) used to solve linear programming problem is called _SIMPLEX_

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 ADM 2302 M, N, P and Q Midterm Exam Winter 2016

Question 2: Linear Programming Basic Formulation (25 points)

OttawaChicken produces two types of chicken cutlets, Prime Cutlet and Basic Cutlet, for
sale to major supermarkets. To manufacture the cutlets, they need to first purchase
chickens from two farms, Allan’s farm and Ellen’s farm. The chickens purchased from
the Allan’s farm cost $12 per chicken, and each yields 6kg of white meat and 3 kg of
dark meat, whereas the chickens from the Ellen’s farm cost $10 per chicken, and each
yields 4 kg of white meat and 4 kg of dark meat.

In manufacturing the cutlets, the first type of cutlet, Prime Cutlet, requires at least 60%
white meat, whereas the second type, Basic Cutlet, requires at least 50% white meat.
OttawaChicken can sell Prime Cutlet for $7/kg and Basic Cutlet for $5/kg. They however
cannot produce more than 40kg of Prime Cutlet and 20kg of Basic Cutlet due to limited
storage space.

How many white and dark meats does the company need for each type of cutlet in order
to maximize the NET profit? Formulate a Linear Programming model that solves the
problem. Define the decision variables, objective function, and constraints. DO NOT
SOLVE THE MODEL.

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(2PTS)
W1 : Kg of white meat for first type of cutlet

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W2 : Kg of white meat for the second type of cutlet

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D1 : Kg of dark meat for the first type of cutlet
D2 : Kg of dark meat for the second type of cutlet

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C1 : number of chickens purchased from Allan’ farm
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C2 : number of chickens purchased from Ellen’s farm
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(3PTS)
Maximize 7*(W1+D1)+5*(W2+D2)-12*C1-10*C2
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Subject to:
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W1 + W2 <= 6C1 + 4C2 (Total White meat) (3PTS)

D1 + D2 <= 3C1+4C2 (Total dark meat) (3PTS)
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W1+D1<= 40 (Total amount for cutlet1) (3PTS)

W2+D2<=20 (Total amount for cutlet2) (3PTS)
W1 >= 60%*(W1+D1) (at least 60% for the first type) (3PTS)
W2 >= 50%*(W2+D2) (at least 50% for the second type) (3PTS)
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W1,W2,D1,D2,C1,C2>=0. (2PTS)
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 ADM 2302 M, N, P and Q Midterm Exam Winter 2016

Question 3: Multi-period Linear Programming Formulation (25 points)

Campus Cafeteria has recently become a popular choice for students to go for lunch,
particularly because of its tasty sandwiches. In the beginning of each week, the manager
of the cafeteria has to order sandwiches from factories and store them in the freezer until
receiving a customer’s order. The cafeteria currently has contracts with two factories, and
the factories have provided the cafeteria the following projected prices of a sandwich for
the coming four weeks:

(The prices that the factories will charge the cafeteria per sandwich)
Factory A, Factory B
Week 1 $2 $3
Week 2 $4 $3
Week 3 $5 $4
Week 4 $5 $4

Seeing how busy the cafeteria currently is, the manager predicts that the number of the
customers who will order sandwiches will grow in the coming four weeks as follows:

Week 1: 120 orders

Week 2: 130 orders

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Week 3: 150 orders
Week 4: 170 orders

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In each of the week, the manager has a budget of $500 that she can spend on ordering
more sandwiches from the factories. Right now, there are 50 sandwiches in the freezer,

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which are fresh to sell for Week 1. Although unsold sandwiches can be stored in the

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freezer, approximately 20% of the unsold sandwiches will become not fresh enough to
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sell for the following week. It is expected that by the end of Week 4, there should be 30
sandwiches left in the freezer. The manager needs to decide how many sandwiches to
order from the factories for each week so that the demand can be met with minimum cost.
Formulate a LP model to solve the problem. Define the decision variables, objective
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function, and constraints. DO NOT SOLVE THE MODEL.

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Ans.
Let A1,…,A4 denote the amount of sandwiches ordered from Factory A in Week 1,2,3,4
(1PT)
Let B1,…,B4 denote the amount ordered from Factory B in Week 1,2,3,4 (1PT)
Let F1,…,F4 denote the amount of unsold sandwiches by the end of Week 1,2,3,4 (1PT)
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Minimize (2*A1+3*B1)+(4*A2+3*B2)+(5*A3+4*B3)+(5*A4+4*B4) (3PTS)

Subject to
50 + A1 + B1 = 120 + F1 (Week1 constraint) (3PTS)
(1-20%)F1 + A2 + B2 = 130 + F2 (Week2 constraint) (3PTS)
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(1-20%)F2 + A3 + B3 = 150 + F3 (Week3 constraint) (3PTS)

(1-20%)F3 + A4 + B4 = 170 + F4 (Week4 constraint) (3PTS)
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2*A1+3*B1<=500 (1PT)
4*A2+3*B2<=500 (1PT)
5*A3+4*B3<=500 (1PT)
5*A4+4*B4<=500 (1PT)
F4>=30 (2PTS)
A1,…,A4,B1,…,B4,F1,…,F4>=0 (1PT)

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 ADM 2302 M, N, P and Q Midterm Exam Winter 2016

Question 4: Sensitivity Analysis (24 points)

The T & L Manufacturing Company produces parts X, Y, and Q. The next month’s demand for
parts X, Y, and Q are 3,000, 5,000 and 4,000 units, respectively. Even though T & L would like
to manufacture all of the units demanded, it is concerned that it does not have the necessary
production capacity to make all of the parts. Therefore, the company is considering purchasing
some of these parts from a local supplier. The production and purchasing cost of parts X, Y, and
Q are given in Table 1 below.

Table 1 Production and Purchasing Cost of All Parts

PART Production Cost per Unit Purchasing Cost per Unit
X $2.20 $3.00
Y $1.50 $2.80
Q $1.20 $2.20

All parts must go through plating and heat-treating processes. The production time requirements
per unit of parts X, Y, and Z for the plating and heat-treating processes and the capacity of each
process are given in Table 2 below.

Table 2 Production Time Requirements and Capacity of Process

Processes Part X Part Y Part Q Total Hours Available
Plating .2 .3 .10 1,500
Heat treating .1 .2 .05 1,000

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Let
Mi = number of units of production of product i

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Pi = number of units purchased of product i

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Where i = X, Y, Q

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Minimize Z = 2.2MX + 1.5MY + 1.2MQ + 3PX + 2.8PY + 2.2PQ

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Subject to

MX + PX = 3,000
MY + PY = 5,000 } (demand constraint for each product)
MQ + PQ = 4,000
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.20MX + .30MY + .10MQ ≤ 1,500 hours (capacity of plating department)

.10MX + .20MY + .05MQ ≤ 1,000 hours (capacity of heat-treating department)
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All Mi and all Pi ≥ 0 for i = X, Y, Q

The sensitivity analysis report for the above problem is provided below as Excel Solver output. You
will need this output to answer (a) through (f) below, each part of which is to be considered
independently of all others.
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Variable Cells
Final Reduced Objective Allowable Allowable
Cell Name Value Cost Coefficient Increase Decrease
$B$4 Quantities Mx 0 0.067 2.2 1E+30 0.067
$C$4 Quantities My 3666.67 0.000 1.5 0.100 1.700
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$D$4 Quantities Mq 4000 0.000 1.2 0.567 1E+30

$E$4 Quantities Px 3000 0.000 3 0.067 1E+30
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$F$4 Quantities Py 1333.33 0.000 2.8 1.700 0.100

$G$4 Quantities Pq 0 0.567 2.2 1E+30 0.567

Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$H$7 Demand X Usage 3000 3 3000 1E+30 3000
$H$8 Demand Y Usage 5000 2.8 5000 1E+30 1333.333
$H$9 Demand Q Usage 4000 1.63 4000 11000 4000
$H$10 Capacity Plating Usage 1500 -4.33 1500 100 1100
$H$11 Capacity Heat Treating Usage 933.33 SP 1000 1E+30 AD

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 ADM 2302 M, N, P and Q Midterm Exam Winter 2016

(a) Determine T & L optimal production and purchasing schedule for parts X, Y, and Q. What is the
optimal cost of such optimal strategy? (4 points)

MY = 3,667 (number of units of production of part Y)

MQ = 4,000 (number of units of production of part Q)
PX = 3,000 (number of units purchased of part X)
PY = 1,333 (number of units purchased of part Y) (2 points)

Z = $23,033.33 (minimum cost) (2 points)

(b) What would be the impact on the production schedule and the optimal cost if the local supplier
decreased the purchasing cost of parts Q to $1.70 ? Justify. (5 points)

A decrease of 50 cents is within the allowable decrease of 56.7 cents. (1 point|)

Thus the optimal production schedule will remain the same. (2 points)

Since Pq = 0 the optimal cost will not change. (2 points)

(c) What would need to happen to the unit production cost of X, in order to start producing parts X
(i.e. MX> 0)? Justify. (3 points)

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The unit cost need to decrease by at least 6.7 cents ($0.067), which the value of the reduced
cost of Mx and the allowable decrease. Thus production cost per unit has to be at least

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$2.13 in order to start producing Mx

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(d) The shadow price and allowable decrease for the “capacity of heat-treating” constraint has been

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deleted by your humble instructor (the letters SP and AD appear instead of the numbers). What

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are the correct values of SP and AD? (4 points)
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Shadow price = SP= 0 because the constraint is not binding. (2 points)

AD = Allowable decrease is 1000 – 933.33 = 66.67 (2 points)

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(e) T & L can increase the capacity of plating department by 100 hours for a total cost of $500.
Would you recommend such an increase in hours to the company? Justify. (4 points)

An increase of 100 hours is within the allowable increase of 100 thus the shadow price will remain
valid. t (1 point)
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An increase of 100 hours will reduce cost by $433, which is the maximum amount I am
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willing to pay. Thus I don’t recommend such an increase as 500 > 433. (3 points)

(f) Due to better planning and efficient use of the resources, T & L was able to decrease the
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production cost per unit by 6.6 cents ($0.066) for ALL three parts. Will this affect optimal
production and purchasing schedule for parts X, Y, and Q? Give a strong supporting argument for
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your conclusion. (4 points)

For NOT using the 100% Rule they lose all the point.

[(0.066/0.067) + (0.066/1.7) + 0] * 100 = 102% > 100. (3 points)

The optimal production schedule May Or May NOT change. (1 point)

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