Financial Decision Analysis Course Work

Question A:

“Quantity Maximization or Minimization:

Profit (maximization), or cost (minimization). This is known as the Objective
Function. This is the goal of the problem.

Constraints:
Factors liming the extent to which the objective function can be realised. Represent
limited resource quantities e.g. land acreage, machine hours, labour hours, cubic litres
of paint available etc. (See below on non-negativity constraints).

Decision Variables:
There must be differing alternatives available e.g. a wood merchant can decide
between the number of guns and amount of butter produced. Each variable will be
noted by a different subscript. The problem will be solved for these.

Linearity:
Mathematical Relationships must be linear. (This makes the relationships
proportional.)
Hence:
2a + 3b = 81 is linear
2a² + 3b³ = 90 is not.

Power of the number:

No equation should have a square or higher power.

Inequality:
The inequality will have a ≥ or ≤ sign” (FDA lecture slides, 2010)

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Financial Decision Analysis Course Work

Question B:

Let Z = Profit Maximization.

Decision Variables: If decision variables are shown as follows,

X1= Long Haul Business Seats

X2= Short Haul Business Seats
X3= Long Haul Family Seats
X4= Short Haul Family Seats
X5= Long Haul Advanced Seats
X6= Short Haul Advanced Seats
X7= Long Haul Standard Seats
X8= Short Haul Standard Seats
X9= Military Seats

Then Objective Function to maximise the profit can be shown as below:

Z = 568*X1 + 284*X2 + 412*X3 + 206*X4 + 286*X5 +142*X6 + 175*X7 –88*X8

+ 0*X9

With subject to Constraints:

Total Number of Seats X1+X2+X3+X4+X5+X6+X7+X8+X9 ≤ 550

Number of Military Seats X9 = 143

Number of Total Business Seats X1+X2 ≤ .20*550

Number of Business Long Haul Seats X1 ≤ 7/11*(X1+X2)

Number of Advanced Long Haul Seats 30 ≤ X5 ≤ 40

Number of Total Advanced Seats X5+X6 ≤ 70

Number of Total Standard Seats X7+X8 ≤ 198

Number of Total Family Seats X3+X4 ≤ 140

Number of Family Long Haul Seats X3 ≤ 50

Steel
84*X1+49*X2+63*X3+31*X4+54*X5+20*X6+20*X7+124*X8+158*X9 ≤ 50000

Bolts
49*X1+7*X2+21*X3+4*X4+11*X5+9*X6+11*X7+11*X8+58*X9 ≤ 10000

Rods
112*X1+79*X2+82*X3+64*X4+50*X5+60*X6+21*X7+11*X8+196*X9 ≤ 60000

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Financial Decision Analysis Course Work

Fireproof Material 6*X1+10*X2 ≤ 800

With Non-Negativity

Long Haul Business Seats X1 ≥ 0

Short Haul Business Seats X2 ≥ 0
Long Haul Family Seats X3 ≥ 0
Short Haul Family Seats X4 ≥ 0
Long Haul Advanced Seats X5 ≥ 0
Short Haul Advanced Seats X6 ≥ 0
Long Haul Standard Seats X7 ≥ 0
Short Haul Standard Seats X8 ≥ 0
Military Seats X9 ≥ 0

Computer Output:

Answer Report:

Microsoft Excel 10.0 Answer Report

Worksheet: [B2.xls]Sheet2
Report Created: 24/03/2010 16:08:12

Target Cell (Max)

Cell Name Original Value Final Value
$B$2 Objective Function 0 65322.72727

Adjustable Cells
Cell Name Original Value Final Value
$B$6 Long haul business 0 0
$B$7 Short haul Business 0 80
$B$8 Long haul Family 0 0
$B$9 Short haul Family 0 140
$B$10 Long haul Advanced 0 40
$B$11 Short haul Advanced 0 0
$B$12 Long haul Standard 0 13.27272727
$B$13 Short haul Standard 0 0
$B$14 Military 0 143

Constraints
Cell Name Cell Value Formula Status Slack
$B$18 Total No of Seats 416.2727273 $B$18<=$C$18 Not Binding 133.727273
$B$40 Short haul Standard 0 $B$40>=$C$40 Binding 0
$B$20 No of Total Business Seats 80 $B$20<=$C$20 Not Binding 30
$B$21 No of Business Long Haul Seats 0 $B$21<=$C$21 Not Binding 70
$B$22 No of Advanced Long haul Seats 40 $B$22>=$C$22 Not Binding 10
$B$23 No of Advanced Long haul Seats 40 $B$23<=$C$23 Binding 0
$B$41 Military 143 $B$41>=$C$41 Not Binding 143
$B$24 No of Total Advanced Seats 40 $B$24<=$C$24 Not Binding 30
$B$25 No of Total Standard Seats 13.27272727 $B$25<=$C$25 Not Binding 184.727273
$B$26 No of Total Family Seats 140 $B$26<=$C$26 Binding 0
$B$27 No of Family Long Haul Seats 0 $B$27<=$C$27 Not Binding 50
$B$28 Fireproof Material 800 $B$28<=$C$28 Binding 0

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Financial Decision Analysis Course Work

$B$29 Steel 33279.45455 $B$29<=$C$29 Not Binding 16720.5455

$B$30 Bolts 10000 $B$30<=$C$30 Binding 0
$B$31 Rods 45586.72727 $B$31<=$C$31 Not Binding 14413.2727
$B$33 Long haul business 0 $B$33>=$C$33 Binding 0
$B$34 Short haul Business 80 $B$34>=$C$34 Not Binding 80
$B$35 Long haul Family 0 $B$35>=$C$35 Binding 0
$B$36 Short haul Family 140 $B$36>=$C$36 Not Binding 140
$B$37 Long haul Advanced 40 $B$37>=$C$37 Not Binding 40
$B$38 Short haul Advanced 0 $B$38>=$C$38 Binding 0
$B$39 Long haul Standard 13.27272727 $B$39>=$C$39 Not Binding 13.2727273
$B$19 No of Military Seats 143 $B$19=$C$19 Not Binding 0

Sensitivity Report:

Adjustable Cells
Final Reduced Objective Allowable Allowable
Cell Name Value Cost Coefficient Increase Decrease
$B$6 Long haul business 0 0 568 315.1272727 1E+30
$B$7 Short haul Business 80 0 284 1E+30 172.636364
$B$8 Long haul Family 0 0 412 64.45454545 1E+30
$B$9 Short haul Family 140 0 206 1E+30 64.4545455
$B$10 Long haul Advanced 40 0 286 1E+30 111
$B$11 Short haul Advanced 0 0 142 1.181818182 1E+30
$B$12 Long haul Standard 13.27272727 0 175 111 1.44444444
$B$13 Short haul Standard 0 0 -88 263 1E+30
$B$14 Military 143 0 0 1E+30 1E+30

Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$B$18 Total No of Seats 416.2727273 0 550 1E+30 133.727273
$B$40 Short haul Standard 0 -263 0 13.27272727 0
$B$20 No of Total Business Seats 80 0 110 1E+30 30
No of Business Long Haul
$B$21 Seats 0 0 70 1E+30 70
No of Advanced Long haul
$B$22 Seats 40 0 30 10 1E+30
No of Advanced Long haul
$B$23 Seats 40 111 40 13.27272727 10
$B$41 Military 143 0 0 143 1E+30
$B$24 No of Total Advanced Seats 40 0 70 1E+30 30
$B$25 No of Total Standard Seats 13.27272727 0 198 1E+30 184.727273
$B$26 No of Total Family Seats 140 142.3636364 140 36.5 140
$B$27 No of Family Long Haul Seats 0 0 50 1E+30 50
$B$28 Fireproof Material 800 17.26363636 800 208.5714286 800
$B$29 Steel 33279.45455 0 50000 1E+30 16720.5455
$B$30 Bolts 10000 15.90909091 10000 1471 146
$B$31 Rods 45586.72727 0 60000 1E+30 14413.2727
$B$33 Long haul business 0 -315.127273 0 3.258928571 0
$B$34 Short haul Business 80 0 0 80 1E+30
$B$35 Long haul Family 0 -64.4545455 0 8.588235294 0
$B$36 Short haul Family 140 0 0 140 1E+30
$B$37 Long haul Advanced 40 0 0 40 1E+30
$B$38 Short haul Advanced 0 -1.18181818 0 16.22222222 0
$B$39 Long haul Standard 13.27272727 0 0 13.27272727 1E+30

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Financial Decision Analysis Course Work

$B$19 No of Military Seats 143 -922.727273 143 2.517241379 31.2978723

Result:

From the answer report, the optimal product mix to produce is,

• 80 seats for short haul business class,

• 140 seats for short haul family class,
• 40 seats for long haul advanced class,
• 13.272727 seats for long haul standard class,
• 143 seats for military.

Hence the total numbers of occupied seats are 416.27 which give $65322.73
maximum contribution to profit.

Question C:

The decimal points in question B needs to be eliminate as the aircraft can only sell the
seats in whole number, hence the answer for question be needs to derive in integers.
Means the decimal number of 13.27273 for Long Haul Standard Seats needs to reduce
up to its allowable decrease. (As per answer report it is 1.444). The shadow prices
from the sensitivity report shows that for every less seat of Long haul Standard Seat
will result in decrease in profit by $175.

Therefore the decrease in profit will be $65322.73 – [($175)*(0.27273)] =

$65275.002.

Question D:

I) A fall in price of each Business Short Haul Seat to $666.

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Financial Decision Analysis Course Work

The answer report indicates that allowable decrease for the Business Short Haul Seats
is 172.64. Hence the fall in price to $666 is allowed as it shows change of 34 ($700-
$666). We can see from the Sensitivity Report above that, for each reduced dollar, the
decrease in profit contribution is 80.

Therefore the Profit would decrease by (34*$80) = $2720, so the optimal profit
would be now $65322.73-$2720=$62602.73.

Reduction in price in Business Long Haul Seats is not profitable.

II) A fall in price of each Business Short Haul Seat to $566.

The answer report indicates that allowable decrease for the Business Short Haul Seats
is 172.64. Hence the fall in price to $566 is allowed as well as it shows change of 134
($700-$566). And as the Sensitivity Report above shows that, for each reduced dollar,
the decrease in profit contribution is 80.

Therefore the Profit would even decrease more by (134*$80) = $10720, so the
optimal profit would be now lowered to $65322.73-$10720=$54602.73.

Reduction in price in Business Long Haul Seats is not profitable.

III) A rise in price of each Advanced Long Haul Seat to $673

The associated shadow prices from the Sensitivity Report show that for every
additional dollar of Advanced Long Haul Seat that could be obtained the increase in
profit contribution is $40. The increase of 37($673-$636) in price is acceptable as
allowable increase for Advanced Long Haul Seat is unlimited (Infinity).

Therefore profit contribution could be increased by 37*$40= $1480, which makes

the optimal profit $65322.73+$1480=$66802.73

Increase in price in Advanced Long Haul Seats is profitable.

IV) A rise in price of each Advanced Long Haul Seat to $650

As mentioned above, the Sensitivity Report shows that for every additional dollar of
Advanced Long Haul Seat that could be obtained the increase in profit contribution is
$40. And the increase of 14($650-$636) in price is acceptable as allowable increase
for Advanced Long Haul Seat is unlimited (Infinity).

Hence profit contribution could be increased by 14*$40= $560, which makes the
optimal profit $65322.73+$560=$65882.73

Increase in price in Advanced Long Haul Seats is profitable.

Question E:

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Financial Decision Analysis Course Work

We can see on the Sensitivity Report above that we could profitably utilise reduced
146 numbers of bolts (Allowable Decrease). And in the given two examples, the
change in number of bolts is exceeding the allowable decrease.

I) 10000-9850=150
II) 10000-9700=300.

This means that as the Bolts constraint is shifted, the Feasible Region changes thus
decreasing the profit until eventually another corner of the feasible region is hit and
another constraint will become binding.

To find new optimal product mix we need to replace the Bolts constraint and reset
the decision variables to zero and Re-Solve.

I) A fall in number of bolts to 9850.

Computer Output:

Answer Report:

Target Cell (Max)

Original
Cell Name Value Final Value
$B$2 Objective Function 0 62896

Adjustable Cells
Original
Cell Name Value Final Value
$B$6 Long haul business 0 0
$B$7 Short haul Business 0 80
$B$8 Long haul Family 0 0
$B$9 Short haul Family 0 140
$B$10 Long haul Advanced 0 39.63636364
$B$11 Short haul Advanced 0 0
$B$12 Long haul Standard 0 0
$B$13 Short haul Standard 0 0
$B$14 Military 0 143

Constraints
Cell Name Cell Value Formula Status Slack
$B$18 Total No of Seats 402.636364 $B$18<=$C$18 Not Binding 147.363636
$B$19 No of Military Seats 143 $B$19=$C$19 Not Binding 0
$B$20 No of Total Business Seats 80 $B$20<=$C$20 Not Binding 30
$B$21 No of Business Long Haul Seats 0 $B$21<=$C$21 Not Binding 70
$B$41 Military 143 $B$41>=$C$41 Not Binding 143
$B$23 No of Advanced Long haul Seats 39.6363636 $B$23<=$C$23 Not Binding 0.36363636
$B$24 No of Total Advanced Seats 39.6363636 $B$24<=$C$24 Not Binding 30.3636364
$B$25 No of Total Standard Seats 0 $B$25<=$C$25 Not Binding 198
$B$26 No of Total Family Seats 140 $B$26<=$C$26 Binding 0
$B$27 No of Family Long Haul Seats 0 $B$27<=$C$27 Not Binding 50
$B$28 Fireproof Material 800 $B$28<=$C$28 Binding 0
$B$29 Steel 32994.3636 $B$29<=$C$29 Not Binding 17005.6364
$B$30 Bolts 9850 $B$30<=$C$30 Binding 0

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Financial Decision Analysis Course Work

$B$31 Rods 45289.8182 $B$31<=$C$31 Not Binding 14710.1818

$B$33 Long haul business 0 $B$33>=$C$33 Binding 0
$B$34 Short haul Business 80 $B$34>=$C$34 Not Binding 80
$B$35 Long haul Family 0 $B$35>=$C$35 Binding 0
$B$36 Short haul Family 140 $B$36>=$C$36 Not Binding 140
$B$37 Long haul Advanced 39.6363636 $B$37>=$C$37 Not Binding 39.6363636
$B$38 Short haul Advanced 0 $B$38>=$C$38 Binding 0
$B$39 Long haul Standard 0 $B$39>=$C$39 Binding 0
$B$40 Short haul Standard 0 $B$40>=$C$40 Binding 0
$B$22 No of Advanced Long haul Seats 39.6363636 $B$22>=$C$22 Not Binding 9.63636364

Sensitivity Report:

Adjustable Cells
Final Reduced Objective Allowable Allowable
Cell Name Value Cost Coefficient Increase Decrease
$B$6 Long haul business 0 0 568 767.2 1E+30
$B$7 Short haul Business 80 0 284 1E+30 102
$B$8 Long haul Family 0 0 412 236 1E+30
$B$9 Short haul Family 140 0 206 1E+30 102
$B$10 Long haul Advanced 39.63636364 0 286 160.285714 111
$B$11 Short haul Advanced 0 0 142 92 1E+30
$B$12 Long haul Standard 0 0 175 111 1E+30
$B$13 Short haul Standard 0 0 -88 374 1E+30
$B$14 Military 143 0 0 1E+30 1E+30

Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$B$18 Total No of Seats 402.6363636 0 550 1E+30 147.3636364
$B$19 No of Military Seats 143 -1508 143 1.82758621 0.068965517
$B$20 No of Total Business Seats 80 0 110 1E+30 30
$B$21 No of Business Long Haul Seats 0 0 70 1E+30 70
$B$41 Military 143 0 0 143 1E+30
$B$23 No of Advanced Long haul Seats 39.63636364 0 40 1E+30 0.363636364
$B$24 No of Total Advanced Seats 39.63636364 0 70 1E+30 30.36363636
$B$25 No of Total Standard Seats 0 0 198 1E+30 198
$B$26 No of Total Family Seats 140 102 140 26.5 1
$B$27 No of Family Long Haul Seats 0 0 50 1E+30 50
$B$28 Fireproof Material 800 10.2 800 151.428571 5.714285714
$B$29 Steel 32994.36364 0 50000 1E+30 17005.63636
$B$30 Bolts 9850 26 9850 4 106
$B$31 Rods 45289.81818 0 60000 1E+30 14710.18182
$B$33 Long haul business 0 -767.2 0 2.36607143 0
$B$34 Short haul Business 80 0 0 80 1E+30
$B$35 Long haul Family 0 -236 0 6.23529412 0
$B$36 Short haul Family 140 0 0 140 1E+30
$B$37 Long haul Advanced 39.63636364 0 0 39.6363636 1E+30
$B$38 Short haul Advanced 0 -92 0 11.7777778 0
$B$39 Long haul Standard 0 -111 0 9.63636364 0
$B$40 Short haul Standard 0 -374 0 9.63636364 0
$B$22 No of Advanced Long haul Seats 39.63636364 0 30 9.63636364 1E+30

Result:

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Financial Decision Analysis Course Work

The new answer report shows the new maximum profit as $62896. This means profit
has reduced by $2426.7272 ($65322.7272-$62896). And the new optimal mix shows
reduction in total seats by 14 (416-402) along with the lowered utility of steel by
285(33279-32994) and rods by 297(45586-45289).

This shows it is no longer profitable to reduce the number of Bolts.

II) A fall in number of bolts to 9700.

Computer Output:

Answer Report:

Target Cell (Max)

Original
Cell Name Value Final Value
$B$2 Objective Function 0 58354.85714

Adjustable Cells
Original
Cell Name Value Final Value
$B$6 Long haul business 0 0
$B$7 Short haul Business 0 73.71428571
$B$8 Long haul Family 0 3.55271E-15
$B$9 Short haul Family 0 140
$B$10 Long haul Advanced 0 30
$B$11 Short haul Advanced 0 0
$B$12 Long haul Standard 0 0
$B$13 Short haul Standard 0 0
$B$14 Military 0 143

Constraints
Cell Name Cell Value Formula Status Slack
163.2857
$B$18 Total No of Seats 386.7142857 $B$18<=$C$18 Not Binding 1
$B$19 No of Military Seats 143 $B$19=$C$19 Not Binding 0
36.28571
$B$20 No of Total Business Seats 73.71428571 $B$20<=$C$20 Not Binding 4
$B$21 No of Business Long Haul Seats 0 $B$21<=$C$21 Not Binding 70
$B$41 Military 143 $B$41>=$C$41 Not Binding 143
$B$23 No of Advanced Long haul Seats 30 $B$23<=$C$23 Not Binding 10
$B$24 No of Total Advanced Seats 30 $B$24<=$C$24 Not Binding 40
$B$25 No of Total Standard Seats 0 $B$25<=$C$25 Not Binding 198
$B$26 No of Total Family Seats 140 $B$26<=$C$26 Binding 0
$B$27 No of Family Long Haul Seats 3.55271E-15 $B$27<=$C$27 Not Binding 50
62.85714
$B$28 Fireproof Material 737.1428571 $B$28<=$C$28 Not Binding 3
$B$29 Steel 32166 $B$29<=$C$29 Not Binding 17834
$B$30 Bolts 9700 $B$30<=$C$30 Binding 0
15688.57
$B$31 Rods 44311.42857 $B$31<=$C$31 Not Binding 1
$B$33 Long haul business 0 $B$33>=$C$33 Binding 0
73.71428
$B$34 Short haul Business 73.71428571 $B$34>=$C$34 Not Binding 6

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Financial Decision Analysis Course Work

$B$35 Long haul Family 3.55271E-15 $B$35>=$C$35 Binding 0

$B$36 Short haul Family 140 $B$36>=$C$36 Not Binding 140
$B$37 Long haul Advanced 30 $B$37>=$C$37 Not Binding 30
$B$38 Short haul Advanced 0 $B$38>=$C$38 Binding 0
$B$39 Long haul Standard 0 $B$39>=$C$39 Binding 0
$B$40 Short haul Standard 0 $B$40>=$C$40 Binding 0
$B$22 No of Advanced Long haul Seats 30 $B$22>=$C$22 Binding 0

Sensitivity Report:

Adjustable Cells
Final Reduced Objective Allowable Allowable
Cell Name Value Cost Coefficient Increase Decrease
$B$6 Long haul business 0 0 568 1420 1E+30
$B$7 Short haul Business 73.71428571 0 284 76.5 102
$B$8 Long haul Family 3.55271E-15 0 412 483.7142857 1E+30
43.714285
$B$9 Short haul Family 140 0 206 1E+30 7
$B$10 Long haul Advanced 30 0 286 160.2857143 1E+30
$B$11 Short haul Advanced 0 0 142 223.1428571 1E+30
$B$12 Long haul Standard 0 0 175 271.2857143 1E+30
$B$13 Short haul Standard 0 0 -88 534.2857143 1E+30
$B$14 Military 143 0 0 1E+30 1E+30

Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
163.28571
$B$18 Total No of Seats 386.7142857 0 550 1E+30 4
0.7586206
$B$19 No of Military Seats 143 -2353.143 143 8.896551724 9
36.285714
$B$20 No of Total Business Seats 73.71428571 0 110 1E+30 3
$B$21 No of Business Long Haul Seats 0 0 70 1E+30 70
$B$41 Military 143 0 0 143 1E+30
$B$23 No of Advanced Long haul Seats 30 0 40 1E+30 10
$B$24 No of Total Advanced Seats 30 0 70 1E+30 40
$B$25 No of Total Standard Seats 0 0 198 1E+30 198
43.71428
$B$26 No of Total Family Seats 140 6 140 129 11
$B$27 No of Family Long Haul Seats 3.55271E-15 0 50 1E+30 50
62.857142
$B$28 Fireproof Material 737.1428571 0 800 1E+30 9
$B$29 Steel 32166 0 50000 1E+30 17834
40.57142
$B$30 Bolts 9700 9 9700 44 516
15688.571
$B$31 Rods 44311.42857 0 60000 1E+30 4
$B$33 Long haul business 0 -1420 0 10.53061224 0
$B$34 Short haul Business 73.71428571 0 0 73.71428571 1E+30
$B$35 Long haul Family 3.55271E-15 -483.7143 0 30.35294118 0
$B$36 Short haul Family 140 0 0 140 1E+30
$B$37 Long haul Advanced 30 0 0 30 1E+30
$B$38 Short haul Advanced 0 -223.1429 0 40 0
$B$39 Long haul Standard 0 -271.2857 0 46.90909091 0
$B$40 Short haul Standard 0 -534.2857 0 46.90909091 0
$B$22 No of Advanced Long haul Seats 30 -160.2857 30 10 4

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Financial Decision Analysis Course Work

Result:

Reduction in number of Bolts by 300 shows the even more reduction in optimal profit
as $6938.27273 as new optimal profit is $58354. The new answer report shows the
change in number of seats as 30(416-386) and the utility of steel, rods and fireproof
material is also decreased by 1113(33279-32166), 1276(45586-44311) and 63(800-
737) respectively.

This shows it is certainly not profitable to reduce the number of Bolts.

III) A rise in the number of units of fireproof material to 1000 units.

The change in number of units of fireproof material is 200, which is acceptable as allowable
increase is 208. The shadow price of one unit of fireproof material is $17, so the effect on profit
is a net increase of $3400($17*200).

That implies a maximum profit will be $61922.27 ($65322.27273-$3400).

Increase in number of unit of fireproof material is not profitable as it increase

the cost.

IV) A rise in the number of units of fireproof material to 1100 units.

The Sensitivity Report above shows that we could profitably utilise additional 208
numbers of units of fireproof material (Allowable Increase). And in the given
example, the change in number of units of fireproof material is exceeding the
allowable increase.
1100-800=300
This means that as the Bolts constraint is shifted outwards, the Feasible Region
expands thus increasing the profit until eventually another corner of the feasible
region is hit and another constraint will become binding.

To find new optimal product mix we need to replace the fireproof material
constraint and reset the decision variables to zero and Re-Solve.

Computer Output:

Answer Report:

Target Cell (Max)

Original
Cell Name Value Final Value
$B$2 Objective Function 0 69856

Adjustable Cells
Original
Cell Name Value Final Value
$B$6 Long haul business 0 1.66533E-16

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Financial Decision Analysis Course Work

$B$7 Short haul Business 0 110

$B$8 Long haul Family 0 0
$B$9 Short haul Family 0 140
$B$10 Long haul Advanced 0 34.18181818
$B$11 Short haul Advanced 0 0
$B$12 Long haul Standard 0 0
$B$13 Short haul Standard 0 0
$B$14 Military 0 143

Constraints
Cell Name Cell Value Formula Status Slack
122.81818
$B$18 Total No of Seats 427.1818182 $B$18<=$C$18 Not Binding 2
$B$41 Military 143 $B$41>=$C$41 Not Binding 143
$B$20 No of Total Business Seats 110 $B$20<=$C$20 Binding 0
$B$21 No of Business Long Haul Seats 1.66533E-16 $B$21<=$C$21 Not Binding 70
$B$19 No of Military Seats 143 $B$19=$C$19 Not Binding 0
5.8181818
$B$23 No of Advanced Long haul Seats 34.18181818 $B$23<=$C$23 Not Binding 2
35.818181
$B$24 No of Total Advanced Seats 34.18181818 $B$24<=$C$24 Not Binding 8
$B$25 No of Total Standard Seats 0 $B$25<=$C$25 Not Binding 198
$B$26 No of Total Family Seats 140 $B$26<=$C$26 Binding 0
$B$27 No of Family Long Haul Seats 0 $B$27<=$C$27 Not Binding 50
$B$28 Fireproof Material 1100 $B$28<=$C$28 Binding 0
15830.181
$B$29 Steel 34169.81818 $B$29<=$C$29 Not Binding 8
$B$30 Bolts 10000 $B$30<=$C$30 Binding 0
12612.909
$B$31 Rods 47387.09091 $B$31<=$C$31 Not Binding 1
$B$33 Long haul business 1.66533E-16 $B$33>=$C$33 Binding 0
$B$34 Short haul Business 110 $B$34>=$C$34 Not Binding 110
$B$35 Long haul Family 0 $B$35>=$C$35 Binding 0
$B$36 Short haul Family 140 $B$36>=$C$36 Not Binding 140
34.181818
$B$37 Long haul Advanced 34.18181818 $B$37>=$C$37 Not Binding 2
$B$38 Short haul Advanced 0 $B$38>=$C$38 Binding 0
$B$39 Long haul Standard 0 $B$39>=$C$39 Binding 0
$B$40 Short haul Standard 0 $B$40>=$C$40 Binding 0
4.1818181
$B$22 No of Advanced Long haul Seats 34.18181818 $B$22>=$C$22 Not Binding 8

Sensitivity Report:

Adjustable Cells
Final Reduced Objective Allowable Allowable
Cell Name Value Cost Coefficient Increase Decrease
$B$6 Long haul business 1.66533E-16 0 568 808 1E+30
$B$7 Short haul Business 110 0 284 1E+30 102
$B$8 Long haul Family 0 0 412 236 1E+30
$B$9 Short haul Family 140 0 206 1E+30 102
160.28571
$B$10 Long haul Advanced 34.18181818 0 286 4 111
$B$11 Short haul Advanced 0 0 142 92 1E+30
$B$12 Long haul Standard 0 0 175 111 1E+30
$B$13 Short haul Standard 0 0 -88 374 1E+30

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Financial Decision Analysis Course Work

$B$14 Military 143 0 0 1E+30 1E+30

Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$B$18 Total No of Seats 427.1818182 0 550 1E+30 122.8181818
$B$41 Military 143 0 0 143 1E+30
$B$20 No of Total Business Seats 110 102 110 0 9.142857143
$B$21 No of Business Long Haul Seats 1.66533E-16 0 70 1E+30 70
0.7931034
$B$19 No of Military Seats 143 -1508 143 5 1.103448276
$B$23 No of Advanced Long haul Seats 34.18181818 0 40 1E+30 5.818181818
$B$24 No of Total Advanced Seats 34.18181818 0 70 1E+30 35.81818182
$B$25 No of Total Standard Seats 0 0 198 1E+30 198
$B$26 No of Total Family Seats 140 102 140 11.5 16
$B$27 No of Family Long Haul Seats 0 0 50 1E+30 50
$B$28 Fireproof Material 1100 0 1100 1E+30 0
$B$29 Steel 34169.81818 0 50000 1E+30 15830.18182
$B$30 Bolts 10000 26 10000 64 46
$B$31 Rods 47387.09091 0 60000 1E+30 12612.90909
$B$33 Long haul business 1.66533E-16 -808 0 1.0952381 0
$B$34 Short haul Business 110 0 0 110 1E+30
2.7058823
$B$35 Long haul Family 0 -236 0 5 0
$B$36 Short haul Family 140 0 0 140 1E+30
34.181818
$B$37 Long haul Advanced 34.18181818 0 0 2 1E+30
5.1111111
$B$38 Short haul Advanced 0 -92 0 1 0
4.1818181
$B$39 Long haul Standard 0 -111 0 8 0
4.1818181
$B$40 Short haul Standard 0 -374 0 8 0
4.1818181
$B$22 No of Advanced Long haul Seats 34.18181818 0 30 8 1E+30

Result:

The new answer report shows the new maximum profit as $69856. This means profit
has increased by $4533.273 ($69856-$65322.27273). And the new optimal mix shows
increase in total seats by 11(427-416) along with the additional utility of steel by
391(34169-33279) and rods by 1800(47387-45586).

Increase in number of unit of fireproof material is profitable.

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Financial Decision Analysis Course Work

Question F:

I) A fall in number of military seats to 130

The reduction in number of military seats from 143 to 130 calculates the change of
13. This is acceptable as the allowable increase is 31.29. The shadow cost in
Sensitivity report above is 922.7 (which is negative). Which means a reduction in
each number of military seats will make profit of $922.7.

This will make additional profit of $11995.1 ($922.7*13) and the optimal profit
will be $77317.83($65322.7272+$11995.1).

Decrease in number of military seats is welcome as it will be profitable for

airlines.

II) A new Boeing 787A with less total number of seats of 300.

The Sensitivity Report above shows that we could profitably utilise reduced 137.727
numbers of total seats (Allowable Decrease). And in the given example, the change
in total number of seats is exceeding the allowable decrease.

550-300=250

This means that as the Total Number of Seats constraint is shifted, the Feasible
Region changes thus decreasing the profit until eventually another corner of the
feasible region is hit and another constraint will become binding.

To find new optimal product mix we need to replace the total number of seats
constraint and reset the decision variables to zero and Re-Solve.

Computer Output:

Answer Report:

Target Cell (Max)

Original
Cell Name Value Final Value
$B$2 Objective Function 0 48591.88235

Adjustable Cells

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Financial Decision Analysis Course Work

Original
Cell Name Value Final Value
$B$6 Long haul business 0 0
$B$7 Short haul Business 0 80
$B$8 Long haul Family 0 36.94117647
$B$9 Short haul Family 0 10.05882353
$B$10 Long haul Advanced 0 30
$B$11 Short haul Advanced 0 0
$B$12 Long haul Standard 0 0
$B$13 Short haul Standard 0 0
$B$14 Military 0 143

Constraints
Cell Name Cell Value Formula Status Slack
$B$18 Total No of Seats 300 $B$18<=$C$18 Binding 0
Not
$B$19 No of Military Seats 143 $B$19=$C$19 Binding 0
Not
$B$20 No of Total Business Seats 80 $B$20<=$C$20 Binding 30
Not
$B$21 No of Business Long Haul Seats 0 $B$21<=$C$21 Binding 70
$B$22 No of Advanced Long haul Seats 30 $B$22>=$C$22 Binding 0
Not
$B$23 No of Advanced Long haul Seats 30 $B$23<=$C$23 Binding 10
Not
$B$24 No of Total Advanced Seats 30 $B$24<=$C$24 Binding 40
Not
$B$25 No of Total Standard Seats 0 $B$25<=$C$25 Binding 198
Not
$B$26 No of Total Family Seats 47 $B$26<=$C$26 Binding 93
Not 13.058823
$B$27 No of Family Long Haul Seats 36.94117647 $B$27<=$C$27 Binding 5
$B$28 Fireproof Material 800 $B$28<=$C$28 Binding 0
Not 19226.882
$B$29 Steel 30773.11765 $B$29<=$C$29 Binding 4
$B$30 Bolts 10000 $B$30<=$C$30 Binding 0
Not 20479.058
$B$31 Rods 39520.94118 $B$31<=$C$31 Binding 8
$B$33 Long haul business 0 $B$33>=$C$33 Binding 0
Not
$B$34 Short haul Business 80 $B$34>=$C$34 Binding 80
Not 36.941176
$B$35 Long haul Family 36.94117647 $B$35>=$C$35 Binding 5
Not
$B$41 Military 143 $B$41>=$C$41 Binding 143
Not
$B$37 Long haul Advanced 30 $B$37>=$C$37 Binding 30
$B$38 Short haul Advanced 0 $B$38>=$C$38 Binding 0
$B$39 Long haul Standard 0 $B$39>=$C$39 Binding 0
$B$40 Short haul Standard 0 $B$40>=$C$40 Binding 0
Not 10.058823
$B$36 Short haul Family 10.05882353 $B$36>=$C$36 Binding 5

Sensitivity Report:

Adjustable Cells
Final Reduced Objective Allowable Allowable
Cell Name Value Cost Coefficient Increase Decrease
$B$6 Long haul business 0 0 568 208.282353 1E+30
$B$7 Short haul Business 80 0 284 1E+30 41.6470588

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Financial Decision Analysis Course Work

$B$8 Long haul Family 36.9411765 0 412 236 11.7142857

$B$9 Short haul Family 10.0588235 0 206 50.5714286 8.2
$B$10 Long haul Advanced 30 0 286 4.82352941 1E+30
$B$11 Short haul Advanced 0 0 142 124.588235 1E+30
$B$12 Long haul Standard 0 0 175 115.823529 1E+30
$B$13 Short haul Standard 0 0 -88 378.823529 1E+30
$B$14 Military 143 0 0 1E+30 1E+30

Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$B$18 Total No of Seats 300 157.529412 300 93 8.14285714
$B$19 No of Military Seats 143 -860.35294 143 11.6296296 4.11111111
$B$20 No of Total Business Seats 80 0 110 1E+30 30
$B$21 No of Business Long Haul Seats 0 0 70 1E+30 70
$B$22 No of Advanced Long haul Seats 30 -4.8235294 30 10 30
$B$23 No of Advanced Long haul Seats 30 0 40 1E+30 10
$B$24 No of Total Advanced Seats 30 0 70 1E+30 40
$B$25 No of Total Standard Seats 0 0 198 1E+30 198
$B$26 No of Total Family Seats 47 0 140 1E+30 93
$B$27 No of Family Long Haul Seats 36.9411765 0 50 1E+30 13.0588235
$B$28 Fireproof Material 800 4.16470588 800 122.142857 740
$B$29 Steel 30773.1176 0 50000 1E+30 19226.8824
$B$30 Bolts 10000 12.1176471 10000 171 628
$B$31 Rods 39520.9412 0 60000 1E+30 20479.0588
$B$33 Long haul business 0 -208.28235 0 14.537037 0
$B$34 Short haul Business 80 0 0 80 1E+30
$B$35 Long haul Family 36.9411765 0 0 36.9411765 1E+30
$B$41 Military 143 0 0 143 1E+30
$B$37 Long haul Advanced 30 0 0 30 1E+30
$B$38 Short haul Advanced 0 -124.58824 0 14.25 0
$B$39 Long haul Standard 0 -115.82353 0 17.1 0
$B$40 Short haul Standard 0 -378.82353 0 17.1 0
$B$36 Short haul Family 10.0588235 0 0 10.0588235 1E+30

Result:

From the new answer report, the new optimal product mix to produce is,

• 80 seats for short haul business class,

• 10.05 seats for short haul family class,
• 36.94 seats for long haul family class
• 30 seats for long haul advanced class,
• 143 seats for military.

The new answer report shows the new maximum profit as $48591.88235.

This means profit has decreased by $16730.84 ($65322.7272-$48591.88235).

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Financial Decision Analysis Course Work

Question G:

To analyze the impact of newly arranged “Standard Cost” on Boeing we need to form
new Objective Function as:

Z =565*X1+265*X2+365*X3-13*X4+200*X5+26*X6+15*X7-202*X8+0*X9

Where an average of all cost is taken and deducted by the each revenue. All the
constraints will remain same.

To find new optimal product mix we need to form new objective function with same
constraints and reset the decision variables to zero and Re-Solve.

Computer Output:

Answer Report:

Microsoft Excel 10.0 Answer Report

Worksheet: [B2.xls]Sheet1
Report Created: 24/04/2010 08:55:22

Target Cell (Max)

Original
Cell Name Value Final Value
$B$2 Objective Function 0 41470.95238

Adjustable Cells
Original
Cell Name Value Final Value
$B$6 Long haul business 0 0
$B$7 Short haul Business 0 80
$B$8 Long haul Family 0 33.61904762
$B$9 Short haul Family 0 0
$B$10 Long haul Advanced 0 40
$B$11 Short haul Advanced 0 0
$B$12 Long haul Standard 0 0
$B$13 Short haul Standard 0 0
$B$14 Military 0 143

Constraints
Cell Name Cell Value Formula Status Slack
$B$18 Total No of Seats 296.619048 $B$18<=$C$18 Not Binding 253.381
$B$41 Military 143 $B$41>=$C$41 Not Binding 143
$B$20 No of Total Business Seats 80 $B$20<=$C$20 Not Binding 30
$B$21 No of Business Long Haul Seats 0 $B$21<=$C$21 Not Binding 70
No of Advanced Long haul
$B$22 Seats 40 $B$22>=$C$22 Not Binding 10

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Financial Decision Analysis Course Work

No of Advanced Long haul

$B$23 Seats 40 $B$23<=$C$23 Binding 0
$B$24 No of Total Advanced Seats 40 $B$24<=$C$24 Not Binding 30
$B$25 No of Total Standard Seats 0 $B$25<=$C$25 Not Binding 198
$B$26 No of Total Family Seats 33.6190476 $B$26<=$C$26 Not Binding 106.381
$B$27 No of Family Long Haul Seats 33.6190476 $B$27<=$C$27 Not Binding 16.381
$B$28 Fireproof Material 800 $B$28<=$C$28 Binding 0
$B$29 Steel 30792 $B$29<=$C$29 Not Binding 19208
$B$30 Bolts 10000 $B$30<=$C$30 Binding 0
$B$31 Rods 39104.7619 $B$31<=$C$31 Not Binding 20895.2
$B$33 Long haul business 0 $B$33>=$C$33 Binding 0
$B$19 No of Military Seats 143 $B$19=$C$19 Not Binding 0
$B$35 Long haul Family 33.6190476 $B$35>=$C$35 Not Binding 33.619
$B$36 Short haul Family 0 $B$36>=$C$36 Binding 0
$B$37 Long haul Advanced 40 $B$37>=$C$37 Not Binding 40
$B$38 Short haul Advanced 0 $B$38>=$C$38 Binding 0
$B$39 Long haul Standard 0 $B$39>=$C$39 Binding 0
$B$40 Short haul Standard 0 $B$40>=$C$40 Binding 0
$B$34 Short haul Business 80 $B$34>=$C$34 Not Binding 80

Sensitivity Report:

Microsoft Excel 10.0 Sensitivity Report

Worksheet: [B2.xls]Sheet1
Report Created: 24/04/2010 08:55:22

Adjustable Cells
Final Reduced Objective Allowable Allowable
Cell Name Value Cost Coefficient Increase Decrease
372.6666
$B$6 Long haul business 0 0 565 7 1E+30
$B$7 Short haul Business 80 0 265 1E+30 143.33333
33.619047 16.81818
$B$8 Long haul Family 6 0 365 2 174.6875
$B$9 Short haul Family 0 0 -13 82.52381 1E+30
$B$10 Long haul Advanced 40 0 200 1E+30 8.8095238
130.4285
$B$11 Short haul Advanced 0 0 26 7 1E+30
176.1904
$B$12 Long haul Standard 0 0 15 8 1E+30
393.1904
$B$13 Short haul Standard 0 0 -202 8 1E+30
$B$14 Military 143 0 0 1E+30 1E+30

Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
296.61904
$B$18 Total No of Seats 8 0 550 1E+30 253.38095
$B$41 Military 143 0 0 143 1E+30
$B$20 No of Total Business Seats 80 0 110 1E+30 30
$B$21 No of Business Long Haul Seats 0 0 70 1E+30 70
$B$22 No of Advanced Long haul Seats 40 0 30 10 1E+30
$B$23 No of Advanced Long haul Seats 40 8.80952381 40 30 10
$B$24 No of Total Advanced Seats 40 0 70 1E+30 30
$B$25 No of Total Standard Seats 0 0 198 1E+30 198
33.619047
$B$26 No of Total Family Seats 6 0 140 1E+30 106.38095

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Financial Decision Analysis Course Work

33.619047
$B$27 No of Family Long Haul Seats 6 0 50 1E+30 16.380952
$B$28 Fireproof Material 800 14.3333333 800 300 491.42857
$B$29 Steel 30792 0 50000 1E+30 19208
$B$30 Bolts 10000 17.3809524 10000 344 706
39104.761
$B$31 Rods 9 0 60000 1E+30 20895.238
15.75892
$B$33 Long haul business 0 -372.66667 0 9 0
12.17241
$B$19 No of Military Seats 143 -1008.0952 143 4 5.9310345
33.619047 33.61904
$B$35 Long haul Family 6 0 0 8 1E+30
131.4117
$B$36 Short haul Family 0 -82.52381 0 6 0
$B$37 Long haul Advanced 40 0 0 40 1E+30
$B$38 Short haul Advanced 0 -130.42857 0 30 0
64.18181
$B$39 Long haul Standard 0 -176.19048 0 8 0
64.18181
$B$40 Short haul Standard 0 -393.19048 0 8 0
$B$34 Short haul Business 80 0 0 80 1E+30

Result:

Although everything else is same, the total number of seats has been lowered by
119.6537(416.27273-296.619). Hence the utility of the Steel, Bolts and rods also
lessen. This has reduced profit by $23851.77 ($65322.7272-$41470.95238)

Question H:

To analyze the impact of new segment “Student Backpacker” on Boeing we need to

form new Objective Function as:

Z = 568*X1 + 284*X2 + 412*X3 + 206*X4 + 286*X5 +142*X6 + 175*X7 –88*X8

+ 0*X9+445*X10

Where X10 is new Decision variable “Student Backpacker” with subject to

Constraint X10 ≥ 0.

All other constraints will remain same except three given below:

Steel
84*X1+49*X2+63*X3+31*X4+54*X5+20*X6+20*X7+124*X8+158*X9+19*B15 ≤
50000

Bolts
49*X1+7*X2+21*X3+4*X4+11*X5+9*X6+11*X7+11*X8+58*X9+22*B15 ≤
10000

Rods
112*X1+79*X2+82*X3+64*X4+50*X5+60*X6+21*X7+11*X8+196*X9+38*B15 ≤
60000

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Financial Decision Analysis Course Work

To find new optimal product mix we need to add the Student backpacker constraint
and reset the decision variables to zero and Re-Solve.

Computer Output:

Answer Report:

Microsoft Excel 10.0 Answer Report

Worksheet: [B2.xls]Sheet5
Report Created: 22/04/2010 07:07:02

Target Cell (Max)

Original
Cell Name Value Final Value
$B$2 Objective Function 0 65953.18182

Adjustable Cells
Original
Cell Name Value Final Value
$B$6 Long haul business 0 0
$B$7 Short haul Business 0 80
$B$8 Long haul Family 0 0
$B$9 Short haul Family 0 140
$B$10 Long haul Advanced 0 40
$B$11 Short haul Advanced 0 0
$B$12 Long haul Standard 0 0
$B$13 Short haul Standard 0 0
$B$14 Military 0 143
$B$15 Student Backpackers 0 6.636363636

Constraints
Cell Name Cell Value Formula Status Slack
Not
$B$19 Total No of Seats 409.6363636 $B$19<=$C$19 Binding 140.3636364
Not
$B$20 No of Military Seats 143 $B$20=$C$20 Binding 0
Not
$B$21 No of Total Business Seats 80 $B$21<=$C$21 Binding 30
Not
$B$43 Student Backpackers 6.636363636 $B$43>=$C$43 Binding 6.636363636
Not
$B$22 No of Business Long Haul Seats 0 $B$22<=$C$22 Binding 70
$B$34 Long haul business 0 $B$34>=$C$34 Binding 0
$B$24 No of Advanced Long haul Seats 40 $B$24<=$C$24 Binding 0
Not
$B$25 No of Total Advanced Seats 40 $B$25<=$C$25 Binding 30
Not
$B$26 No of Total Standard Seats 0 $B$26<=$C$26 Binding 198
$B$27 No of Total Family Seats 140 $B$27<=$C$27 Binding 0
Not
$B$28 No of Family Long Haul Seats 0 $B$28<=$C$28 Binding 50
$B$29 Fireproof Material 800 $B$29<=$C$29 Binding 0
Not
$B$30 Steel 33140.09091 $B$30<=$C$30 Binding 16859.90909
$B$31 Bolts 10000 $B$31<=$C$31 Binding 0

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Financial Decision Analysis Course Work

Not
$B$32 Rods 45560.18182 $B$32<=$C$32 Binding 14439.81818
Not
$B$42 Military 143 $B$42>=$C$42 Binding 143
Not
$B$35 Short haul Business 80 $B$35>=$C$35 Binding 80
$B$36 Long haul Family 0 $B$36>=$C$36 Binding 0
Not
$B$37 Short haul Family 140 $B$37>=$C$37 Binding 140
Not
$B$38 Long haul Advanced 40 $B$38>=$C$38 Binding 40
$B$39 Short haul Advanced 0 $B$39>=$C$39 Binding 0
$B$40 Long haul Standard 0 $B$40>=$C$40 Binding 0
$B$41 Short haul Standard 0 $B$41>=$C$41 Binding 0
Not
$B$23 No of Advanced Long haul Seats 40 $B$23>=$C$23 Binding 10

Sensitivity Report

Microsoft Excel 10.0 Sensitivity Report

Worksheet: [B2.xls]Sheet5
Report Created: 22/04/2010 07:07:02

Adjustable Cells
Final Reduced Objective Allowable Allowable
Cell Name Value Cost Coefficient Increase Decrease
$B$6 Long haul business 0 0 568 508.581818 1E+30
142.40909
$B$7 Short haul Business 80 0 284 1E+30 1
$B$8 Long haul Family 0 0 412 137.863636 1E+30
125.09090
$B$9 Short haul Family 140 0 206 1E+30 9
$B$10 Long haul Advanced 40 0 286 1E+30 63.5
$B$11 Short haul Advanced 0 0 142 40.0454545 1E+30
$B$12 Long haul Standard 0 0 175 47.5 1E+30
$B$13 Short haul Standard 0 0 -88 310.5 1E+30
$B$14 Military 143 0 0 1E+30 1E+30
$B$15 Student Backpackers 6.636363636 0 445 127 95

Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
140.36363
$B$19 Total No of Seats 409.6363636 0 550 1E+30 6
85.777777
$B$20 No of Military Seats 143 -1173.18182 143 2.51724138 8
$B$21 No of Total Business Seats 80 0 110 1E+30 30
$B$43 Student Backpackers 6.636363636 0 0 6.63636364 1E+30
$B$22 No of Business Long Haul Seats 0 0 70 1E+30 70
$B$34 Long haul business 0 -508.581818 0 3.25892857 0
$B$24 No of Advanced Long haul Seats 40 63.5 40 13.2727273 10
$B$25 No of Total Advanced Seats 40 0 70 1E+30 30
$B$26 No of Total Standard Seats 0 0 198 1E+30 198
$B$27 No of Total Family Seats 140 125.0909091 140 36.5 140
$B$28 No of Family Long Haul Seats 0 0 50 1E+30 50
$B$29 Fireproof Material 800 14.24090909 800 208.571429 800
16859.909
$B$30 Steel 33140.09091 0 50000 1E+30 1

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Financial Decision Analysis Course Work

$B$31 Bolts 10000 20.22727273 10000 3088 146

14439.818
$B$32 Rods 45560.18182 0 60000 1E+30 2
$B$42 Military 143 0 0 143 1E+30
$B$35 Short haul Business 80 0 0 80 1E+30
$B$36 Long haul Family 0 -137.863636 0 8.58823529 0
$B$37 Short haul Family 140 0 0 140 1E+30
$B$38 Long haul Advanced 40 0 0 40 1E+30
$B$39 Short haul Advanced 0 -40.0454545 0 16.2222222 0
$B$40 Long haul Standard 0 -47.5 0 13.2727273 0
$B$41 Short haul Standard 0 -310.5 0 13.2727273 0
$B$23 No of Advanced Long haul Seats 40 0 30 10 1E+30

Result:

From the new answer report, the new optimal product mix to produce is,

• 80 seats for short haul business class,

• 140 seats for short haul family class,
• 40 seats for long haul advanced class,
• 6.6363 seats of student backpackers class,
• 143 seats for military.

Hence the total occupied seats are 409.6363which gives $65953.18182 maximum
contributions to profit.

Note: Addition of New class has reduced total number of seats by however profit
has been increased by $630.45462

Question I:

Limitations of the model:

“Errors: Initial input figures may be found to be wrong.

“What If?” Management would like to know what the effects are of changing one of
the input parameters e.g. what is effect on profit of a 5% rise in price or a 10%
increase in the supply of raw materials?

Looks at the range of values where the current optimal solution remains optimal.

Does not change feasible region.

Changes the slope of the profit or cost line

Binding Constraint:
-Changes the size of the feasible region.
-For ≤ constraints, rise in RHS value allows
feasible region to become larger, leading to
new corner points.

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Financial Decision Analysis Course Work

-For ≥ constraints fall in RHS value means

feasible region will become smaller.

Simply decreases/increases the level of slack (the former up to a point where the
constraint becomes binding.” (FDA lecture slides, 2010)

Reference:

Meyer H. (2010) Financial Decision Analysis Lecture Slides, Leeds Metropolitan

University

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