LINEAR PROGRAMING: SMQ3043

ASSIGNMENT 2

NO. NAME MATRICS NUMBER

1. MUHAMMAD IKHMAL BIN ALI AHAD D20161073804

2. EZZUDDIN BIN GHAZALI D20161073836

3. MUHAMMAD FIKRI BIN RASHID D20161073841

4. HINDUN BINTI ZAWAWI D20162075581

5. PUGENESWARAN A/L SELLAMUTHU D20152072279

LECTURER’S NAME : DR NOR SURIYA BINTI ABD KARIM

GROUP :C

DATE OF SUBMISSION : 5 DECEMBER 2019

 Case Study: Applied Research Using Linear Programming of a Furniture Enterprise
Cost Control

Muhammad Ikhmal bin Ali Ahad, Ezzuddin bin Ghazali, Muhammad Fikri bin Rashid,
Hindun binti Zawawi, Pugeneswaran a/l Sellamuthu
Sultan Idris Education University, Tanjung Malim, Perak.

ABSTRACT

Furniture industry has been doing well despite the huge competition in global. Cost control is
the process of monitoring and regulating the expenditure of funds in operating a business
firm. It is one of the most vital efforts worked by all the companies as to maintain the
competitive advantage in the economic market. The objective of the research is to identify
optimal solution of the furniture company cost control through the linear programming model
and to analyse the restriction factors of the labor of company production, raw materials,
processing equipment, sales price affecting the company income by dual prices. Method of
qualitative and quantitative was apply with the aim of obtaining data needed in this study.
The optimal solution for furniture company’s LP problem is 1470; while and
. Therefore, the dual price of equipment unit is RM 30 while others constraints if
RM 0.

INTRODUCTION
Recently, there is an apparent sign of increasing competitive in the market and companies
that target for a better profit required the improvement in their management, marketing and
manufacturing. Cost control run an important role by all companies as to maintain the
competitive advantage in the economic market. Cost control in a company is the process of
monitoring and regulating the expenditure of funds in operating a business firm. It implied
the most optimal allocation of resources such as the labour, material, equipment and sale
price.
Cost control is inevitable in managing a business since it is greatly concerned with the
profit of company. According to Mutya (2018), cost control is the most suitable and
importance aspect in every business concern, the negligence of which will affect the earnings
at any point in time. A performance of any business will be see through it profitability. As the
need of higher sales increases, it will facilitate the need to increase production capacity and it
turns out to bring the increase of it cost. Based on Shou (2015), the company cost control is a
more complex issue, which is not just the reduction of the cost, but also a reasonable
arrangement of the cost with the maximum benefit goals, to achieve the most optimal results
in all aspects. Next, based on Matya (2018), Kasem A & Alhaffar (2011), low practices of
cost control will led to increased organizational expenditure and lowered the performance
levels. Thus, the need for proper cost control systems to minimize costs and promote
performance.
Furniture industry has been doing well despite the high competition in global. In fact,
Malaysia was rank in the top largest exporters of furniture in the world. The rapid growth of
the furniture industry have fuelled by incremental capital inputs rather than through actual
productivity gains (Jagetheswaran, 2017). According to Kanu, Ozurumba & Emerole (2014),
linear programming was apply in every field as it has many applications that related to real
life situations. Therefore, the specific research based on the linear programming was carry out
to find the solution for the furniture company cost control. Based on Shou (2015), the
restrictive conditions in the problem were transform into the decision variable equation of the
objective function, which is linear function under the factor restriction of decision variable.

PROBLEM STATEMENT
Cost control and dual price are two importance words that related to the problem. Cost
control is one of the most effective way to maintain the company in order to achieve the
maximum profit through the optimal cost. Furniture manufacturing indeed is one of the main
industry in Malaysia. However, a furniture company may find it is tough to compete with the
other companies in the intense market environment of nowadays especially those with limited
capital. Therefore, a scientific research and rational optimization are require by the furniture
company to achieve the purposes of cost control and improvement of competitiveness and
performances. Within this, the problem is to identify optimal solution of the furniture
company cost control through the linear programming model and to analyse the restriction
factors of the labour of company production, raw materials, processing equipment, sales price
affecting the company income by dual prices.

RESEARCH OBJECTIVE
1. To identify the optimal solution of the furniture company cost control using linear
programming solution.
2. To analyze restriction factors of the labour of company production, raw material,
processing equipment, sales price affecting the company income using dual prices.

RESEARCH BACKGROUND
The Malaysian furniture industry has a come a long ways since its humble beginnings in the
mid – 1980s. From a cottage-based industry, the industry has been transform into a multi-
billion ringgit export oriented industry, which outshines all other sub-sectors within the larger
Malaysian timber industry. Through the series of Industrial Master Plan (IMPs), the
government has played a pivotal role in incentivizing the industrial transformation process,
with provision of a steady industrial framework, value added products. Thus, Malaysia was
rank in the top 10 largest exporters of furniture in the world. Therefore, it is not surprising
that Malaysia furniture industry has emerged as an important socioeconomic sector, provide
almost 80 000 while generating foreign exchange (Jegatheswaran, 2017).
Based on Lewis (2008), linear programming is a system with which to maximize or
minimize the efficiency of resources was of utmost importance. From this sentence, linear
programming is a mathematical approach for identifying the optimum combination of
products to be produced to maximize profit or minimize cos as objective within the given
resources. Linear programming is a mathematical techniques targeted to optimizing outcome
by combination resources. Optimization is a method through which the best possible solution
for a problem is determined based on the specified target and the existing constraints (Amin
Daghighi, Ali Nahvi and Ungtae Kim, 2017).
Linear programming model consists of decision variables, objective function, several
constraints and optimization model. Associated with each variable is reduced cost value. A
somewhat intuitive way to think about reduced cost variable is to think of its indicating how
much the cost of the activity must be reduce before it will be done. Furthermore, Linear
programming is used for engineering, economics, diet problem, business and many more.
Linear modelling is the way solving the mathematical problem by forming specific rule that
deal with allocation of limited resources under strict technology or practical restriction when
some action are needed to be done.

LITERATURE REVIEW
Linear programming (LP) is implementing in every field as it has variety of real-life
applications (Kanu, & Emerole, 2016). According to John Bher (2015), linear programming
refers to a technique that involved either minimization or maximization of a quantity given.
Many researchers have studied linear programming problem and its solution.
Akpan and Iwok (2016) used simplex algorithm concept and hence, give raw materials
to complete loaf with different sizes (giant, big and small) in furniture company furniture. In
this study, researchers found that loaf with small and big sizes contributed in maximizing
profit among company furniture. In the other hand, the equations of model that considered
manufacturing limitations were solve easily with the help of MS-Excel solver.
Furthermore, Workie et al. (2016) utilized linear programming in determining the quantity of
textile-dyed fabrics with the aim of reducing resources costs. In summary, these studies
fulfilled the statement of Shaheen & Ahmad (2015) who commented that linear programming
is the best technique in determining an optimal solution among alternatives in order to meet
an objective function that limited by various constraints.
One of linear programming application included company cost control. According to
Lawal (2017), the main objective of an organization is to maximize profit and minimize
operation cost. Hence, cost control plays an important role in determining success of a
company. Juman & Daundasekara (2014) focuses on optimizing production cost of a T-shirts
production plant in Sri Lanka. A cost-effective system is implement with the aim of reducing
the production cost and improving the furniture products.
Linear programming problem brings to a more advanced problem when it comes to a
research of two related linear programming problems, called as dual linear programming
problem. Shadow price or dual price is an optimal solution of the objective function obtained
under the corresponding restrictive conditions in dual linear programming (Lawal, 2017).
With this, it can be conclude that shadow price is a valuation under certain situation. In short,
dual price could help company in controlling cost efficiently.

METHODOLOGY
To aim of obtaining data needed in this study, the qualitative and quantitative method was
use. An interview was conduct to collect information regarding the cost in Furniture
Company. Thereafter, for minimizing cost of desk, table and chair in that company, the
linear programming solver was apply. The dual price was calculate in order to determine the
restriction factors of the labour of company production, raw materials, processing equipment
and sales price affecting company income. Therefore, a flow chart in Figure 1 was apply in
this study in order to achieve research objectives.

Identify restriction conditions

Determine there is basic feasible

Determine the optimal solution that meets the constraint

Output optimal
Figure 1: A Flow Chart
RESULT AND ANALYSIS

Based on the LP problem, the LP model for this problem is:-

Max

s.t

Where , and
.

The optimal value has been calculated using simplex method:-

BV ROW RHS

z 0 60 0 80 0 0 30 1440

1 -20 0 -25 1 0 -10 4020

2 -9 0 -3 0 1 -2 24

3 3 1 2 0 0 0.5 24

The optimal solution this LP problem is 1440, whereas

Then, to find the dual price or shadow price for this LP problem, the right hand side of the
constraint is increased by 1.

So, after adding 1 at the right hand side of the binding constraint, the constraint will become:-

Substitute into the LP problem and calculate the new optimal solution for this LP problem:-
 BV ROW RHS
z 0 60 0 80 0 0 30 1470
1 -20 0 -25 1 0 -10 4010
2 -9 0 -3 0 1 -2 22
3 3 1 2 0 0 0.5 24.5

The new optimal solution for this LP problem is 1470, whereas

So, the dual price for this LP problem for equipment unit is RM1470 – RM1440= RM30.
Then, the dual price for labor cost and raw materials are RM0 because these two constraints
are non-binding constraints.

CONCLUSION

As conclusion, our group were implement the dual prices method to determine cost control of
Furniture Company. We use the data from a furniture company to identify the spending cost
(constraints) that can be altered (binding constraints) so that company’s maximum profit can
be improvised. In this study, the optimization value is 1440. After adding one unit in
constraint of equipment unit, the optimal value becomes 1470. It indicated that dual price of
equipment unit constraint is RM30 while the other constraint is RM 0. So, it can be concluded
that the maximum cost of company should pay is RM 50 if the cost of 1 equipment unit is
RM 20 and dual prices of equipment unit is RM 30. Thus, we had been achieved our
objectives to identify optimal solution of the furniture company cost control through linear
programming model and analyses the all of constraint that affected the maximum profit of the
company income using dual method.
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