LP Formulation exercises

1. Product-mix problems:

The Style and Comfort Furniture Manufacturing Company wishes to determine its production schedule
for the next quarter. The company produces four types of furniture, including sofas, chairs, recliners, and
coffee tables. The profit contribution from selling one sofa is $120, one chair is $105, one recliner is
$150, and one coffee table is $73.

The quarterly production budget is set at $180,000. Each unit of a sofa, chair, recliner, and coffee table
costs $400, $300, $500, and $150, respectively. The sales forecasts indicate that the potential sales
volume is limited to 200 units of sofas, 150 units of chairs, 100 units of recliners, and 400 units of coffee
tables.

There are an aggregate of 800 machine hours available and 1,200 labor hours available. Table 1
summarizes the number of machine hours and the number of labor hours required per unit of each
product.

Table: Per Unit Machine and Labor Hour Required for Each Product
Per unit Machine and Labour hours required for each product
ProductMachine hours/Unit Labour hours/Unit
Sofa 2.0 2.5
Chair 1.0 2.0
Recliner 2.2 3.0
Coffee table 0.75 1.0
The management also imposed the following policy constraints:

i. At least 40% of all production costs must be incurred for the sofas.

ii. At least 25% of all production costs must be allocated to the recliners.

iii. At least 30 chairs must be manufactured.

2. Blending problems:
TUNACO Oil company produces three grades of gasoline (regular, premium and super) by blending three
types of crude oil. All three types of crude oil contain two important ingredients (X & Y) required to
produce the three gasoline grades. The percentage of these ingredients differs in each type of crude oil.
These percentages are given in the following table.

Crude oil type

1 2 3
Ingredient X 40 20 45
Ingredient Y 35 30 40
Cost of each type of crude oil is $0.80, $0.60 and $0.40 per gallon for crude oil types 1, 2 & 3
respectively.

Each gallon of regular gasoline must contain at least 35% of ingredient X. Each gallon of premium
gasoline can contain at most 45% of ingredient Y. Each gallon of super gasoline can contain at most 40%
of ingredient Y. Daily demand for regular, premium and super grades of gasoline is 400,000, 150,000 and
150,000 gallons respectively.

Daily production quantities are 350,000 gallons of crude oil 1; 250,000 gallons for crude oil 2; and
200,000 gallons for crude oil 3. How many gallons of each type of crude oil should be used in the three
grades of gasoline to satisfy demand at minimum cost?

3. Marketing application (Media selection):

The Long Last Appliance Sales Company is in the business of selling appliances such as microwave ovens,
traditional ovens, refrigerators, dishwashers, washers, dryers, and the like. The company has stores in
the greater Chicago-land area and has a monthly advertising budget of $90,000.

Among its options are radio advertising, advertising in the cable TV channels, newspaper advertising,
and direct-mail advertising. A 30-second advertising spot on the local cable channel costs $1,800, a
30-second radio ad costs $350, a half-page ad in the local newspaper costs $700, and a single mailing of
direct-mail insertion for the entire region costs $1,200 per mailing. The number of potential buying
customers reached per advertising medium usage is as follows:

Radio 7,000
TV 50,000
Newspaper 18,000
Direct mail 34,000

Due to company restrictions and availability of media, the maximum number of usages of each medium
is limited to the following:

Radio 35
TV 25
Newspaper 30
Direct mail 18

The management of the company has met and decided that in order to ensure a balanced utilization of
different types of media and to portray a positive image of the company, at least 10 percent of the
advertisements must be on TV. No more than 40 percent of the advertisements must be on radio. The
cost of advertising allocated to TV and direct mail cannot exceed 60 percent of the total advertising
budget.

Formulate the above problem as a LP problem with a view to maximizing the reach of potential buying
customers.
 4. Market Research:

Market Facts Inc. is a marketing research firm that works with client companies to determine consumer
reaction toward various products and services. A client company requested that Market Facts investigate
the consumer reaction to a recently developed electronic device.

Market Facts and the client company agreed that a combination of telephone interviews and direct-mail
questionnaires would be used to obtain the information from different type of households.

The households are divided into six categories:

i. Households containing a single person under 40 years old and without children under 18 years of
age.

ii. Households containing married people under 40 years old and without children under 18 years
of age.

iii. Households containing single parents with children under 18 years of age.

iv. Households containing married families with children under 18 years of age.

v. Households containing single people over 40 years old without children under 18 years of age.

vi. Households containing married people over 40 years old and without children under 18 years of
age.

The client company has requested that the total people contacted via direct mail and phone interviews
be 50,000. There can be no more than 2000 phone interviews and no more than 48,000 mail-in
questionnaires. The cost of a direct-mail questionnaire including the cost of a self-stamped, mail-back
envelope, is $1.00 for a household without children under 18 years of age and $1.50 for households with
children. The cost of the phone interview also differs depending on whether the household contains
children less than 18 years of age and if it contains a married couple. The interview costs more for the
household with children because the interviewer has to ask more questions. The cost of a phone
interview of a household with a married couple with children is $15. The cost of a phone interview of a
household containing single adults under 40 years old without children is $10; for married adults under
40 years old withoutchildren, it is $11. The cost of a phone interview of a household with a single person
over 40 years old without children is $7. The cost of a phone interview of a household with a married
couple over 40 years old without children is $9. The cost of a phone interview of a household with a
single parent with children is $12. Discussions between Market Facts and the client company have
resulted in the following restrictions:

Restrictions:

• At least 60 percent of the phone interviews must be conducted at households with children.
 • At least 50 percent of the direct-mail questionnaires must be mailed to households with
children.

• No more than 30 percent of the phone interviews and mail-in questionnaires must be conducted
at households with single people.

• At least 25 percent of the phone interviews and mail-in questionnaires must be conducted at
households that contain married couples.

How many phone interviews will be conducted with different types of households and how many
direct mail-questionnaire will be mailed to different types of households to minimize the total cost
of this market survey?

5. Financial applications:

First American Bank is in the process of devising a loan policy that involves a maximum of $12 million.
The following table provides the pertinent data about available types of loans.

Type of loan Interest rate Bad-debt ratio

Personal 0.140 0.10
Car 0.130 0.07
Home 0.120 0.03
Farm 0.125 0.05
Commercial 0.100 0.02
Bad debts are unrecoverable and produce no interest revenue.

Competition with other financial institutions requires that the bank allocate at least 40% of the funds to
farm and commercial loans. To assist the housing industry in the region, home loans must equal at least
50% of the personal, car and home loans. The bank also has stated policy of not allowing the overall ratio
of bad debts on all loans to exceed 4%.

6. Multi-period Production Scheduling:

Morton and Monson Inc. is a small manufacturer of parts for the aerospace industry. The production
capacity for the next four months is given as follows:

Production Capacity in Units

Month Regular Production Overtime Production

January 3,000 500
February 2,000 400
March 3,000 600
April 3,500 800
The regular cost of production is $500 per unit and the cost of overtime production is $150 per unit in
addition to the regular cost of production. The company can utilize inventories to reduce fluctuations in
production, but carrying one unit of inventory costs the company $40 per unit per month. Currently
there are no units in inventory. However, the company wants to maintain a minimum safety stock of 100
units of inventory during the months of January, February, and March. The estimated demand for the
next four months is as follows:

Month January February March April

Demand 2,800 3,000 3,500 3,000

The production manager is in the process of preparing a 4-month production schedule. What is the
schedule that minimizes total cost, if the company wants to have 300 units in inventory at the end of
April?

7. Workforce Scheduling (Application in a Hospital):

Lincoln General Hospital is trying to determine the nursing schedule of the pediatric department. The
nursing staff consists of full-time nurses who work eight-hour shifts and part-time nurses who work
four-hour shifts. The supervisor of nurses divides the day into six four-hour periods. In each period, a
different level of demand (No of cases to be treated) is expected, which requires different number of
nurses to be hired. The required number of nurses for each time period is given in the following table:

Time period index Time period Required no. of nurses

1 7-11a.m. 7
2 11a.m-3 p.m. 9
3 3-7 p.m. 12
4 7-11 p.m. 5
5 11 p.m.-3 a.m. 4
6 3-7 a.m. 3
It is also required that there must be at least two full-time nurses at each time period and the number of
part-time nurses cannot exceed the number of full-time nurses in any time period. The full-time nurses
get paid @ $160 per shift, while the part-time nurses get paid @ $50 per shift. The normal shifts can
begin at the start of any of the four-hour periods.

8. Workforce Scheduling (Estimation of customer service agents in Airways)

Union Airways is adding more flights to and from its hub airport and so it needs to hire additional
customer service agents. However, it is not clear just how many more should be hired. Management
recognizes the need for cost control while also consistently providing a satisfactory level of service to
customers. Therefore, an OR team is studying how to schedule the agents to provide satisfactory service
with the smallest personnel cost. The agents work in an 8-hour shift 5 days per week. The authorized
shifts are as follows:
Shift 1: 6.00 am to 2.00 pm.
Shift 2: 8.00 am to 4.00 pm.
Shift 3: 12.00 Noon to 8.00 pm
Shift 4: 4.00 pm to 12 Night
Shift 5: 10.00 pm to 6.00 am

Based on the new schedule of flights, an analysis has been made of the minimum number of customer
service agents that need to be on duty at different times of the day to provide a satisfactory level of
service. This is shown in the following table.

Table: Data for the Union Airways personnel scheduling problem

Time period Min No. of agents needed

6.00 am to 8.00 am 48
8.00 am to 10.00 am 79
10.00 am to 12 noon 65
12 noon to 2.00 pm 87
2.00 pm to 4.00 pm 64
4.00 pm to 6.00 pm 73
6.00 pm to 8.00 pm 82
8.00 pm to 10.00 pm 43
10.00 pm to 12 Night 52
12 Night to 6.00 am 15

The first column of the table shows the time periods while the second column reveals the minimum
number of agents required corresponding to each time period. Because some shifts are less desirable
than others, the wages specified in the contract differ by shift. The daily wages of each agent for shift 1
through shift 5 are $170, $160, $175, $180, $195 respectively. The problem is to determine how many
agents should be assigned to the respective shifts each day to minimize the total personnel cost for
agents while meeting the service requirements given in the table.

9. Financial Planning:

First American Bank issues five types of loans. In addition, to diversify its portfolio, and to minimize risk,
the bank invests in risk-free securities. The loans and the risk-free securities with their annual rate of
return are given in the following Table:

Table 1: Rates of Return for Financial Planning Problem

Type of Loan or Security Annual Rate of Return (%)
Home mortgage (first) 6
Home mortgage (second) 8
Commercial loan 11
Automobile loan 9
Home improvement loan 10
Risk-free securities 4

The bank’s objective is to maximize the annual rate of return on investments subject to the following
policies, restrictions, and regulations:

i. The bank has $90 million in available funds.

ii. Risk-free securities must contain at least 10 percent of the total funds available for investments.

iii. Home improvement loans cannot exceed $8,000,000.

iv. The investment in mortgage loans must be at least 60 percent of all the funds invested in loans.

v. The investment in first mortgage loans must be at least twice as much as the investment in
second mortgage loans.

vi. Home improvement loans cannot exceed 40 percent of the funds invested in first mortgage
loans.

vii. Automobile loans and home improvement loans together may not exceed the commercial loans.

viii. Commercial loans cannot exceed 50 percent of the total funds invested in mortgage loans.

10. Agriculture Applications:

A farm owner is interested in determining how to divide the farmland among four different types of
crops. The farmer owns two farms in separate locations and has decided to plant the following four types
of crops in these farms: corn, wheat, bean, and cotton. The first farm consists of 1,450 acres of land,
while the second farm consists of 850 acres of land. Any of the four crops may be planted on either farm.
However, after a survey of the land, based on the characteristics of the farmlands, the following Table
shows the maximum acreage restrictions the farmer has placed for each crop.

Table 1: Max Acreage restrictions for Agricultural Problem

Crop
Farm Corn Wheat Bean Cotton
Farm1 550 450 350 400
Farm2 250 300 200 350
The revenue per acre for each crop is estimated as follows:

Revenue/acre Crop Revenue/acre Crop

Corn $500 Bean $300
Wheat $400 Cotton $350
In determining the optimal cultivation of land, the farmer has to account for the cost of fertilizer
estimated for each acre of land. Due to the different terrain and soil, the two farms have different costs
of fertilizers per acre.

Farm Cost of Fertilizer/Acre

Farm 1 $100
Farm 2 $70
Seasonal demand for the four crops is given in table 2:

Crop Seasonal demand (Acres’ worth)

Corn 450
Wheat 550
Bean 400
Cotton 600
The farmer has a storage facility that can store 100 acres’ worth of the excess supply of different types of
crops. In addition, the farmer wants to ensure that total wheat and bean cultivation must be
proportionally equal to the maximum acreage restriction of both farms. In other words, the farm owner
wants the same proportion of wheat and beans in both farms. The farmer’s objective is to determine
how much of each crop to plant on each farm in order to maximize profit and satisfy seasonal demand.

11. Investment Problem:

Investor Doe has $10,000 to invest in four projects. The following table gives the cash flow for the four
investments.

Cash flow ($1000) at the start of

Project Year 1 Year 2 Year 3 Year 4 Year 5

1 -1.00 0.50 0.30 1.80 1.20

2 -1.00 0.60 0.20 1.50 1.30

3 0.0 -1.00 0.80 1.90 0.80

4 -1.00 0.40 0.60 1.80 0.95

The information given in the table can be interpreted as follows: For project 1, $1.00 invested at the start
of year 1 will yield $0.50 at the start of year 2, $0.30 at the start of year 3, $1.80 at the start of year 4
and $1.20 at the start of year 5. The remaining entries can be interpreted similarly. The entry 0.0
indicates that no transaction is taking place. Doe has the additional option of investing in a bank account
that earns 6.5% annually. All funds accumulated at the end of one year can be reinvested in the following
year. Formulate the problem as a linear program to determine the optimal allocation of funds to
investment opportunities.

12. Distributing goods through a Distribution Network:

The DISTRIBUTION UNLIMITED CO. will be producing the same new product at two different factories
and then the product must be shipped to two warehouses, where either factory can supply either
warehouse. The distribution network available for shipping this product is shown in a figure (provided
below), where F1 and F2 are the two factories, W1 and W2 are the two warehouses and DC is a
distribution centre. The amounts to be shipped from F1 and F2 are shown to their left and the amounts
to be received at W1 and W2 are shown to their right. Each arrow represents a feasible shipping lane.
Thus F1 can ship directly W1 and has three possible routes (F1 DC W2, F1 F2 DC W2,
and F1 W1 W2) for shipping to W2. Factory F2 has just one route to W2 (F2 DC W2) and
one to W1 (F2 DC W2 W1). The cost per unit shipped through each shipping lane is shown
next to the arrow. Also shown next to F1 F2 and DC W2 are the maximum amounts that can be
shipped through these lanes. The other lanes have sufficient shipping capacity to handle everything
these factories can send. The decision to be made concerns how much to ship through each shipping
lane.