LP Formulation problems

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, love seats, recliners,
and coffee tables. The profit contribution from selling one sofa is $120, one love seat 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, love seat, 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 love seats, 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

Love seat

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. There must be at least 30 love seats 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

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 Applications:
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 30second 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
TV
Newspaper
Direct mail

7,000
50,000
18,000
34,000

Due to company restrictions and availability of media, the maximum number of usages of each medium
is limited to the following:
Radio
TV
Newspaper
Direct mail

35
25
30
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. 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%.
5. 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?
6. Workforce Scheduling:
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

7-11a.m.

11a.m-3 p.m.

3-7 p.m.

12

7-11 p.m.

11 p.m.-3 a.m.

3-7 a.m.

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.
7. 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)

Home mortgage (second)

Commercial loan

11

Automobile loan

Home improvement loan

10

Risk-free securities

The banks 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.
8. 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 farmers objective is to determine
how much of each crop to plant on each farm in order to maximize profit and satisfy seasonal demand.