Question: Chisholm Industries solved the following linear programming problem as the basis for its budget for the next operating period. Fixed costs are budgeted as $80

Chisholm Industries solved the following linear programming problem as the basis for its budget for the next operating period. Fixed costs are budgeted as $80 per unit.

Chrisholm produces two products, the "regular" and the "premium".

Objective function: Maximize $250Regular + $300Premium

Subject to:

Assembly hours constraint:

10 hours Regular + 5 hours Premium ? 2,000 hours

Chisholm Industries solved the following linear programming problem as the basis for its budget for the next operating period. Fixed costs are budgeted as $80 per unit. Chrisholm produces two products, the "regular" and the "premium". Objective function: Maximize $250* Regular + $300*Premium Subject to: Assembly hours constraint: 10 hours * Regular + 5 hours x Premium s 2,000 hours Testing hours constraint: 5 hours * Regular + 20 hours x Premium s 10,000 hours Excel's Solver function produced the output shown below: Variable Cells Final Reduced Objective Allowable Allowable Cell Name Value Cost CoefficientIncrease Decrease $B$11 Number to produce Regular -350 250 350 1E+30 $C$11 Number to produce Premium 400 300 1E+30 175 Constraints Final Shadow Constraint Allowable Allowable Cell Name Value Price R.H. Side Increase Decrease SB$15 Labor availability for assembling Hours used 2000 60 2000 500 2000 $B$16Labor availability for testing Hours used 8000 0 10000 1E+30 2000 a) What quantity of each product should they produce? (2 marks) Regular = Premium = b) What is the total contribution margin with this sales mix? (1 mark) Total contribution margin with this sales mix is $ c) Suppose they want to relax the constraint in Testing. Up to what maximum amount per hour would the company be willing to pay for an additional hour of testing? (1 mark) The maximum amount per hour the company would be willing to pay for an additional hour of testing is $ /hour d) If the company relaxes the constraint in Testing by 100 hours, will the contribution margin increase, decrease or no change? (1 mark) If so, by how much (1 mark) $ ) By how much could the contribution margin of Regular increase before the sales mix would change? (2 marks)

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