QBUS2310: Management Science

Mid-term exam A

Semester 2, 2016

This is a 120-minute exam. You may use Microsoft Excel Solver. No other computer programs,
books, notes, or electronic resources are permitted. The only exception is that you can ask invigilators
for clarification.

For problems 1, 2 and 3 you must give all of the following:

full mathematical formulation with a clear discussion and justification of constraints and objective
function,
Excel spreadsheet with the setup that solves the problem,

Solver Answer report,

the final numerical results and your interpretation of the results.
Put all the material associated with each problem (e.g., mathematical formulation, final results and
your interpretation) together. We will deduct points for messy and poorly written solutions,
even if they are correct.

Submit the Excel file with Solver output through blackboard (go to Assessments section). You
should submit only one file for the whole exam.

Your solutions to problems 1-3 will be marked out of 30 points:

20 points for formulation,
5 points for numerical results,
5 points for the interpretation of numerical results.

Your solution to problem 4 will be marked out of 10 points.

Good luck!

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QBUS2310 Midterm exam A Semester 2, 2016

Problem 1: (30 points)

A paper recycling plant processes four inputs (box board, tissue paper, newsprint, and book paper)
into pulp that can be used to produce three grades of recycled paper (grades 1, 2 and 3). The
prices per tonne and the pulp contents of the four inputs are shown in the table. Two methods,
de-inking and asphalt dispersion, can be used to process the four inputs into pulp. It costs $20 to
de-ink a tonne of any input. The process of de-inking removes 10% of the inputs pulp, leaving 90%
of the original pulp. It costs $15 to apply asphalt dispersion to a tonne of material. The asphalt
dispersion process removes 20% of the inputs pulp. At most 3000 tonnes of input can be run through
the asphalt dispersion process and at most 3000 tonnes of input can be run through the de-inking
process. Grade 1 paper can only be produced with newsprint or book paper pulp; grade 2 paper,
only with book paper, tissue paper, or box board pulp; and grade 3 paper, only with newsprint,
tissue paper, or box board pulp. To meet its current demands, the company needs 500 tonnes of
pulp for grade 1 paper, 500 tonnes of pulp for grade 2 paper and 600 tonnes of pulp for grade 3
paper.

input cost, $ pulp content, %

box board 5 15
tissue paper 6 20
newsprint 8 30
book paper 10 40

Table 1: prices per tonne and the pulp contents of the four inputs

Formulate and solve a linear programming problem to minimise the cost of meeting the demands for
pulp.
Hint: the following variables may be useful in your formulation:

BOX - tons of purchased boxboard

TIS - tons of purchased tissue
NEWS - tons of purchased newsprint
BOOK - tons of purchased book paper
BOX1 - tons of boxboard sent through de-inking
TIS1 - tons of tissue sent through de-inking
NEWS1 - tons of newsprint sent through de-inking
BOOK1 - tons of book paper sent through de-inking
BOX2 - tons of boxboard sent through asphalt dispersion
TIS2 - tons of tissue sent through asphalt dispersion
NEWS2 - tons of newsprint sent through asphalt dispersion
BOOK2 - tons of book paper sent through asphalt dispersion
PBOX - available boxboard pulp
PTIS - available tissue pulp
PNEWS - available newsprint pulp
PBOOK - available book paper pulp
PBOXi - boxboard pulp used for grade i paper
PTISi - tissue pulp used for grade i paper
PNEWSi - newsprint pulp used for grade i paper
PBOOKi - book paper pulp used for grade i paper

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QBUS2310 Midterm exam A Semester 2, 2016

Solution: First, we need to calculate the amount of pulp that remains after processing:

input after de-inking, % after asphalt dispersion, %

box board 13.5 12
tissue paper 18 16
newsprint 27 24
book paper 36 32

Then, using the variables defined above, the correct formulation is:

5BOX + 6T IS + 8N EW S + 10BOOK
minimize + 20BOX1 + 20T IS1 + 20N EW S1 + 20BOOK1 (1)
+ 15BOX2 + 15T IS2 + 15N EW S2 + 15BOOK2
subject to: BOX1 + BOX2 BOX (2)
T IS1 + T IS2 T IS (3)
N EW S1 + N EW S2 N EW S (4)
BOOK1 + BOOK2 BOOK (5)
0.135BOX1 + 0.12BOX2 = P BOX (6)
0.18T IS1 + 0.16T IS2 = P T IS (7)
0.27N EW S1 + 0.24N EW S2 = P N EW S (8)
0.36BOOK1 + 0.32BOOK2 = P BOOK (9)
P BOX2 + P BOX3 P BOX (10)
P T IS2 + P T IS3 P T IS (11)
P N EW S1 + P N EW S3 P N EW S (12)
P BOOK1 + P BOOK2 P BOOK (13)
P N EW S1 + P BOOK1 500 (14)
P BOX2 + P T IS2 + P BOOK2 500 (15)
P BOX3 + P T IS3 + P N EW S3 600 (16)
BOX1 + T IS1 + N EW S1 + BOOK1 3000 (17)
BOX2 + T IS2 + N EW S2 + BOOK2 3000 (18)
All variables 0 (19)

The objective function gives the total cost of processing inputs, which is the cost we need to
minimize. Constraints (2)-(5) bound the input availability. Constraints (6)-(9) represent the
conversion of inputs into various types of pulp. Constraints (10)-(13) link the available pulp
with the pulp that can be used for a specific type of paper. Constraints (14)-(16) are the
demand constraints and (17)-(18) are the processing capacity constraints.
Optimal solution (in the order of variables defined in the problem):

x? =(0, 0, 2500, 2833, 0, 0, 0, 0, 0, 2500, 2333, 500, 0, 0, 600, 1000,

0, 0, 0, 0, 0, 0, 0, 0, 600, 500, 500, 0)

with p? = 140000.
Interpretation: The recycling plant should purchase 2500 tons of newsprint and 2833 tons of
book paper. All newsprint and 500 tons of book paper should be sent through asphalt dispersion
while the rest of book paper should be sent through de-inking. All newsprint pulp should be
used for grade 3 paper, while 1000 tons of book paper pulp should be split equality between
grade 1 and grade 2 paper. The total cost for the proposed schedule is $140,000.

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QBUS2310 Midterm exam A Semester 2, 2016

Problem 2: (30 points)

Eli Daisy manufactures two drugs in Sydney and Melbourne. The cost of manufacturing a pound of
each drug is shown in Table 2.

city drug 1 cost ($) drug 2 cost ($)

Sydney 4.10 4.50
Melbourne 4.00 5.20

Table 2: Cost to produce drugs.

The machine time required to produce a pound of each drug in each city is as in Table 3. Daisy needs
to produce at least 1,000 pounds of drug 1 and 2,000 pounds of drug 2 per week. The company
has 500 hours per week of machine time in Sydney and 400 hours per week of machine time in
Melbourne.Use LP to minimize the cost of producing the needed drugs.

city drug 1 time (h) drug 2 time (h)

Sydney 0.20 0.30
Melbourne 0.24 0.33

Table 3: Time to produce drugs.

Hint: the following variables may be useful in your formulation:

xi - the amount of product i made in Sydney
yi - the amount of product i made in Melbourne

Solution:

minimize 4.1x1 + 4y1 + 4.5x2 + 5.2y2 (20)

subject to: x1 + y1 1000 (21)
x2 + y2 2000 (22)
0.24y1 + 0.33y2 400 (23)
0.2x1 + 0.3x2 500 (24)
x1 , x2 , y1 , y2 0 (25)

The objective function represents the total cost of producing drugs. Constraints (21)-(22) are
the demand constraints. Constraints (23)-(24) are the processing capacity constraints.
Solution: x? = (0, 1666.67) y ? = (1000, 333.33) with p? = 13233.33.
Interpretation: entire amount of drug 1 should be made in Melbourne, while the manufacturing
of drug 2 should be split: 1666,67 pounds should be made in Sydney and 333,33 pounds in
Melbourne. The total cost for the proposed production schedule is $13233.33.

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QBUS2310 Midterm exam A Semester 2, 2016

Problem 3: (30 points)

Bookco Publishers is considering publishing five textbooks. The maximum number of copies of each
textbook that can be sold, the variable cost of producing each textbook, the sales price of each
textbook, and the fixed cost of a production run for each textbook are given in Table 4. Thus, for
example, producing 2,000 copies of book 1 brings in revenue of 2,000(50) = $100,000 but costs 80,000
+ 25(2,000) = $130,000. Bookco can produce at most 10,000 books. Formulate and solve an IP to
maximize Bookcos profit.

book
1 2 3 4 5
maximum demand 5,000 4,000 3,000 4,000 3,000
variable cost ($) 25 20 15 18 22
sales price ($) 50 40 38 32 40
fixed cost (thousands $) 80 50 60 30 40

Table 4: Book publishing data.

Hint: the following variables may be useful in your formulation:

xi - the number of copies of book i produced
yi = 1, if book i is produced at all, and yi = 0, otherwise

Solution:
25x1 + 20x2 + 23x3 + 14x4 + 18x5
maximize (26)
80000y1 50000y2 60000y3 30000y4 40000y5
subject to: x1 5000y1 (27)
x2 4000y2 (28)
x3 3000y3 (29)
x4 4000y4 (30)
x5 3000y5 (31)
x1 + x2 + x3 + x4 + x5 10000 (32)
xi 0 (33)
yi {0, 1} (34)

Objective function gives the total profit (revenue-cost). Constraints (27)-(31) are the demand
forcing constraints. Constraint (32) bounds the total production capacity.
Solution: x? = (5000, 4000, 0, 0, 0), y ? = (1, 1, 0, 0, 0) with p? = 75000.
Interpretation: Bookco should publish 5000 copies of book 1 and 4000 copies of book 2. No
other books should be published. The proposed schedule will bring $75,000 of profit.

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QBUS2310 Midterm exam A Semester 2, 2016

Problem 4: (10 points)

Show with all the necessary variables and constraints how integer programming can be used to ensure
that the variable x can assume only the values 1, 2, 3 and 4.

Solution: We introduce binary variables yi for i = 1, . . . , 4. Then the constraints are

x = y1 + 2y2 + 3y3 + 4y4 (35)

y1 + y2 + y3 + y4 = 1 (36)
yi {0, 1} (37)

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