Quantitative Methods for Accountants - Math Problem Example

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Summary

The shadow prices can be considered the marginal prices of the particular constraint. Zero values of the shadow prices for labour and machine time correspond to the fact that both constraints are not binding (there is spare labour and machine capacity available).
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Subject: Business
Type: Math Problem
Level: Masters
Pages: 3 (750 words)
Downloads: 2
Author: krisvicky

Extract of sample "Quantitative Methods for Accountants"

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Negative shadow price for contract obligation (-'3) indicates that each additional unit of product A to be produced according to the contract provision will have 3-equivalent negative influence on the value of the objective function. Reduction of the amount of product A to be produced and sold will have the opposite effect. Selling price - (Labour time required * shadow price for Labour time - Machine time required * shadow price for Machine time - Raw material required * shadow price for Raw material - Changes in contract amount* shadow price for contract) = .

Shadow price for raw materials (4) indicates that each additional unit of raw material bought or used will have '4-equivalent positive (negative correspondingly) effect on the objective function. Negative shadow price for contract obligation (-'3) indicates that each additional unit of product A to be produced according to the contract provision will have 3-equivalent negative influence on the value of the objective function. Reduction of the amount of product A to be produced and sold will have the opposite effect.d) The impact of producing Product D on the total contribution to profit can be calculated as indicated:Selling price - (Labour time required * shadow price for Labour time - Machine time required * shadow price for Machine time - Raw material required * shadow price for Raw material - Changes in contract amount* shadow price for contract) = = '55 - ' (6*0 + 6*0 + 3*4 - 0*(-3)) = ' 55 - ' 12 = ' 43 As the calculated value is positive and quite significant the company also should produce product

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