2nd part

EXHIBIT 7-1

Answer Report

Target Cell (Max)

Cell Name Original Value Final Value

$F$10 Total contribution margin 449 640 525 371

Adjustable Cells

Cell Name Original Value Final Value

$B$9 Square feet allocated to M #1 500 500

$C$9 Square feet allocated to M #2 700 1,105

$D$9 Square feet allocated to M #3 600 600

$E$9 Square feet allocated to M #4 900 900

Constraints

Cell Name Cell Value Formula Status Slack

$F$9 Total surface available 3,105 $F$9<=3360 Not binding 255

$G$9 Maximum inventory 75 000.00 $G$9<=75000 Binding 0

$D$9 Square feet allocated to M#3 600 $D$9>=600 Binding 0

$E$9 Square feet allocated to M#4 900 $E$9>=900 Binding 0

$B$9 Square feet allocated to M#1 500 $B$9>=500 Binding 0

$C$9 Square feet allocated to M#2 1,105 $C$9>=700 Not binding 405

Sensitivity Report

Adjustable Cells

Final Reduced Objective Allowable

Cell Name Value Cost Coefficient Increase

$B$9 Sq.ft allocated to M#1 500 19.64 108 20

$C$9 Sq.ft.allocated to M#2 1,105 0.00 187.2 1E+30

$D$9 Sq.ft allocated to M#3 600 44.84 153 45

$E$9 Sq.ft allocated to M #4 900 84.55 192 85

Constraints

Final Shadow Constraint Allowable

Cell Name Value Price R.H. Side Increase

$F$9 Total surface available 3,105 0 3,360 1E+30

$G$9 Maximum inventory 75,000 8.51 75 000 5,620

Required:

1. What is the expected contribution margin and operating income for the first year of operations? (4 Marks)

2. By how much per unit and in total would the contribution margin change if the constraint on the level of inventories were set to $80,000? Explain your answer. (4 Marks)

3. Would the optimal solution be the same if there was not a constraint on the level of inventories? Explain your answer, and calculate the change in contribution margin if any. (2 marks)

4. Explain and define what is binding and slack. (2 Marks)