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Appendix 11B
Using Excel Solver
In Appendix 11A, linear programming is explained and solved through the trial-and-error
approach and the graphic approach. However, a more powerful and faster method of solving
a linear programming problem exists. The add-in tool Solver, which works in Microsoft Excel,
will allow you to solve very advanced linear programming problems (© Pearson Education).
Steps in Solving a Linear Programming Problem
Using Solver
We will use the data in Appendix 11A to illustrate the steps in solving a linear program-
ming problem using Solver. A review of the data follows.
Power Engines assembles two engines, a snowmobile engine and a boat engine. Infor-
mation on these two products is as follows:
Snowmobile Boat
Engine Engine
Selling price $800 $1,000
Variable costs per unit $560 $ 625
Contribution margin per unit $240 $ 375
Assume that only 600 machine-hours are available daily for assembling engines. It takes
2 machine-hours to assemble 1 snowmobile engine. It takes 5 machine-hours to assemble
1 boat engine.
Assume that both the snowmobile and boat engines must be tested on a very expen-
sive machine before they are shipped to customers. Only 120 testing machine-hours are
available daily for testing the engines. It takes 1 hour (60 minutes) to test each snowmo-
bile engine. It takes half an hour (30 minutes) to test each boat engine.
Assume that material shortages for boat engines will limit Power Engines to 110 boat
engines per day.
Step 1: Determine the Objective
Use Solver to determine the solution to two types of linear programming problems. The
first type of problem is to determine the optimum volume of product to be produced that
will maximize total contribution margin. The second type of problem is to determine the
optimum volume of product to be produced that will minimize costs.
In the case of Power Engines, we are looking to determine the optimum volume to be
produced that will maximize total contribution margin. The linear function expressing
this objective is
TCM (total contribution margin) = $240S + $375B
Where:
S: Represents the number of snowmobile engines assembled per day.
B: Represents the number of boat engines assembled per day.
The “where” items (S & B) represent volume variables. We are looking to determine the
assembly volumes of each of these that will maximize total contribution margin.
Step 2: Specify the Constraints
Everyone (personally and in business) faces constraints. For example, you can’t work 25
hours in a day, because there are only 24 hours in a day. Constraints also apply to Power
Engines, and these constraints must be taken into consideration:
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Appendix 11B: Using Excel Solver ● 461
Assumption 1: Assume only 600 machine-hours are available daily for assembling
engines. It takes 2 machine-hours to produce 1 snowmobile engine. It takes 5 machine-
hours to produce 1 boat engine.
The assembly constraint is 2S + 5B 6 = 600
Assumption 2: Assume that both the snowmobile and boat engines must be tested on a
very expensive machine before they are shipped to customers. Only 120 testing machine-
hours are available daily for testing the engines. It takes 1 hour (60 minutes) to test each
snowmobile engine. It takes half an hour (30 minutes) to test each boat engine.
The testing constraint is 1S + 0.5B 6 = 120
Assumption 3: Assume that material shortages for boat engines will limit Power
Engines to 110 boat engines per day.
The boating constraint is B 6 = 110
Assumption #4: Use Solver to solve the maximum daily contribution margin. In order
to do so, always add a non-negativity constraint for each of the where variables. It is
impossible for Power Engines to produce negative units of B or S, for example.
The non-negativity constraint is S 7 = 0 and B 7 = 0
This can be shortened to S, B 7 = 0
Step 3: Creating the Solver Worksheet
In the Power Engines example, managers need to solve two volume variables: how many
snowmobiles engines to assemble (S) and how many boat engines to assemble (B). The
easiest way to solve the problem is to build a worksheet with the first column of infor-
mation representing line descriptions, the next columns representing volume variables (in
this case, there are two, S and B), and the last two columns representing total and con-
straints, respectively.
A B C D E
1 Descriptions S B Total Constraints
2
The next step is to add the volume and total contribution margin descriptions. At the
bottom of the page, the second to last row will always say volume. Remember, this is
what you are trying to solve. Most of the formulas you build within your worksheet tie
into volume. The last row will say total contribution margin or total costs, depending
on whether you are maximize total contribution margin or minimize costs. In the case of
Power Engines, you are maximizing total contribution margin.
A B C D E
1 Descriptions S B Total Constraints
2
3
4
5
6
7
8
9
10 Volume
11 Total Contribution Margin
You’ll notice there are a lot of blank rows. We’ll fill those in next.
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462 ● CHAPTER 11 Decision Making and Relevant Information
The next step is to add the descriptions.
A B C D E
1 Descriptions S B Total Constraints
2
3 Contribution Margin
4 Data & Constraints:
5 Assembly Data
6 Assembly Constraint
7 Testing
8 Testing Constraint
9 Boat Constraint
10 Volume
11 Total Contribution Margin
Now you need to build in the data and formulas. The first constraint is assembly. Assume
that it takes 2 hours to assemble 1 snowmobile engine, 5 hours to assemble 1 boat engine,
and Power Engines has 600 assembly hours available each day.
A B C D E
1 Descriptions S B Total Constraints
2
3 Contribution Margin
4 Data & Constraints:
5 Assembly Data 2 5
6 Assembly Constraint 0 0 0 600
7 Testing
8 Testing Constraint
9 Boat Constraint
10 Volume
11 Total Contribution Margin
The 0 values you see in cells B6, C6, and D6 represent assembly formulas. The formula
in cell B6 is =B5*B10. The formula is cell C6 is =C5*C10. These values will be deter-
mined once you run solver and the optimum volume is determined. The formula in D6
is =SUM(B6:C6). This value determines the total of assembly-hours for snowmobile and
boat engines. You will compare this value (in Solver) to your constraint of 600 (cell E6).
The second constraint is testing. Assume that it takes 1 hour to test 1 snowmobile
engine, half an hour to test 1 boat engine, and Power Engines has 120 testing-hours avail-
able each day.
A B C D E
1 Descriptions S B Total Constraints
2
3 Contribution Margin
4 Data & Constraints:
5 Assembly Data 2 5
6 Assembly Constraint 0 0 0 600
7 Testing 1 0.5
8 Testing Constraint 0 0 0 120
9 Boat Constraint
10 Volume
11 Total Contribution Margin
The 0 values in cells B8, C8, and D8 represent testing formulas (very similar to assembly
formulas). The formula in cell B8 is =B7*B10. The formula is cell C8 is =C7*C10. These
values will be determined once you run Solver and the optimum volume is determined.
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Appendix 11B: Using Excel Solver ● 463
The formula in D8 is =SUM(B8:C8). This value determines the total testing-hours for
snowmobile and boat engines. You will compare this value (in Solver) to your constraint
of 120 (cell E8).
The third constraint is a material shortage constraint for boat engines. Power Engines
is limited to 110 boat engines per day.
A B C D E
1 Descriptions S B Total Constraints
2
3 Contribution Margin
4 Data & Constraints:
5 Assembly Data 2 5
6 Assembly Constraint 0 0 0 600
7 Testing 1 0.5
8 Testing Constraint 0 0 0 120
9 Boat Constraint 0 110
10 Volume
11 Total Contribution Margin
The formula in cell D9 is =C10. C10 represents the volume of boat engines that will be
assembled each day. You will compare the D12 value (in Solver) to your constraint of
110 (cell E9).
The last constraint, non-negativity, will be entered in the Solver Parameters work-
sheet. You don’t need to worry about that in this worksheet.
The last set of formulas will determine total contribution margin. Note: You are
adding data on line 3.
A B C D E
1 Descriptions S B Total Constraints
2
3 Contribution Margin 240 375
4 Data & Constraints:
5 Assembly Data 2 5
6 Assembly Constraint 0 0 0 600
7 Testing 1 0.5
8 Testing Constraint 0 0 0 120
9 Boat Constraint 0 110
10 Volume
11 Total Contribution Margin 0 0 0
The 0 values in cells B11, C11, and D11 represent contribution margin formulas. The
formula in cell B11 is =B3*B10. The formula is cell C11 is =C3*C10. These values will be
determined once you run Solver and the optimum volume is determined. The formula in
D11 is =SUM(B11:C11). This value determines the total contribution margin (what you
are looking to maximize).
Step 4: Installing Solver
You may have to install Solver into your Excel package. The steps are as follows:
a. Open Excel
b. Select Blank workbook
c. Click on File (top left)
d. Click Options (left side)
e. Select Add-Ins (left side)
f. Select Solver Add-in
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464 ● CHAPTER 11 Decision Making and Relevant Information
g. Click Go
h. Click Solver Add-In (Add-Ins window)
i. Click OK
j. Click Data (menu bar of your worksheet)
k. At the right-hand side, you should see Solver. Click Solver (Analysis). The Solver
Parameters worksheet should be shown.
Step 5: Completing the Solver Parameters Section
Open Solver Note: It is important that you have your cursor located in the area you
want to change or add information.
Set Objective: Select cell D11 of the worksheet. Select the cell that is the total contribu-
tion margin cell (maximization problem).
To: Select Max (for maximization problems).
By Changing Variable Cells: Move your cursor into the first volume cell of the work-
sheet, and drag it to the right to the last volume cell. The formula should look like
$B$10:$C$10.
Subject to the Constraints: Click the Add button. This will allow you to enter in your
constraint information.
The first constraint is the 600-hour assembly constraint. Within the Cell Refer-
ence section (make sure your cursor is in there), click cell D6 of the worksheet. The <=
symbol is the default. In the Constraint section (make sure your cursor is in there), click
cell E6. You are finished with this constraint. Click Add.
The second constraint is the 120-hour testing constraint. Within the Cell Refer-
ence section (make sure your cursor is in there), click cell D8 of the worksheet. The <=
symbol is the default. In the Constraint section (make sure your cursor is in there), click
cell E8. You are finished with this constraint. Click Add.
The third constraint is the 110 boat constraint. Within the Cell Reference section
(make sure your cursor is in there), click cell D9 of the worksheet. The <= symbol is the
default. In the Constraint section (make sure your cursor is in there), click cell E9. You
are finished with this constraint. Click Add.
The last two constraints are the non-negativity constraints. Ensure that “Make
Unconstrained Variables Non-Negative” is checked off.
Click Solve, and your worksheet should look like this:
A B C D E
1 Descriptions S B Total Constraints
2
3 Contribution Margin 240 375
4 Data & Constraints:
5 Assembly Data 2 5
6 Assembly Constraint 150 450 600 600
7 Testing 1 0.5
8 Testing Constraint 75 45 120 120
9 Boat Constraint 90 110
10 Volume 75 90
11 Total Contribution Margin 18,000 33,750 51,750
Visit MyLab Accounting to You will want to print the Answer Report to help you interpret areas of slack. Select
access five problems to Answer in the Reports section, and click OK. You will see the Answer Report in a new tab
practice using Excel solver. at the bottom of the Excel page.
A major advantage of using Solver over many other approaches is if one of your
conditions changes, you simply have to make an adjustment to your worksheet, re-run
Solver, and, within seconds, you will have new volume requirements and a recalculated
total contribution margin answer.
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