Amaya Company: Financial Considerations For Product-Mix LP Models

Abstract

The Amaya Company case illustrates how financial considerations can be added to product-mix linear programming (LP) models to create a more realistic and robust decision aid. Most managerial/cost accounting or operations management courses introduce product-mix LP models but without financial considerations such as cash flows and its interest expense, debt covenants, or the time value of money. Hence, the initial product-mix solution may not be acceptable when managers scrutinize its impact for related financial requirements. Students completing the Amaya Company case add financial considerations to a product-mix LP problem and examine the resulting change from the misleading initial solution.