Linear Programming Applications to Managerial Accounting Decision Makings

선형계획법을 이용한 관리회계적 의사결정

  • Song, Han-Sik (Department of Business Administration, DongA University) ;
  • Choi, Min-Cheol (Department of Business Administration, DongA University)
  • Received : 2018.11.30
  • Accepted : 2018.12.26
  • Published : 2018.12.30


This study has investigated Linear Programming (LP) applications to special decision making problems in managerial accounting with the help of spreadsheet Solver tools. It uses scenario approaches to case examples having three products and three resources in make-and-supply business operations, which is applicable to cases having more variables and constraints. Integer Programmings (IP) are applied in order to model situations when products are better valued in integer values or logical constraints are required. Three cases in one-time-only special order decisions include Goal Programming approach, Knapsack problems with 0/1 selections, and fixed-charge 0/1 integer modelling techniques for set-up operation costs. For the decisions in outsourcing problems, opportunity-costs of resources expressed by shadow-prices are considered to determine their precise contributions. It has also shown that the improvement in work-shop operation for an unprofitable product must overcome its 'reduced cost' by the sum of direct manufacturing cost savings and its shadow-price contributions. This paper has demonstrated how various real situations of special decision problem in managerial accounting can be approached without mistakes by using LP's and IP's, and how students both in accounting and management science can acquire LP skills in their education.


Supported by : 동아대학교


  1. Anderson, D. R., D. J. Sweeny and T. A. Williams (2003), An Introduction to Management Science, 10th edition, Thomson
  2. Amile, T. T. (2009), "Constrained Optimization Problems In Cost And Managerial Accounting - Spreadsheet Tools," American Journal of Business Education, 2(4) 11-21.
  3. Bradbard, D. A., C. Alvis and R. Morris (2014), "Spreadsheet Usage By Management Accountants: An Exploratory Study," Journal of Accounting Education, 32, 24-30.
  4. Cowton, C. J. (1996), "A Note on the Limiting Factor Rule and Multiple Resource Constraints," Accounting Education, 5(3), 269-274.
  5. Demski, J. S. (1967), "An Accounting System Structured On A Linear Programming Model," The Accounting Review, 42(4), 701-712.
  6. Fylstra, D., L. Lasdon, J. Watson and A. Karen (1998), "Design and Use of the Microsoft Excel Solver," Interfaces, 28(5), 29-55.
  7. Horngren, C. T., S. M. Datar and M. V. Rajan (2013), Cost Accounting: A Managerial Emphasis, 14th edition, Boston, Pearson.
  8. Hiller, F. and S. M. S. Hiller (2004), Introduction to Management Science, New York, McGrawHill.
  9. Jansen, B., J. J. de Jong, C. Roos and R. T. Terlaky (1997), "Sensitivity Analysis in Linear Programming: Just Be Careful!", European Journal of Operations Research 101, 15-28.
  10. Jensen. R. E. (1968), "Sensitivity Analysis and Integer Linear Programming," The Accounting Review, 43(3), 425-446.
  11. Kaplan, R. S. and G. L. Thompson (1971), "Overhead Allocation via Mathematical Programming Models," The Accounting Review, 46(2), 352-364.
  12. Kim, Seon-Min and Gwang-Hoon Park (1997), "A Comparison of Theory of Constraints and Linear Programming as Decision Making Tools," Korean Management Review, 26(4), 941-959.
  13. Lee, Choong-Seop (2011), Managerial Accounting: for Planning and Control, 2nd ed, CheongRam, Seoul.
  14. Park, Jun-Wan (2010), "A Study on the Algorithm for Optimizing Product Mix Decision under the Theory of Constraints," Korean Journal of Accounting Research, 15(3), 133-153.
  15. Ragsdale, C. T. (2004), Spreadsheet Modeling and Decision Making: A Practical Introduction to Management Science, 4th ed., Thomson.
  16. Rapparport, A. (1967), "Sensitivity Analysis in Decision-Making," Accounting Review, 42(3), 441-456.
  17. Souren R. H. and When, C. Schemist (2005), "Optima Product Mix Decisions Based on the Theory of Constraints: Exposing Rarely Emphasized Premises of Throughput Accounting," International Journal of Production Research, 43(2), 362-374.
  18. Thai, W. H. and J. C. Chains (2007), "An Algorithm for Optimizing Joint Products Decision Based on The Theory of Constraints," International Journal of Production Research, 45(15), 3421-3437.
  19. Togo, D. F. (2005), "Integrating Operations Management Into Cost Systems: An Accounting Approach To Linear Programming," Journal of Business Case Studies, 1(4), 27-32.
  20. Winston, W. L. (1996), "The Teachers' Forum: Management Science with Spreadsheet for MBAs at Indiana University," Interfaces, 26(2), 105-111.
  21. Winston W. L. and S. C. Albright (1997), Practical Management Science: Spreadsheet Modeling and Applications, Boston, Duxbury.
  22. Winston W. L. (2004), Operations Research: Applications and Algorithms, 4th edition, Belmont, Thomson.
  23. Wright, F. K. (1968), "Measuring Asset Services: A Linear Programming Approach," Journal of Accounting Research, 6(2), 228-236.