BMGT 583: Exam 1 Review
Questions
1. List and briefly describe five differences between services and manufacturing. Provide examples.
2. Identify a large employer in your hometown. Describe this organization's inputs, processes, and
outputs.
3. Name the two competitive priorities for quality, and give an example of each.
4. Name the three competitive priorities for time, and give an example of each.
5. List and explain the three service strategies.
6. List and explain the three manufacturing strategies.
7. Under what conditions can decision trees be useful?
8. Under what conditions can break-even analysis be useful?
9. List and briefly define five basic process types.
10. What is the difference between fixed automation and flexible (or programmable) automation?
11. What is the difference between a flow diagram and process chart?
Problems (Review all assigned problems)
1. Mabel's Ceramics spent $3000 on a new kiln last year, in the belief that it would cut energy usage
25% over the old kiln. This kiln is an oven that turns "greenware" into finished pottery. Mabel is
concerned that the new kiln requires extra labor hours for its operation. Mabel wants to check the
energy savings of the new oven, and also to look over other measures of their productivity to see if
the change really was beneficial. Mabel has the following data to work with:
Last Year This Year
Production (finished units) 4000 4000
Greenware (pounds) 5000 5000
Labor (hrs) 350 375
Capital ($) 15000 18000
Energy (kWh) 3000 2600
Also, suppose that the average labor cost is $12 per hour and cost of energy is $0.40 per kwh.
a) Were the modifications beneficial? (Compute labor, energy, and capital productivity for the
two years and compare.)
b) Compute the improvement in multi-factor productivity.
2. An Appliance Service company made house calls and repaired 10 lawn-movers, 2 refrigerators, and
3 washers in an 8-hour day with his standard crew of 3 workers. The average wage for the workers is $12
per hour. The materials cost for a day was $200 while the overhead cost was $50.
(a) What is the company’s labor productivity, if the retail price for each respective service is $50,
$200, and $120?
(b) What is the multifactor productivity, if the crew consisted of two of each type mechanic?
3. A "Little Sis" restaurant has been opened as a prototype to test the concept of a smaller facility
with a limited menu. Experience during the first two years were as follows:
Annual Volume Total Cost ($)
Year (Customer visits) (Fixed plus variable cost)
Year 1 40,000 600,000
Year 2 60,000 700,000
The average sale is $10 per customer. Determine the break-even quantity graphically and by solving
algebraically
4. The "Hill O'Beans" Coffee Company operates a chain of coffee shops downtown, and has
decided to open a new store. The demand will be weak, fair, or strong; probabilities are 0.25, 0.30, and
0.45, respectively.
If the company installs a small booth that only sells coffee, the associated payoffs are -$25,000, 25,000,
and $100,000 for weak, fair, and strong demand. If the company chooses an expanded facility that offers
sandwiches and breakfast foods, it must build a kitchen and rent additional space. The payoffs for an
expanded facility are -$200,000, -$25,000, and $500,000.
a. Draw a decision tree for this problem.
b. What should management do to achieve the highest expected payoff?
5. A company is screening ideas for new services. Four alternative service ideas are being
considered. Management identified four criteria and weighted them as follows: A = 40, B = 30, C = 20,
D = 10. They have also come up with scored values for the five alternatives and the four criteria as shown
below. Management has decided that if an alternative has less than a total scored value of 600, it should
automatically be rejected. Use the preference matrix technique to determine which idea should be
accepted.
Alternative 1 2 3 4
Criteria
A 9 8 4 3
B 6 7 5 10
C 9 5 8 6
D 2 5 9 8
6. A medium sized retail electronics and electrical appliances chain of stores is considering
building a regional warehouse. The company is considering four alternatives sites. The fixed
cost and variable cost with respect to units of output is given below.
Alternative sites Fixed cost Variable cost/unit
A 450,000 12.50
B 326,000 9.00
C 425,000 7.20
D 400,000 8.00
Given the above costs determine which alternative is cost effective at what volume levels.
7. Harrison Condominiums, Inc. recently purchased land near a beach and is attempting to
determine the size of the condominium development it should build. It is considering three sizes
of developments, small, medium, and large. An uncertain economic condition makes
ascertaining the demand for new condominiums difficult. However, the demand is narrowed to
low, medium, and high. The expected profit for the three development sizes under the three
demand conditions are given in the following payoff table.
Demand
Low Medium High
Small 400 400 400
Decision
Medium 100 600 600
Alternatives
Large -300 300 900
(a) Determine the recommended decision under the optimistic, pessimistic, Laplace,
Minimax regret criteria.
(b) What is the recommended decision using the expected value approach? Assume the
probabilities for the three demand conditions to be .2, .35, and .45 respectively.
(c) What is the expected value of perfect information?
8. A U.S. based electronic chip manufacturer is planning to build a new manufacturing and
distribution facility in South Korea, China, Taiwan, Philippines, or Mexico. It will take
approximately five years to build the necessary infra-structure (roads, etc.), construct the new
facility, and put it into operation. The eventual cost of the facility will differ between countries
and will vary within countries depending on the financial, labor, and political climate. The
company has estimated the facility cost (in $ millions) in each country under three different
future economic/political climates as follows.
Economic/political climate
Decline same Improve
South Korea 21.7 19.1 15.2
China 19.0 18.5 17.6
Country Taiwan 19.2 17.1 14.9
Philippines 22.5 16.8 13.8
Mexico 25.0 21.2 12.5
(a) Determine the recommended decision under the optimistic, pessimistic, Laplace, Minimax
regret criteria.
(b) What is the recommended decision using the expected value approach? Assume the
probabilities for the three demand conditions to be .2, .5, and .3 respectively?
(c) What is the expected value of perfect information?
9. Par, Inc., is a small manufacturer of golf equipment and supplies whose management
decided to move into the market for medium (standard) and high-priced (deluxe) golf bags.
After a thorough investigation of the steps involved in manufacturing a golf management has
determined that each golf bag produced will require the four operations, namely, (1) Cutting and
dyeing the material, (2) Sewing, (3) Finishing, and (4) Inspection and packaging
The standard model bag will require 7/10 hours in the cutting and dyeing department, ½ hour in
the sewing department, 1 hour in finishing department, and 1/10 hour in the inspection and
packaging department. The deluxe model will require 1 hour for cutting and dyeing, 5/6 hour for
sewing, 2/3 hour for finishing, and 1/4 hour for inspection and packaging. The profit
contribution for every standard bag is estimated to be $10 and $9 for every deluxe bag produced.
The director of manufacturing estimates that labor of 630 hours for cutting and dyeing, 600 hours
for sewing, 708 hours for finishing, and 135 hours for inspection and packaging will be available
for the production of golf bags during the months.
The company's problem is to determine how many standard and deluxe bags it should produce to
maximize the total profit contribution.
(a) Develop an LP model and solve using graphical method
(b) Solve the problem using Excel Solver.
(c) Identify binding an non-binding constraints and calculate the value of slack/surplus
variables of each constraints and interpret it.
(d) Compute the sensitivity range for each objective function coefficient and right hand side
value of each constraint.
(e) Give an interpretation for each shadow price.
(f) Assume that a premium of $5 per hour must be paid for additional labor hours. If you
have $500 budget for additional labor how would you use it and how much net additional profit
you could make.
10. Greentree Kennels, Inc. provides overnight lodging for a variety of pets. A particular
feature at Greentree is the quality of care pets receive, including excellent food. The kennel’s
dog food is made by mixing two brand-name products to obtain what the kennel calls the “well
balanced dog diet.” The data for the two dog foods are as follows.
Dog food Cost/Ounce Protein % Fat %
Bark bits 0.06 30 15
Canine Chow 0.05 20 30
Greentree wants to be sure that the dogs receive at least 5 ounces of protein and at least 3
ounces of fat per day.
(a) Formulate a linear program and determine the minimum cost mix of the two dog food
products using the graphical method.
(b) Solve this problem in Excel
(c) Identify binding an non-binding constraints and calculate the value of slack/surplus
variables of each constraints and interpret it.
(d) Identify and fully interpret the shadow prices of the constraints.
(e) What change in the diet would you make if you wish to cut feed cost by $0.35?
11. The Two-River Oil company near Pittsburgh transports gasoline to its distributors by
truck. The company has recently contracted to supply gasoline distributors in southern
Ohio, and it has $600,000 available to spend on the necessary expansion of its fleet of
gasoline tank trucks. Three models of gasoline tank trucks are available.
Capacity Purchase Monthly
Truck Model (Gallons) Cost operating cost
Super Tanker 5000 67000 550
Regular Line 2500 55000 425
Econo-Tanker 1000 46000 350
The company estimates that the monthly demand for the region will be 550,000 gallons of
gasoline. Because of the size and speed differences of the trucks, the number of deliveries or
round trips possible per month of each truck will vary. Trip capacities are estimated at 15 trips
per month for the super tanker, 20 trips per month for the regular line, and 25 trips per month for
the Econo-Tanker. Based on the maintenance and driver availability, the firm does not want to
add more than 15 new vehicles to its fleet. In addition, the company has decided to purchase at
least three of the Econo-Tankers for use on short run, low demand routes. As a final constraint,
the company does not want more than half the new models to be super tankers. The company
wishes to satisfy the gasoline demand with minimum monthly operating expense. Model this
problem as a linear programming problem and determine an optimum solution. Interpret the
answers, sensitivity ranges, and shadow prices wherever appropriate.
12. Customers at a local post office arrive at the average rate of 2 every minute during the peak
period of 11 a.m. to 1:00 p.m. During the peak period, three clerks serve regular customers.
Service time for regular customers follows exponential distribution with a mean of 2 minute.
Assume that a maximum of fifteen customers can wait for service. At present 5 customers are in
the line.
Bulk mailers arrive at the post office at the rate of three per hour. One of the three clerks is cross
trained for bulk mailers. The cross-trained clerk gives priority to bulk mail customer. The
service time for bulk mailers follows normal distribution with a mean of 15 minutes and a
standard deviation of 7 minutes. There are no bulk milers waiting for service at this time. There
can be only one bulk-mail customers waiting for service.
After the bulk mailing is processed, the bulk mail customer directly moves to the
bulk-mail payment window. This payment window is served by one of the
regular clerks including the cross trained clerk. The bulk-mail payment window has
priority over the regular customers. The time to make the payment follows a normal
distribution with a mean of 2 minutes and standard deviation of .25 minutes.
Develop a SimQuick flow chart for this simulation problem.
13. A small fertilizer manufacturer produces and sells two types of fertilizers in bulk. At
present, the company follows the same inventory policy for both products, namely, reorder 100
tons of the product if the on-hand inventory reached 50 tons. The setup cost
for setting the line up for each product is $500 per set up. Inventory carrying cost is $3
per ton per day for each product. The contribution margin before inventory related costs is
estimated as $50 per ton for the first product and $30 per ton for the second product. A
Simqucik model was developed for this problem. The simulation results for a duration of 90
days are shown below.
Element Element Overall
types names Statistics means
Work Station(s) Produce-A Final status NA
Final inventory (int. buff.) 20.00
Mean inventory (int. buff.) 11.26
Mean cycle time (int. buff.) 0.47
Work cycles started 22.00
Fraction time working 0.49
Fraction time blocked 0.44
Produce-B Final status NA
Final inventory (int. buff.) 0.00
Mean inventory (int. buff.) 6.72
Mean cycle time (int. buff.) 0.22
Work cycles started 29.00
Fraction time working 0.33
Fraction time blocked 0.27
Buffer(s) Initiate Objects leaving 51.00
Final inventory 49.00
Minimum inventory 49.00
Maximum inventory 100.00
Mean inventory 74.28
Mean cycle time 131.15
ROP-A Objects leaving 2186.50
Final inventory 43.50
Minimum inventory 0.00
Maximum inventory 50.00
Mean inventory 32.99
Mean cycle time 1.36
ROP-B Objects leaving 2850.00
Final inventory 0.00
Minimum inventory 0.00
Maximum inventory 50.00
Mean inventory 20.20
Mean cycle time 0.64
Exit(s) Demand-A Objects leaving process 2186.50
Object departures missed 327.00
Service level 0.87
Demand-B Objects leaving process 2850.00
Object departures missed 2379.00
Service level 0.55
Complete the following table:
Item Chemical A Chemical B
ROP
Order Quantity
Service Level
No. of orders
Ordering cost
Average inventory
Inventory carrying cost
Orders quantity satisfied
Profit before inventory costs
Net profit
Answers:
1. The energy modifications did not generate the expected savings; labor and capital productivity
decreased.
Productivity Last Year This Year Change
Labor (hrs) 11.429 10.667 -6.67%
Capital ($) 0.267 0.222 -16.67%
Energy (kWh) 1.333 1.538 15.38%
Multifactor productivity 0.196 0.170 -13.34%
2. (a) $52.5, (b) $1.525
3. 80,000
4. Expand; $167,500
5. Alternative 1, with a weighted score of 740.
6. B for 0-55,000; C for > 55,000
7. (a) Optimistic: Large, 900; Pessimistic: Small, 400; Laplace: Medium, 433.33; Minimax
regret: Medium, 300; (b) Medium, 500; (c) 195
8. (a) Optimistic: Mexico, 12.5; Pessimistic: China, 19; Laplace: Taiwan, 17.067; Minimax
regret: Taiwan, 2.4; (b) Taiwan, 16.86; (c) .91
9. Max 10 x1 + 9 x2
s.t. 7/10 x1 + x2 < 630
1/2 x1 + 5/6 x2 < 600
x1 + 2/3 x2 < 708
1/10 x1 + 1/4 x2 < 135
x1 , x2 > 0
(b) (540,252) Z = 7668
(c) Cutting & Dyeing and Finishing are binding.
(d)
Sensitivity range for objective function coefficients:
For x1: 6.300 to 13.500
For x2: 6.667 to 14.286
Sensitivity range for RHS of constraints:
Cutting and dyeing 495.6 to 682.364
Sewing 480 to
Finishing 580 to 900
Inspection and packaging 117 to
(f) Add 100 hours to Finishing. Increase in net profit will be $193.75.
10) Min .06 x1 + .05 x2
s.t. 0.30 x1 + 0.20 x2 > 5
0.15 x1 + 0.30 x2 > 3
x1 , x2 > 0
(15, 2.5); z = 1.025;
(c) Both constraints are binding.
(d) shadow prices: .175, .05; (i) the cost of increasing the minimum requirement of 5 ounces of
protein per day is $0.175 per ounce. All other parameters are constant; (ii) the cost of increasing
the minimum requirement of 3 ounces of fat per day is $0.05 per ounce. All other parameters are
constant.
(d) decrease minimum protein requirement by 2 ounces.
11) Min 550x1 + 425x2 + 350x3
s.t. 67x1 + 55x2 + 46x3 < 600 Budget
(15x5) x1 + (20x2.5)x1 + (25x1)x3 > 550 Demand
x1 + x2 + x3 < 15 No more than 15
x3 > 3 At least 3 econo
x1 < .5 (x1 + x2 + x3) , or 0.5x1 - 0.5 x2 – 0.5 x3 < 0 No more than 50% Super
x1 , x2 , x3 > 0
X1=5, X2=2, X3=3; Z = 4650
Budget and number of new trucks are not binding. Other constraints are binding.
