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Review Questions

This document contains 8 review questions covering topics such as: 1) Categorizing items into A, B, C categories based on annual demand and unit cost. 2) Calculating economic order quantity, average inventory, number of orders, and total costs for flour ordering. 3) Setting up production runs for sodium bisulfate including optimal bag quantity, average inventory, run length, and number of runs.

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JEZICAH MAE DE JESUS
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36 views3 pages

Review Questions

This document contains 8 review questions covering topics such as: 1) Categorizing items into A, B, C categories based on annual demand and unit cost. 2) Calculating economic order quantity, average inventory, number of orders, and total costs for flour ordering. 3) Setting up production runs for sodium bisulfate including optimal bag quantity, average inventory, run length, and number of runs.

Uploaded by

JEZICAH MAE DE JESUS
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Review Questions for CA5104

1. A manager has obtained a list of unit costs and estimated annual demands for 10 items and
now wants to categorize the items on an A-B-C basis. Determine which of the following set of
items can be categorized as very important, moderately important, and of little importance.
Item Annual Unit Cost
Numbe Demand
r
1 50,000 $3.00
2 40,000 $2.00
3 16,000 $1.50
4 10,000 $1.50
5 21,000 $.50
6 120,000 $.05
7 10,000 $.50
8 15,000 $.25
9 80,000 $.03
10 15,000 $.10

2. A bakery buys flour in 25-pound bags. The bakery uses 1,215 bags a year. Ordering cost is $10
per order. Annual carrying cost is $75 per bag.
A. Determine the economic order quantity.
B. What is the average quantity of bags on hand?
C. How many orders of unit will that be?
D. Compute the total cost of ordering ang carrying flour.

3. A chemical firm produces sodium bisulfate in 100-pound bags. Demand for this product is 20
tons per day. The capacity for producing the product is 50 tons per day. Set up costs $100, and
storage and handling costs are $5 per ton a year. The firm operates 200 days a year. (Note: 1 ton
= 2,000 pounds.)
A. How many bags per run are optimal?
B. What would the average inventory for this lot be?
C. Determine the approximate length of a production run in days.
D. About how many runs per year would that be?

4. The owner of Tastee Cookies needs to decide whether to lease a small, medium, or a large
outlet. She estimates that the monthly profits will vary with demand for her cookies as follows:

Size of Outlet Low Demand High Demand


Small $1,000 1,000
Medium 500 2,500
Large 0 3,000
A. If she uses the maximax criterion, what size outlet will she decide to lease?
B. If she uses the maximin criterion, what size outlet will she decide to lease?
C. If she uses the Laplace criterion, what size outlet will she decide to lease?
D. If she uses the minimax regret criterion, what size outlet will she decide to lease?
E. If she feels that there is a 30% chance that demand will be high, what are the expected
monthly profits for the outlet she will decide to lease?
F. If she feels that there is a 30% chance that demand will be high, what is the expected payoff
under certainty?
G. If she feels that there is a 30% chance that demand will be high, what is her expected value
of perfect information?

5. Determine the highest course of action that has the highest EMV for the accompanying tree
diagram. Analyze the decisions from right to left.

A. Determine which alternative would be selected for each possible second decision.
B. Determine the product of the chance probabilities and their respective payoffs for the
remaining branches.
C. Determine the expected value of each initial alternative.

6. A producer of pottery is considering the addition of a new plant to absorb the handling of
demand that now exists. The primary location being considered will have fixed costs of $9,200
per month and variable costs of 70 cents per unit produced. Each item is sold to retailers at a
price that averages 90 cents.
A. What volume per month is required in order to break even?
B. What profit would be realized on a monthly volume of 61,000 units? 87,000 units?
C. What volume of profit is needed to obtain a profit of $16,000 per month?
D. What volume is needed to provide a revenue of $23,000 per month?

7. The president of a state university wants to forecast enrollments for this academic year based
on the following historical data:

Year Enrollments
5 years ago 15,000
4 years ago 16,000
3 years ago 18,000
2 years ago 20,000
Last year 21,000

A. What is the forecast for this year using the naïve approach?
B. What is the forecast for this year using a four-year moving average?
C. What is the forecast for this year using exponential smoothing with alpha = .5, if the forecast
for two years ago was 16,000?
D. What is the accuracy of the naïve forecast using MAD?
E. What is the accuracy of the naïve forecast using MSE?

8. The owner of Firewood To Go is considering buying a hydraulic wood splitter which sells for
$50,000. He figures it will cost an additional $100 per cord to purchase and split wood with this
machine while he can sell each cord of split wood for $125. If for this machine, design capacity is
50 cords per day, effective capacity is 40 cords per day, and actual output is anticipated to be 34
cords per day, what would be its utilization and efficiency?

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