I.

Decision Theory

1. Inventory Management. Blumberg’s Department Store will hold a one-month suit sale. The suits
can be purchased in lots of 25 each, and the wholesale post per suit is a function of the number
of suites ordered, as shown below:

Each suit left over at the end of the month will be sold at the clearance sale for half the retail sales
price of Php 1400. If a shopping arises during the month, nothing will be done to replenish inventory,
the possible sales levels are 25, 50, 75, and 100, having probabilities of 0.20, 0.30, 0.40 and 0.10,
respectively.

Identify the best decision under each criterion.

2. Consider the following decision table, which Joe Blackburn has developed for Vanderbilt
Enterprises:

Identify the best decision under each criterion.

3. The university of Dallas Bookstore stocks textbooks in preparation for sales each semester. It
normally relies on departmental forecast and preregistration records to determine how many
copies of a text are needed. Preregistration show 90 operations management students enrolled,
but bookstore manager Curtis Ketterman has second thoughts, based on his intuition and some
historical evidence. Curtis believes that the distribution of sales may range from 70 to 90 units,
according to the following probability model.

Demand 70 75 80 85 90

Probability .15 .30 .30 .20 .05

This textbook costs the bookstore $82 and sells for $112. Any unsold copies can be returned to
the publisher, less a restocking fee and shipping for not a net refund of $ 36.

Identify the best decision under each criterion.

II. Location Strategies

1. Kimberly is a coffee lover who wanted to start her own café. She chose to have a franchise of
Burp and Blends to be located in Laguna. Her partner, Drew, has located four options for them
to start their franchise. To further analyze which location is the best for them, they gathered the
data on the costs it will incur for them to operate. The summary of their findings are as follows:

Location Fixed Cost Variable Cost

A Php 250,000 Php 11
B Php 100,000 Php 30
C Php 350,000 Php 20
D Php 200,000 Php 35

Using the fixed and variable costs below, calculate at which point of units sold will Kimberly and
Drew choose Location A and B?
2. An American consulting firm is planning to expand globally by opening a new office in one of
four countries: Germany, Italy, Spain, or Greece. The chief partner entrusted with the decision,
L. Wayne Shell, has identified eight key success factors that he views as essential for the
success of any consultancy. He used a rating system of 1 (least desirable country) to 5 (most
desirable) to evaluate each factor.
CANDIDATE COUNTRY RATINGS
KEY SUCCESS FACTOR WEIGHT GERMANY ITALY SPAIN GREECE
Level of education Number of consultants 0.5 5 5 5 2
National literacy rate 0.5 4 2 1 1
Political aspects Stability of the government 0.2 5 5 5 2
Product liability laws 0.2 5 2 3 5
Environmental regulations 0.2 1 4 1 3
Social and cultural aspects Similarity in
language 0.1 4 2 1 1
Acceptability of consultants 0.1 1 4 4 3
Economic factors Incentives 0.1 2 3 1 5

a. Which country should be selected for the new office?

b. If Spain's score were lowered in the Stability of government factor, to a 4, how would its
overall score change? On this factor, at what score for Spain would the rankings change?
3. Todd's Direct, a major TV sales chain headquartered in New Orleans, is about to open its first
outlet in Mobile, Alabama, and wants to select a site that will place the new outlet in the center
of Mobile's population base. Todd examines the seven census tracts in Mobile, plots the
coordinates of the center of each from a map, and looks up the population base in each to use
as a weighting. The information gathered appears in the following table.
CENSUS TRACT POPULATION X, Y MAP
IN CENSUS COORDINATES
TRACT
101 2,000 (25, 45)
102 5,000 (25, 25)
103 10,000 (55, 45)
104 7,000 (50, 20)
105 10,000 (80, 50)
106 20,000 (70, 20)
107 14,000 (90, 25)

At what center-of-gravity coordinates should the new store be located?

4. The fixed and variable costs for three potential manufacturing plant sites for a rattan chair weaver
are shown.

Site Fixed Cost Per Year Variable Cost Per Unit

1 $800 $11.00
2 $1,100 $6.00
3 $2,100 $4.00
a) After rounding to the nearest whole number, determine the range over which site 1, site 2 and
site 3 are best.
b) If the demand is 600 units, what will be the best location for the potential manufacturing plant?

5. Peter Billington Stereo, Inc.supplies car radios to auto manufacturers and is going to open a new
plant. The company is undecided between Detroit and Dallas as the site. The fixed costs in
Dallas are lover due to cheaper land costs, but the variable costs in Dallas are higher because
shipping distances would increase. Given the following costs:

Dallas Detroit

Fixed Costs $600,000 $800,000

Variable Costs $28/radio $22/radio

A. Perform an analysis of the volume over which each location is preferable.

B. How does your answer change if Dallas’ fixed costs increase by 10%?
 6. Eagle Electronics must expand by building a second facility. The search has been narrowed
down to locating the new facility in one of four cities: Atlanta (A), Baltimore (B), Chicago (C), or
Dallas (D). The factors, scores, and weights follow:
SCORES BY SITE
FACTOR WEIGHT A B C D
1 Labor quality 20 5 4 4 5
2 Quality of life 16 2 3 4 1
3 Transportation 16 3 4 3 2
Proximity to
4 markets 14 5 3 4 4
Proximity to
5 suppliers 12 2 3 3 4
6 Taxes 12 2 5 5 4
7 Energy suppliers 10 5 4 3 3

Using the factor-rating method, what is the recommended site for Eagle Electronics's new
facility?

7. Find an initial solution to the following transportation problem using Northwest corner method
and least cost method. Find the optimal cost.
TO
LOS
FROM ANGELES CALGARY PANAMA CITY SUPPLY
Mexico
City $6 $18 $8 100
Detroit $17 $13 $19 60
Ottawa $20 $10 $24 40
Demand 50 80 70

8. Consider the following transportation problem at Frank Timoney Enterprises in Clifton Park, NY

a) Find an initial solution using the northwest-corner rule. What special condition exists?
b) Explain how you will proceed to solve the problem.
c) What is the optimal solution?

III. Short Term Scheduling Techniques

1. The Ultra-Mega Cans packages processed food into cans. The factory has four multipurpose
cookers and canning lines that can pressure-cook, vacuum-pack, and applies labels to just
about any type of food or size of can. Ultra-Mega Cans has four orders that need to be run
today for a particular customer: canned beans, canned peaches, canned tomatoes, and canned
corn. Ultra- Mega Cans has estimated the number of hours required to pressure-cook, process,
and can each type of food by type of cooker is as follows:

Machine 1 2 3 4
Food
Beans 10 5 6 10
Peaches 6 2 4 6
Tomatoes 7 6 5 6
Corn 9 5 4 10

Due to time constraints imposed by lengthy changeover procedures, only one job can be
assigned to each cooker. How should the jobs be assigned to the cookers in order to process
the food most efficiently?

2. In reference to Problem No. 1, when can they complete the customer’s order?
 3. Megabowl Pro Shop has four bowling balls to polish this morning. The Pro Shop has four
machines that could polish bowling balls in different speeds. The estimated times (in minutes)
required to polish a bowling ball on each machine is given below.

Polishing Machine
Bowling 1 2 3 4
Ball
First Blood 15 40 25 30
Red Blood 30 35 25 20
True Blood 25 40 30 20
Cold Blood 35 30 45 35

How should the machines be assigned to the bowling balls in order to polish the balls most
efficiently?

4. In reference to Problem No. 3, when can the Pro Shop finish polishing the bowling balls?
5. One lane man in Megabowl Lanes has sixteen lanes to put oil every Monday to Friday on a weekly
basis. Oil in bowling lanes varies up to the length of lane where oil had been laid. The bowlin g
lanes have four oil dispensing machines that could put oil in different speeds. The estimated times
(in minutes) required to put oil is given below.

Oil Dispensing Machine

Oil Pattern 1 2 3 4
Lane 1-4: Viper, 36 ft 20 24 26 24
Lane 5-8: Bear, 40 ft 30 32 28 30
Lane 9-12: Shark, 43 ft 32 38 34 34
Lane 13-16: Scorpion, 47 42 42 40 44
ft

How should the machines be assigned to the lanes in order to put oil most efficiently?

6. In reference to Problem No. 5, how long would it take to put oil on all bowling lanes?

7. Today is the morning of September 1. As holiday season approaches, September’s work for
Mr. Belmonte consists of five jobs, A, B, C, D, E. Job A takes 5 days to complete and is due
September 10, job B takes 10 days to complete and is due September 15, job C takes 2 days
to process and is due September 5, job D takes 8 days to process and is due September 12,
and job E, which takes 6 days to process, is due September 8.

What is the average completion time if you sequence the jobs by First-Come, First-Serve (FCFS)?

8. In reference to Problem No. 7, what is the average tardiness if you sequence the jobs by
earliest due date (DDATE)?

9. In reference to Problem No. 7, what is the number of jobs tardy if you sequence the jobs by
LPT

10. In reference to Problem No. 7, what is the maximum tardiness if you sequence the jobs by
shortest processing time (SPT)?

11. In reference to Problem No. 7, what is the sequence of jobs if you use the smallest critical
ratio (CR) rule?

12. Mr. Rivera is an office employee who had just filed his resignation from his company.
It is now the 3rd day after his filing, and as per company policy, an employee must
serve 30 days before finally leaving the company. Mr. Rivera still has 5 jobs to fini sh
and 5 deadlines to meet before enjoying his freedom. The processing times (days) and
due dates of the jobs are detailed below.

Job Processing Due

s Time Date
A 2 05-Dec
B 9 19-Dec
C 3 07-Dec
D 7 14-Dec
E 6 12-Dec
 What is the average completion time if you sequence the jobs by First-Come, First-Serve (FCFS)?

13. In reference to Problem No. 12, what is the average tardiness if you sequence the jobs by
earliest due date (DDATE)?

14. In reference to Problem No. 12, what is the number of jobs tardy if you sequence the jobs
by LPT

15. In reference to Problem No. 12, what is the maximum tardiness if you sequence the jobs by
shortest processing time (SPT)?

16. In reference to Problem No. 12, what is the sequence of jobs if you use the smallest critical
ratio (CR) rule?

17. At the end of each month, a research and development team writes status reports for the
projects at work. The team leaders, Vilma and Jocelyn, submit them to the R&D manager on
the first Monday of each month. Due to heavy work load for the last week of the month, they
had forgotten that their report will be due on the next Monday not until Friday night. They
decided to go to office early Saturday to rush reports for their projects. Tasks allocations are
as follows: Vilma writes and edits the reports while Jocelyn collates data and draws all the
necessary graphs. Assume that Jocelyn starts her work on a report as soon as Vilma is
finished with it and that Vilma works continuously. Given the following processing times (in
hours), determine the order in which the jobs should be processed so that the rush report can
be completed as soon as possible.

Project Vilma Jocely

s n
A 4 2
B 3 5
C 5 1
D 7 3
E 8 6

18. In reference to Problem No. 17, how many hours will it take them to finish all the reports?

19. In reference to Problem No. 17, how many hours is Vilma idle? How many hours is Jocelyn idle?

20. Osku Car Service has five cars waiting to be washed and waxed. The time required (in minutes)
for each activity is given below. In what order should the cars be processed through the facility
using the Johnson’s rule?

Car Wash Wax

1 5 10
2 7 2
3 10 5
4 8 6
5 3 5
21. ISS Services does the annual major cleaning of university buildings. The job requires
mopping (1st activity) and waxing (2nd activity) of each building. ISS Services Manager
wants to minimize the time it takes for their crews to finish cleaning the five buildings
within 20 days

Bld Mopping Waxin

g g
1 1 2
2 3 5
3 2 4
4 5 4
5 4 2

In what order should the buildings be cleaned using the Johnson’s rule?

IV. Aggregate Planning

1. The Baler W ater Ski Company is the Philippines’ largest producer of water skis. Water skis
observe a highly seasonal demand pattern, with peaks during the summer months only.
 Given the following costs and quarterly sales forecasts, use the level strategy through
overtime/subcon without backordering to design a production plan that will economically
meet demand. What is the cost of the plan?

Sales Forecast

Inventory carrying cost $ 3.00 per pair of skis per quarter

Production per employee 1,000 pairs of skis per quarter
Regular workforce 50 workers
Overtime capacity 50,000 pairs of skis
Subcontracting capacity 40,000 pairs of skis
Cost of regular production $ 50 per pair of skis
Cost of overtime production $ 75 per pair of skis
Cost of subcontracting $ 85 per pair of skis

2. The CEO of Baler W ater Ski Company from Problem No. 57 has decided to forgo the
company’s policy of guaranteed employment. Assume the cost of hiring and firing
workers is $100 per worker hired and $400 per worker fired. He asks an IE ( a ) what
would be the cost of the plan of they are to try level production strategy. If necessary,
allow backordering at $10 per pair of skis per quarter, (b) use the chase demand
production strategy and determine the cost of plan.

3. The Glimpses Publishing Inc prints textbooks for the college market. The demand for
college textbooks is high during the beginning of each semester and then slacks off
after the semester stars. Given the cost and demand forecast, the firm consults an IE
to design an aggregate production plan that will economically meet demand. What is the
cost of the production plan?

MONTH DEMAND FORECAST

February – 5,000
April May – 10,00
June August – 0
October 30,00
November - 0
January 25,00
0

Regular capacity per quarter 10,000 books

Overtime capacity per quarter 5,000 books
Subcontracting capacity per quarter 10,000 books
Regular production rate $ 20 per book
Overtime production rate $ 30 per book
Subcontracting production rate $ 35 per book
Holding cost $ 2.00 per book
No beginning inventory

4. Accelerado, a leading manufacturer of swimwear line, needs help planning production for
the next year. The demands for swim wears are shown below. Given the following costs and
demand forecasts, (a) use as a strategy the level production with overtime and
subcontracting and determine the cost of the plan (b) use as a strategy the level production
with backorders as needed and determine the cost of this plan. (c) use as a strategy that
chases demand and determine the cost of plan.

MONTH DEMAND FORECAST

January 1,00
Februar 0
y March 500
April 500
May 2,00
June 0
July 3,00
August 0
Septemb 4,00
0
er
5,00
October
0
Novembe
3,00
r
 Decembe 0
r 1,00
0
500
500
3,00
0

Beginning workforce 8 workers

Subcontracting capacity unlimited
Overtime capacity 2,000 units/month
Production rate per worker 250 units/month
Regular wage rate $ 15 per unit
Overtime wage rate $ 25 per unit
Subcontracting wage rate $ 30 per unit
Hiring cost $ 100 per worker
Firing cost $ 200 per worker
Holding cost $ 0.50 per
unit/month
Backordering cost $ 10 per unit/month
No beginning inventory
5. Purple Ribbon’s Empanada is a popular food item during the cold months. Use
the following demand forecasts to (a) determine the cost of plan if production
planning strategy on level production is used, (b) use a strategy to meet the
demand by changing the size of the workforce and determine its
corresponding cost, (c) use a strategy to keep the workforce at its current level
and compensate it with overtime and subcontracting as necessary and
determine the cost of this plan.

MONTH DEMAND FORECAST

March 2,000
April 1,000
May 1,000
June 1,000
July 1,000
August 1,500
September 2,500
3,000
October
9,000
November
7,000
December
4,000
January
3,000
February
 No backordering
Overtime capacity per month regular
production
Subcontracting capacity per month unlimited
Regular production cost $ 30 per pallet
Overtime production cost $ 40 per pallet
Subcontracting production cost $ 50 per pallet
Holding cost $ 2 per pallet
No beginning inventory
Beginning workforce 10 workers
Production rate 200 pallet per worker per month
Hiring cost $ 5,000 per worker
Firing cost $ 8,000 per worker

6. Excel Manufacturing produces LCD High-Definition televisions for the consumer market. Sales
have not yet begun to stabilize, so the production manager at Excel Manufacturing must come
up with a production plan to handle to projected demand given in the table below:

The on hand inventory, December 31st was 200 units. Each employed worker gets paid for a full 8 hour (8
hours working, 1 hour for lunch) day for all working days. Design each of the following production strategies
and determine the total cost of each. (a)Produce exactly to meet demand; vary workforce (assume opening
workforce is equal to 7). (b)Constant workforce of 10; vary inventory and allow overtime. (c)Constant
workforce of 10; use subcontracting