Practice Problem Set 02

Section A (MCQ/ True-False)

(Answer all questions)
1. For the data table given below, where do you enter the cell reference for unit labour cost in the
Data Table dialogue box (refer to a screenshot of the dialogue box below)? The unit labour cost
varies from $20 to $29.

a) Row input cell in the Data Table dialogue box

b) Column input cell in the Data Table dialogue box
c) None of the alternatives is correct

2. Rather than trying to build an entire worksheet in one pass, it is usually more efficient to build
a single module/section and test it out before proceeding. True or False?
a. True
b. False

3. Alice and Bob have a quarrel while visiting Seattle. Alice storms into her Mazda Miata and
drives 64 miles per hour toward her mother’s home in Los Angeles. Two hours after Alice leaves,
Bob jumps into his BMW in hot pursuit, driving 80 miles per hour. To determine how many miles
each person will have traveled when Bob catches Alice, how would you use Goal Seek?
a. The distance travelled by Alice must be set to 160 by changing the hours travelled by Bob
b. The difference between the distances travelled by Alice and Bob must be set to 0 by changing
the hours travelled by either Alice or Bob
c. The distance travelled by Bob must be set to 128 by changing the hours travelled by Bob
d. None of the alternatives
4. The algorithm/solver method that must be chosen in the Solver dialogue box when you are
solving a linear optimization problem is the Simplex LP. True or False?
a. True
b. False

5. In what-if analysis, when we vary a parameter, we are implicitly asking what would happen if
there were an unexpected change in the parameter or if the forecast of that parameter were
wrong. True or False?
a. True
b. False

6. A constraint in an optimization problem is

a. a variable representing the decision to be made
b. a restriction on the values of decision variables
c. a key outcome of the model
d. none of the above

7. In a linear programming spreadsheet model, the outcome can typically be expressed as a

SUMPRODUCT function.
a. True
b. False

8. Sheldon has just turned 35 and has been saving for an around-the-world vacation. He wants to
take the trip to celebrate his 40 th birthday. He has set aside, as of today, $15000 for such a trip.
You expect that such a trip will cost $25000. Assuming an interest rate of 8%, will Sheldon have
enough money to take the trip?
a. Yes
b. No
c. Cannot tell

9. Over the next 12 years, you project an annual savings of $40000 per year from having a new
equipment for your business. Assuming an interest rate of 6%, which of the following Excel
formula will you use to find out the maximum price that you are wiling to pay for the new
equipment today?
a. =FV(0.06,12,0,40000,0)
b. =PV(0.06,12,0,40000,0)
c. =PV(0.06,12,40000,0,0)
d. None of the alternatives

10. To expand your cafeteria, you need to purchase some additional specialty equipment costing
$45000. You project a resultant increase in profits of $8000 per year for the next 8 years with this
new equipment. Assuming a rate of 8%, should you pursue this opportunity?
a. Yes
b. No
c. Can’t tell
 Section B (Modeling Problems)
(Answer Any Two)
1. Leaky Cauldron Co.
Leaky Cauldron Co. has begun to manufacture two new types of cauldrons: Sloshing Cauldron
and Exploding Cauldron. The company is trying to decide at what price to sell each Sloshing
Cauldron and each Exploding Cauldron. Each Sloshing Caldron requires 5 hours of labour and 4
kilograms of raw materials. The number of Sloshing Cauldrons that can be sold is 150. Each
Exploding Cauldron requires 6 hours of labour and 3 kilograms of raw material. Labour cost is 10
wizard dollars per hour and raw material cost is 80 wizard dollars per kilogram. The number of
Exploding Cauldron that can be sold is twice that of the number of Sloshing Cauldrons. Fixed
costs of operating the cauldron-manufacturing facility are 80,000 wizard dollars per year.
i) Develop a base case spreadsheet model to help Leaky Cauldron Co. Make suitable assumptions.
ii) How does the profit vary with the labour cost and material cost simultaneously? Assume that
the labour cost varies from 5 wizard dollars to 15 wizard dollars and material cost varies from 60
to 100 wizard dollars. Which Excel feature will you use?

2. Peppy Furniture
Peppy Furniture manufactures trendy furniture for space-constrained studio apartments. During
the next production phase, management is considering producing space-saving dining table/chair
set, bed-cum-sofa sets and/or bookcases that double up as study tables. The time required for each
item to go through the two stages of production (assembly and finishing), the amount of wood
required, and the corresponding unit profit are given in the table below. The table also shows the
amount of each resource available in the upcoming production phase.

Dining
Bed-cum- Bookcase-cum-
table/chair Available
sofa sets study tables
sets
Assembly
80 40 50 8100
(minutes/unit)
Finishing
30 20 30 4500
(minutes/unit)
Wood (pounds/unit)80 10 50 9000
Unit profit $360 $125 $300

a. Using your knowledge of spreadsheet modeling, help Peppy Furniture decide production
levels to maximize profit.
b. What is/are the constraint(s) in this case?

3. Acme Company
Acme Company is organizing a workshop for aspiring online content creators. The fixed cost for
organizing such workshops is $15,000. It must pay the 10 invited speakers $700 each and the hotel
$300 for food/lodging costs for each participant (including speakers). Acme now needs to decide
how much to charge each workshop participant (who is not a speaker). Last year, Acme charged
$1200 for each such participant and the number of such participants who registered for the
workshop was 42.
i) Create the base case spreadsheet model to help Acme decide how much to charge the
participants. You can use the last year’s charges and no. of registered participants to create the
base case model.
ii) How would the outcome vary with variation in the amount charged to participants (from $500
to $2000)?

4. BlueJet Airlines
BlueJet Airlines is a small regional company that specializes in short flights in small passenger
airplanes. The company has been doing well and management has decided to expand its operations.
The basic issue facing management now is whether to purchase more small airplanes to add some
new short flights or to start moving into the national market by purchasing some large airplanes
for new cross-country flights (or both). Many factors will go into management’s final decision,
but the most important one is which strategy is likely to be most profitable.
The table below shows all the related data. The estimated net annual profit (inclusive of capital
recovery costs) from each type of airplane purchased has been given. The table also gives the
purchase cost per airplane and notes that the total amount of capital available for airplane purchases
is $250 million. The management does not want to purchase more than five small airplanes because
of limited possibilities for adding lucrative short flights, whereas they have not specified a
maximum number for large airplanes (other than that imposed by the limited capital available).
Small Airplane Large Airplane Capital Available
Net annual profit per $7 million $22 million
airplane
Purchase cost per $25 million $75 million $250 million
airplane
Maximum purchase 5 No maximum
quantity
a. Build a spreadsheet model to help the management decide how many airplanes of each type
should be purchased to maximize the total net annual profit.