1.

The 23,000-seat City Coliseum houses the local professional sports teams as well as various
trade show, circuses, etc. Coliseum vending annually sells large quantities of soft drinks and
beer in plastic cups with the name of the coliseum on them. The local container cup
manufacturer that supplies the cups in boxes of 100 has offered coliseum management the
following discount price schedule for cups:

Order Quantity (Boxes) Price Per Box

1-1,499 $47.00
1,500 – 3,999 $45.00
4,000-6,999 $44.00
7,000+ $43.50

The annual demand for cups is 2.3 million, the annual carrying cost per box of cups is 25% of
the cost of a box, and the ordering cost is $750 per order. The total annual inventory cost
considers the cost of holding or carrying the inventory, the ordering cost, and the cost of
acquiring the product.

a) Determine the optimal order quantity using the appropriate inventory management model.
Provide the results you used in making your decision. Assume that the demand is known and
constant and the lead time is also known and constant. Replenishment is instantaneous. Also,
because of the nature of this operation, no stock outs are allowed.

b) What is the lowest total annual inventory cost (including holding, ordering and acquisition
costs) for each “price per box”?
2.

The Austin, Texas plant of Computer Products produces disk units for personal and small business computers.
Gerald Knox, the plant’s production planning director, is looking over next year’s sales forecasts for these products
and will be developing an aggregate capacity plan for the plant. The quarterly sales forecasts for the disk units are
as follows and we will assume that these are accurate:

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

2,700 2,520 2,250 2,610

Ample machine capacity exists to produce the forecast. Each disk unit takes an average of 20 labor-hours. In
addition, you have collected the following information:

a. Inventory carrying cost is $100 per disk unit per quarter. The inventory to use in this calculation is the inventory
at the end of the quarter. Any inventory carried over from a quarter will always be the first inventory used to fill the
demand in a subsequent quarter.
b. The plant works the same number of days in each quarter, 12 five-day weeks, 6 hours per day.
c. There is no inventory at the beginning of the year.
d. The cost of hiring a worker is $800 while the cost of laying off a worker is $950.
e. The straight time labor rate is $22 per hour during the entire year.
f. Overtime work is paid at time and a half (150%) of the straight time work.
g. Outsourcing (contract work) is paid at the rate of $475 per disk unit for the labor and you provide the material
h. The number of workers the company had at the end of last year could produce 2,430 units per quarter working at
full utilization. The demand for the first quarter of the next year (year following the year you are analyzing) is
projected to be at the 2,700 unit level.
i. In a backlog situation, the customer will wait for his order to be filled but will expect a price reduction each
quarter he waits. The backlog costs are $300 per disk unit for the first quarter the customer waits, $700 for the
second quarter the customer waits, and $900 for the third quarter the customer waits. In filling orders, backlog items
will always be filled before current quarter items,

Which of the following plans would provide the lowest production cost? Assume that the material and overhead
costs are the same in each plan.

i) There will be a reduction in 5 workers from the workforce used at the end of last year that could produce 2,430
units per quarter working at full utilization. The reduced workforce will be held constant throughout the year. If the
workforce can produce more units during a quarter then there is demand, the workers will still produce all of the
units so there is no underutilization. These units will be used to meet demand in future quarters. Any additional
units required in a quarter that cannot be produced with the given workforce will be obtained through overtime. Do
not consider the cost of the process improvements.

ii) A form of level production where the company successfully shifted the demand so that it is uniform (constant)
throughout the entire year. To do this, the company has to reduce the price of each unit exceeding the average
quarterly demand to another quarter by $400. The number of workers used will match the demand so there will be
no underutilization and no overtime.
3.

Luis’ factory manufactures a square 48-inch table with a removable center section that when in
place extends the dimensions to 48- by 60-inches. It currently has an order for 450 tables. Each
table (#t200) requires two finished table top halves (#248f), one track subassembly (#t248trsa),
four table legs (t200l) and one table insert (#248i). Each finished table top half requires one
unsanded table top half (#248uf). The Safety Stock and Allocated quantities are fulfilled from
the On Hand quantity

Additional information is the following:

Item #t200 #t248f #t248trsa #200l #248i #248uf

On hand 50 120 400 500 200 120
Safety stock 0 40 0 100 25 100
Allocated 25 0 0 100 25 0
Scheduled -- 160 in Week -- 400 in -- 280 in
Receipts 1 week 1 week 1

The On hand includes the Safety Stock. Ignore the timing of these requirements.

Provide the additional number of the following items that are required to meet the total demand
for the order for 450 tables:
 #t200, the table itself
 #248f, the finished table top halves
 #248uf, the unsanded table top half
 #200l, the table legs
4. (32 points)

The Surest Concrete Company produces cement in a continuous process. Two ingredients in the cement
are sand, which Surest purchases for $8 per ton, and gravel, which costs $10 per ton. The other
ingredients are lumped together and referred to as “Other”. The cost of the other ingredients is $7 per
ton. No more than 40 percent of the cement can be sand, and at least 30 percent of the cement must be
gravel. The maximum amount of gravel available is 100 tons. The maximum amount available of the
“Other” ingredients is 125 tons. The cement sells for $62 per ton. Fractional values of the inputs and
outputs are allowed.

The company wants to maximize its profit.

a) Formulate the liner programming problem to maximize the profit.

b) Using linear programming, solve for the optimal solution, identifying the value of the objective
function and the variables at optimality. To receive credit for this answer, you must provide a copy of
your linear programming output, identifying the value of the objective function and the values of the
variables at optimality. You must submit your linear programming formulation and show the linear
programming software solution to this problem to receive credit.

c) Using the sensitivity analysis output from part b, provide any two sensitivity analysis interpretations.
One of the interpretations must relate to the objective function and the second one must relate to one of
the constraints.

d) Write the constraints ensuring the following two conditions are satisfied. You only need to formulate
these constraints. You do not need to solve the linear programming problem for the solution.
 Write the constraint(s) that ensures that the cost of the “Gravel” ingredient is not more than 35%
of the total cost of the cement being provided.
 Write the constraint that ensures that the amount of the “Other” ingredients is between 10% and
20% of the amount of all of the ingredients being provided.
 5.

Pik-Fast, a chain of convenience stores, is planning to open a new store. The activities required, their
immediate predecessors, and the optimistic, most likely, and pessimistic estimates of their times (in days)
are provided below.

Activity Description Immediate Optimistic Most Likely Pessimistic Time

Predecessors Time (days) Time (days) (days)
A Select manager -- 10 12 20
B Select site -- 8 15 22
C Hire workers A 17 21 31
D Basic training C 3 4 5
E Secure permits B 12 18 30
F Construct building E 26 30 40
G Purchase equipment -- 30 45 60
H Install equipment F,G 4 6 8
I Advertise opening B 15 55 89
J Final training D,H 2 3 4
K Stock store H,I 4 6 8
L Open store J,K 1 1 1

a) Provide the project network.

b) Identify the critical path and projected project completion time using the expected completion times.
c) Calculate the expected slack times for any two paths not including the critical path. For the path slack
time, compute this compared to the critical path and that also considers the slack time for each activity on
that path.
d) Find the probability that the critical path will be completed within 75 working days.
e) Illustrate or explain why the probability that the critical path will be finished in 75 days or less is not
necessarily the probability that the project will be finished in 75 days or less. Assume that times for each
activity will not change from what is provided below and no new activities are added nor are the
predecessor relationships changed.
6.

The following jobs are waiting to be processed at Keah-Lan’s machine center.

Job Date Order Received Processing Days Needed Date Order Due, End
of Day __
A 110 20 180
B 120 30 200
C 122 10 175
D 125 16 230
E 130 18 210

The jobs are listed in the order in which they were received. Suppose that it is now the start of
day 151, so day 151 is a work day on the planning calendar and none of the above jobs have
been started yet. There are no other jobs waiting or in the system at this time. All the resources
required for each job are on hand. Once a job is started, it will not be stopped until it is
completed. Each job is scheduled to be worked on the machine center’s only machine.

a) In what sequence should the jobs be ranked according to the following rules?
 CR: Critical Ratio
 SPT: Shortest processing time

b) For the CR and SPT, what is the sequence of these two rules based on each of the following
criterion?
 Average flow time measured from now (start of day 151)
 Average lateness with no credit for being early
 Average days early with no penalty for being late
7.

A company has a demand for 25,750 units annually. The holding cost is 33% of the item cost
which is $10.00. The ordering or set-up cost is $250.00 per order and the lead time is 5 days.
Assume that there are 350 days per year

Suppose a price break of $50 per order is offered for purchase quantities of 2,000 or greater.

a) Would you take advantage of this based on the economics of the two offers?

b) How much is the difference in the annual cost between these two options?

c) What is the inventory position immediately after an order is placed for the inventory strategy
that you have selected? What is the reorder point for this inventory strategy?
8.

For a mainframe computer, a preventive maintenance inspection and repair cycle costs a total of
$2,000 on the average. If the computer breaks down, an average cost of $5,000 is incurred. The
historical breakdown pattern for the computer is the following:

Months between PM Average number of breakdowns between PM

1 0.2
2 0.6
3 1.8
4 3.6
5 7.0

a) Recommend how often preventive maintenance should be performed.

b) For the above information, suppose that the average cost of a breakdown is unknown. What
is the breakdown cost that would have the total cost of the 2-month PM cycle equal to the 3-
month PM cycle?
9.

a) A product has five components in series as shown below:

A→B→ C →D →E

The reliability of components A, B, C and D are the following:

A: 92% B: 88% C: 85% D: 80%

The product is to have an overall reliability of 60%. What must the reliability of component E
be to satisfy this requirement? If it is not possible to satisfy the 60% reliability requirement,
what is the best reliability possible for the product and what would the reliability of component E
be to achieve this reliability?

b) BioTech Research Center is working to develop a new vaccine for the West Nile Virus. The
project is so important that the firm has created three teams of experts working on the project
from different perspectives. Team 1 has a 90% chance of success, Team 2 has an 85% chance of
success, and Team 3 has a 70% chance of success. It is only necessary for one of the teams to
succeed in developing the new vaccine. BioTech wants to make a statement about the reliability
or probability that it will succeed in developing the new vaccine. What is this reliability or
probability?
10.

You are the manager of a project to improve the healthcare insurance claims auditing process.
For each day that the claims auditing process takes, there is an associated cost of $1,700 so this
cost is saved for each day reduction in the project completion time. Following is the information
for the healthcare claims auditing process. The normal time and crash time are the times it will
take to complete each activity under each of those scenarios (normal and crash). The Total
Normal Cost and the Total Crash Cost are the total costs for completing that activity in that time.

Activit Normal Time Crash Time Total Total Crash Immediate

y (days) (days) Normal Cost Cost Predecessor(s)
A 6 4 $4,000 $6,000 --
B 4 2 $4,000 $7,000 --
C 6 3 $3,000 $6,000 B
D 6 5 $4,500 $5,000 A
E 3 3 $10,000 $10,000 C

a) Considering all of the cost, what is the cost of the project if all of the activities are
crashed to their Crash Times?
b) Based on the information provided, what is the minimum-cost schedule? For this
minimum-cost schedule, identify the critical path, the time for each activity and the total
cost for completing the project?