CONFIDENTIAL MAY 2011/QMT760

UNIVERSITI TEKNOLOGI MARA JOHOR

FINAL EXAM

COURSE : MANAGERIAL DECISION ANALYSIS

COURSE CODE : QMT 760
EXAMINATION : APRIL 2011
TIME : 2 HOURS

Instructions:

1) Answer five questions only.

2) If you answer more than five questions, the marks from the best five
questions only will be used.
3) Candidates can refer to textbook or other notes.
4) Candidates can use calculators or computers to solve the problems
5) Each question is worth 20 marks.

1) The Thomas Manufacturing Company has $100,000 available to invest. Doctor

Thomas, the president and CEO of the company, would like to either expand his
production, invest the money in stocks, or purchase a certificate of deposit from the bank.
Of course, the unknown is whether the economy will continue at a high level or there will
be a recession. He estimates the likelihood of a recession is 0.20. If there is a recession
or not, the certificate of deposit will result in a gain of 6 percent. If there is a recession,
he predicts a 10 percent loss if he expands his production and a 5 percent loss if he
invests in stocks. If there is no recession, an expansion of production will result in a 15
percent gain, and stock investment will produce a 12 percent gain.
a) What decision should he make if he uses the maximin strategy?
b) What decision should Doctor Thomas make if the maximax strategy is used?
c) What decision would he made if he uses the expected-monetary-value
criterion?
d) What is the expected value of perfect information?
2) Asmah would like to start a small dress shop. Presently, she believes the chances of a
successful or unsuccessful dress shop are about the same (50%). If the shop is
successful, Asmah will receive RM50,000 profit. On the other hand, if the shop is
unsuccessful, she will lose RM 30,000. Asmah can also drop the idea of opening the
dress shop and continue with her current job as a Sate Lady.
In today's local paper, there was an article that described a study done on the potential of
retail stores, which Asmah believed applied to her. After contacting the market research
firm that wrote the report, the firm agrees to provide consultation to Asmah at a cost of
RM 3,000. With this information, the probability of a successful shop given a favorable
study is 0.75 and the probability of a successful shop given a unfavorable study is 0.13.
Furthermore, the probability of an unsuccessful shop given an unfavorable study is 0.87
and the probability of an unsuccessful shop given a favorable study is 0.25. The
probability that the results of the consultation is favorable is 0.6.
a) Draw a decision tree for the above problem.
b) Calculate all the expected monetary values for the above problem.
c) What will be the maximum amount of money that Asmah should be willing to pay for
the market survey?
d) What will be the decision for Asmah?

3) As a supervisor of a production department, you must decide the daily production totals of
a certain product that has two models, the deluxe and the special. The profit on the
deluxe model is $12 per unit and the special's profit is $10. Each model goes through
two phases in the production process, and there are only 100 man-hours (or 6,000
minutes) available daily at the construction stage and only 80 man-hours (or 4,800
minutes) available at the finishing and inspection stage. Each deluxe model requires 20
minutes of construction time and 10 minutes of finishing and inspection time. Each
special model requires 15 minutes of construction time and 15 minutes of finishing and
inspection time. The company has also decided that the special model must comprise at
least 40 percent of the production total.

(a) Formulate this as a linear programming problem.

(b) Solve this linear programming problem. How many deluxe and special models should
be produced? What is the maximum profit? (use the linear programming module,
and not the integer programming)
(c) Is it worth increasing the man-hour of construction stage at RM1/hr? Explain why.
(d) Is it worth increasing the man-hour of finishing and inspection stage at RM1/hr?
Explain why.

2
4) (changed this question) Stockco is considering four investments – investment 1, 2, 3 and
4. The following table shows the net present value (NPV) and cash outflow for the four
investments.
Investment 1 Investment 2 Investment 3 Investment 4
NPV ($ ‘000) 16 22 12 8
Cash outflow 5 7 4 3

Stockco has $14,000 available for invesment.

(a) Formulate and solve the integer programming who solution will tell Stockco which
investment the company should invest in
(b) Modify the Stockco formulation to account for each of the following requirements:
Stocko can invest in at most 2 investments.
If Stockco invest in investment 2, they must also invest in investment 1. But if
Stockco does not invest in investment 2, they may or not invest in investment 1.

5) (changed) Highland Appliance must determine how many colour

TVs and VCRs should be stocked. It costs Highland $300 to purchase a colour TV and
$200 to purchase a VCR. A colour TV requires 3 sq yd of storage space and a VCR
requires 1 sq yd of storage space. The sale of a colour TV earns Highland a profit of
$150 and the sale of a VCR earns Highland a profit of $100. Highland has set the
following goals (listed in order of importance)
Goal 1: A maximum of $20,000 can be spent on purchasing colour TVs and VCRs.
Goal 2: Highland should earn at least $11,000 in profits from the sale of colour TVs
and VCRs.
Goal 3: Colour TVs and VCRs should use no more than 200 yards of storage
space.
a) Formulate this as a goal programming problem.
b) Solve the problem. What is the number of TVs and VCRs that should be stocked?
c) Are there any goals which are not met? By how much?

6) (a) Construct an initial pairwise comparison matrix with the following information
regarding an Ease of Use factor about three different information systems. System C
is strongly preferred to System A. System C is moderately preferred to system B.
System B is strongly preferred to System A.
(b) Given the following initial pairwise comparison matrix, determine the Consistency
Ratio.

3
 Factor A B C
Item A 1 7 9
Item B 1 3
Item C 1

7) A hotel records the following number of visitors (in hundreds) of a period of three years.

Quarter 1 Quarter 2 Quarter 3 Quarter 4

Year 1 57 85 97 73
Year 2 64 96 107 89
Year 3 76 102 115 95

(a) Compute the seasonal indexes for each quarter based on the centred moving
average.
(b) What is the equation of the trend line for the deseasonalised data?
(c) Use the seasonal indexes to forecast the number of visitors for each quarter in
year 4.
(d) Use exponential smoothing with a smoothing constant of 0.3 to forecast the
number of visitors for quarter 1 in year 4. Assume that last period’s forecast for
year 1 is 60.
(e) Which is a better model for the data – the centred moving average or the
exponential smoothing? Explain why.

4
8) A factory formulates the following linear programming problem.

Maximise profit Z = 250x + 300y (in ringgit)

Subject to:
2x + 1y  40 (labour hours)
1x + 3y  45 (machine time hours)
x, y  0
where x = number of Alpha model TV sets and y = number of Beta model TV sets.
(a) Find the optimal solution.
(b) Write down the dual problem.
(c) What is the amount of labour hours and machine time used in the optimal solution?
(d) If the factory has a choice between increasing labour hours or machine time hours,
which should the factory increase? Why?
(e) If the factory increases the machine time from 45 hours to 75 hours, what is the
increase in the profit? Until what value of machine time will the profit increase at this
rate?
(f) If the factory wants to decrease the labour hours, what is the lowest value it can go
down to with the same rate of decrease?
(g) If the profit per TV for Alpha model is increased to RM 400, will this change the
optimal point? Why?

END OF EXAM PAPER