UNIVERSITY EXAMINATIONS: 2020/2021

EXAMINATION FOR THE DEGREE OF BACHELOR OF BUSINESS

INFORMATION TECHNOLOGY
BUSS 206: OPERATIONS RESEARCH
FULL TIME/PART TIME/DISTANCE LEARNING
DATE: DECEMBER, 2020 TIME: 6 HOURS

INSTRUCTIONS: Answer ALL Questions

QUESTION ONE [20MARKS]

a) A Research Officer suggested to a farmer to spread out at least 4800kg of a special phosphate
fertilizer and not less than 7200kg of a special nitrogen fertilizer to raise productivity of
crops in his fields. There are two sources for obtaining these-mixtures A and B. Both of these
are available in bags weighing 100kg each and they cost Ksh.40 and Ksh.24 respectively.
Mixture A contains phosphate and nitrogen equivalent of 20kg and 80kg respectively, while
mixture B contains these ingredients equivalent of 50kg each. Write this as a linear
programming problem to determine how many bags of each type the farmer should buy in
order to obtain the required fertilizer at minimum cost .
{8Marks}
b) A company wants to know whether or not a new shaving cream should be marketed. The
present value of all future profits for the success of the cream is Ksh.10, 000,000 and its
failure would result in a net loss of ksh.5, 000,000. Not marketing it would not change the
profits. The chances of the success of the new cream are 50%
i. Construct the payoff table
ii. Which act will maximize the payoff?
iii. What is expected payoff under uncertainty?
iv. What is EVPI? What is the minimum expected opportunity loss? {8Marks}
c) Customers arrive at a window drive-in bank according to a Poisson distribution. With a mean
of 10 per hour. The service time per customer is exponential with a mean of five minutes.
 There are three spaces in front of the window, including the car being served. Other arriving
cars line up outside this 3-car space.
i. What is the probability that an arriving car can enter one of the three car spaces?

ii. What is the probability that an arriving car will wait outside the designated 3-car
space?
iii. How long is an arriving customer expected to wait before starting service?
iv. How many car spaces should be provided in front of the window (including the car
being served) so that an arriving car can find a space there at least 90% of the time
{4Marks}

QUESTION TWO [20MARKS]

a) XYZ ltd is considering launching a new product into the market which will incur a fixed
cost of Sh.5,000,000 per day. This product will have a one year life. The Selling Price,
variable cost and sales volume are uncertain.

Selling Prob Variable Cost Prob. Sales Prob.

Price . “Sh” Volume
“Sh”
400 0.3 200 0.1 30000 0.2
500 0.5 300 0.6 40000 0.4
600 0.2 400 0.3 50000 0.4

Simulate the problem to determine the average daily profits using 10 trials. Use the following
random numbers: 806043632140360569167386283161 (10 Marks)
b) A procurement manager is analyzing a set of bids that he has received for five projects
from six bidders. The guidelines established for selecting the successful bidders require
the manager to (a) minimize the total cost to complete the projects; (b) not award more
than one contract to each bidder; and (c) disregard the lowest bid whenever it is more
than 25 per cent of below the next lowest bid (the assumption being that the quality of the
work will not be up to standards). The bids on the projects (in thousands of Ksh.) are
shown in the table below as follows:

Contract
Bidder A B C D E
1 7 8 8 12 7
 2 9 13 10 14 5
3 3 7 6 13 11
4 17 17 7 8 8
5 8 12 7 15 16
6 10 10 10 16 8
Required;

i. Identify which particular bidder(s) shall not be eligible for which particular contract(s) in
pursuance of the requirement in (c). {1Mark}
ii. Identify the successful bidder for each of the five contracts. {5 Marks}
iii. Work out the optimal assignment pattern if the requirement (c) is waived. {4 Marks}

QUESTION THREE [10MARKS]

The distribution system of Lambda Logistics has the following constraints.

Factory Capacity (in units)

F1 90
F2 30
F3 80

Warehouse Demand (in units)

W1 50
W2 110
W3 40

Transportation cost per unit (in shillings) from each factory to every warehouse is given
in the table below:
Warehouse
Determine W1 W2 W3 the
Factory
minimum F1 20 14 16 total
F2 30 24 18
F3 14 16 24
transportation cost using Vogel’s Approximation Method (VAM).
[10 Marks]