Assignment 1

Problem 1
(This essay question refers to Chapter 1, the introduction of Operations Management).
Many organizations offer a combination of goods and services to their customers. As you
have learned in this chapter, there are some key difference between production of goods
and delivery of services. What are the implications of these differences relative to
managing operations?

Problem 2
(This question from Chapter of Forecasting)
National Mixer, Inc., sells can openers. Monthly sales for a seven-month period were as
follows:

Month Sales (000 units)

––––––––––––––––––––––––––––––––
Feb. 19
Mar. 18
Apr. 15
May 20
Jun. 18
Jul. 22
Aug. 20

a. Plot the monthly data on a sheet of graph paper.

1) A linear trend equation.

2) A five-month moving average.
3) Exponential smoothing with a smoothing constant equal to .20, assuming a
March forecast of 19(000).
4) The naïve approach
5) A weighted average using .60 for august, .30 for July, and, .10 for June.

b. Forecast September sales volume using each of following:

c. Which method seems least appreciate? Why? (Hint: refer to your plot from part
a.)

d. What does use of the term sales rather than demand presume?
Problem 3
(This question from Chapter of Forecasting)
The following data were collected during a study of consumer buying patterns.

Observations x y Observations x y
––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
1……………………..15 74 8……………………..18 78
2……………………..25 80 9……………………..14 70
3……………………..40 84 10……………………15 72
4……………………..32 81 11…………………….22 85
5……………………...51 96 12…………………….24 88
6……………………...47 95 13…………………….33 90
7……………………...30 83

a. Plot the data.

b. Obtain a linear regression line for the data.
c. What percentage of the variation is explained by the regression line?
d. Use the equation determined in part b to predict the value of y for x =41.

Problem 4
(This Essay question from Strategic Capacity planning for Products and Services)
A computer repair service has a design capacity of 80 repairs per day. Its effective
capacity, however, is 64 repairs per day. The manager would like to increase the numbers
of repairs per day. Which of the following factors would you recommend that the
manager investigate: quality problems, absenteeism, or scheduling and balancing?
Explain your reasoning.

Problem 5
(This question from Strategic Capacity planning for Products and Services)
A small firm intends to increase the capacity of a bottleneck operation by adding a new
machine. Two alternatives, A and B, have been identified, and the associated costs ands
revenues have been estimated. Annual fixed costs would be $40,000 for A and $30,000
for B; variable cost per unit would be $10 for A and $11 for B; and revenue per unit
would be $15.

a. Determine each alternative’s break-even point in units.

b. At what volume of output would the two alternatives yield the same profit?
c. If expected annual demand is 12,000 unit, which alternative would yield the
higher profit?
Problem 6
(This question from Decision Theory)

The lease of Theme Park, Inc., is about to expire. Management must decide whether to
renew the lease fro another 10 years or to relocate near the site of a proposed motel. The
town planning board is currently debating the merits of granting approval to the motel. A
consultant has estimated the net present value of Theme Park’s two alternatives under
each state of nature shown as below. What course of action would you recommend using

a. Maximax?
b. Maximin?
c. Laplace?
d. Minimax regret?

Motel Motel
Options Approved Rejected
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Renew $500,000 $4,000,000
Relocate 5,000,000 100,000

Problem 7
(This question from Decision Theory)

Refer to Problem 6. Suppose that the management of Theme Park, Inc., has decide that
there is a .35 probability that the motel’s application will be approved.

a. If management use maximum expected monetary values as the decision criterion,

which alternative should it choose?
b. Represent this problem in the form of decision tree.
c. If management has been offered the option of a temporary lease while the town
planning board considers the motel’s application, would you advise management
to sign the lease? The lease will cost $24,000.