Indian Institute of Management Kozhikode

DECISION SCIENCES
EPGC PROGRAMME ON DATA ANALYTICS FOR DECISION MAKING
END TERM EXAMINATION
Batch: EPGCDADM 01
Time: 2 Hours Marks: 50
All questions are compulsory. It is a closed book exam. Students are permitted to use
calculators. Any drawing works need to done on paper.

Question 1
A financial adviser recently received a call from a client who wanted to invest a portion of a $150,000
inheritance. The client wanted to realize an annual income, but also wanted to spend some of the money.
After discussing the matter, the client and the adviser agreed that a mutual fund, corporate bonds, and
a money market account would make suitable investments. The client was willing to leave allocation
of the funds among these investment vehicles to the financial adviser, but with these provisions:
1. At least 20 percent of the amount invested should be in the money market account.
2. The investment must produce at least $12,000 annually.
3. The uninvested portion should be as large as possible.
The annual returns would be 11 percent for the mutual fund, 8 percent for the bonds, and 7 percent for
the money market. Formulate an LP model that will achieve the client’s requests. [12 Marks]

Question 2
A firm produces jars of chilled fruit that are sold to restaurants. Three varieties of fruit are sold:
California mix (𝑥1 ), Florida mix (𝑥2 ), and Hawaiian mix (𝑥3 ). A linear programming model
for the process is
Maximize, 𝑍 = 4𝑥1 + 3𝑥2 + 6𝑥3 (Profit)
Subject to,
Oranges 3𝑥1 + 2𝑥2 + 1𝑥3 ≤ 920 (pounds)
Grapefruit 2𝑥1 + 2𝑥2 + 2𝑥3 ≤ 900 (pounds)
Pineapple 1𝑥1 + 2𝑥2 + 3𝑥3 ≤ 930 (pounds)
Peeling/Cutting 1.2𝑥1 + 1.4𝑥2 + 1.5𝑥3 ≤ 1,260 (minutes)
Mixing/packaging 1𝑥1 + 2𝑥2 + 1𝑥3 ≤ 600 (minutes)
𝑥1 , 𝑥2 , 𝑥3 ≥ 0
The optimal solution is summarized in the Excel output as given below.
ANSWER REPORT

SENSITIVITY REPORT

Answer the following:

a. The equipment used for peeling and cutting must be replaced. The new equipment will
have a capacity of only 1,200 minutes. What impact will this change have on the optimal
values of the decision variables and on profit? [2 Marks]
b. What would the unit profit on the Florida mix have to be before it would become profitable
to produce? [2 Marks]
c. If management had a choice of obtaining more oranges or more pineapples, which one
should be chosen? Why? [2 Marks]
d. Management has just learned that an additional 50 pounds of pineapples are on hand. What
will the optimal values of the decision variables change to? [2 Marks]
e. Management is considering making changes that will cause the profit on the Hawaiian mix
to be $8 per unit. Would this effect the solution? Will it affect the optimal value of the
objective function? [2+1 Marks]
f. Management is considering a change in equipment that would result in increasing the profit
on the Hawaiian mix to $8 per unit but result in decreasing the profit on the California mix
by $1. Would these changes be within the range of optimality? If so, how much would be
optimal profit change? [3 Marks]

Question 3
The Terraco Motor Company produced a lightweight, all-terrain vehicle code-named “J99
Terra” for the military. The company is now planning to sell the Terra to the public. It has five
plants that manufacture the vehicle and four regional distribution centers. The company is
unsure of public demand for the Terra, so it is considering reducing its fixed operating costs by
closing one or more plants, even though it would incur an increase in transportation costs. The
relevant costs for the problem are provided in the following table. The transportation costs are
per thousand vehicles shipped; for example, the cost of shipping 1,000 vehicles from plant 1 to
warehouse C is $32,000.

From Transportation Costs ($1,000s) to warehouse Annual Annual Fixed

Plant Production Operating
Capacity Costs
A B C D
1 $56 $21 $32 $65 12,000 $2,100,000
2 18 46 7 35 18,000 850,000
3 12 71 41 52 14,000 1,800,000
4 30 24 61 28 10,000 1,100,000
5 45 50 26 31 16,000 900,000
Annual 6,000 14,000 8,000 10,000
Demand

Formulate an integer programming model for this problem to assist the company in determining
which plants should remain open and which should be closed and the number of vehicles that
should be shipped from each warehouse to minimize total cost. [12 Marks]
Question 4
A manufacturer produces and sells chilled, ready to eat pasta salad in round lots of 50 serving
units each. These items have a very limited shelf life; therefore, if items are made not sold they
have no value. Conversely if demand exceeds supply during the week (regular production runs
are made on Friday of each week for sales the following week), an extra production run can be
made. The cost per unit for a regular run is $5 per unit, whereas the cost of an extra production
run is $7 per unit. All items are sold for $10 per unit regardless of production cost. Historically,
demand has been for 50, 100, or 150 units each week, so the company makes one of those run
sizes. The past, the manager of the department has made 100 units per week for regular
production.
a. Prepare a payoff table showing profits for each of the lot sizes. [4 Marks]
b. If probability of demand for 50 units is 0.40, probability of demand of 100 units is .50,
and probability of demand for 150 units is .10, what lot size would you recommend if
the goal is to maximize expected profit? [4 Marks]
c. What is the EVPI? [4 Marks]