SET 1

Question 1 (25 marks)

ZOLEE located in Batu Kawan, Penang produces 240V CLIP Fan (Figure Q1). Every day, 150
fans are inspected, and the inspection results recorded. The quality records for the past first two
weeks of November are presented in Table Q1.

Figure Q1: 240V CLIP Fan

Table Q1: Quality Record

Day Mon Tues Wed Thurs Fri Sat
Defect 34 12 17 18 31 14
Rejected Fan 14 10 11 10 7 5

Day Mon Tues Wed Thurs Fri Sat

Defect 36 27 28 24 28 24
Rejected Fan 15 5 7 5 6 5

(a) Quality is not free. Organization must invest in order to deliver quality products to
customer, or they have to suffer for additional losses for producing low quality
products. Describe the major types of cost of quality, and recommend suitable strategy
for managing the cost of quality.
(4 marks)

(b) Construct two control charts to monitor the quality of the fan. (13
marks)

(c) Comment the product quality, and state your recommendation to the management.
(8 marks)
Question 2 (25 marks)

The Badminton Association of Penang (PAM) provides training to state badminton players. On
average, the training is conducted Monday – Friday, 50 weeks each year, and use an average of 250
tubes of goose feather badminton shuttlecock every week. The PAM orders shuttlecock from WENOX,
the world leader in badminton, tennis, and football equipment. The cost to order the shuttlecocks is
$220 per order, and the annual holding cost for the shuttlecock is 15% of the purchase price. The
price structure provided by WENOX is presented in Table Q1.

Table Q1: WENOX Produce Pricing

Order Quantity Price per unit Delivery lead time
(day)
1 – 500 $120.00 4
501 – 999 $115.00 6
1,000 or more $110.00 8

(a) Determine the optimal ordering strategy for PAM. (12

marks)

(b) Determine the optimum number of orders per year. Also, identify the optimal interval (in
working days) between orders.
(4 marks)

(c) The management would like to maintain a 99% service level. Identify the desired safety
stock and reordering point, if the demand and delivery lead time are subjected to standard
deviation of 20 and 3 respectively.
(9 marks)
Question 3 (25 marks)

French Lady produces full cream milk. At 100% manufacturing capacity, they produce
and sell 75,000 cartons of milk annually at $98 per carton. The company pays
manufacturing and support cost $30,000 per month, and has a variable cost of $56 per
carton.

The company may invest and upgrade the existing equipment, at a cost of $3,500,000.
This upgraded system may be used for another 10 years, with no salvage value. The
manufacturing and support cost increased to $4X,000 per month, while the variable cost
is reduced to $50 per carton. The manufacturing capacity will increase 15%, and all
products manufactured will be purchased by the customer.
(X is the last digit of your student ID).

(a) Evaluate whether the company should upgrade the existing system. (5 marks)

(b) Determine the PVR for your decision in (a). (3 marks)

(c) Construct a breakeven chart to compare the performance of the existing and upgraded
system. Use current demand Qold as independent variable. You are required to
present the necessary calculations. (10 marks)

(d) Given that there is a y% of reject rate for the recommended equipment in (a). At what
y value, the recommended equipment is no longer a preferred choice? (7 marks)
Question 4

Company Crunch is considering new investments in the year 2022, project A and project B. The
company is looking for a rate of return of 15% for all investments.

(a) The cash flow diagram for Project A is presented in Figure Q4a. Determine whether this
project is a justifiable investment.
(15 marks)

Salvage Value
18% of Investment

Profit
$500,000
Profit
$250,000

0 2 4 9 10 11
18
Regular Maintenance
$175,000
Initial Investment
$1,500,000

Major Overhaul and Repair

$650,000

Figure Q4a: Cash Flow Diagram for Project A

(b) The Project B requires purchase of new equipment, which will cost initial investment of
$220,000. The annual net profit and salvage value for this investment is shown in Figure Q4b.
Determine the Present Worth (PW) for Project B.

Salvage Value
$12,000

Profit
$43,000

0 1 12
Investment
$220,000

Figure Q4b: Cash flow diagram for Project B

(5 marks)

(c) Due to limited budget, the company can only invest in one project. Using AW approach,
determine which project is a preferred choice.
(5 marks)
SET 2
Question 1 [25 marks]

Company LLK will begin stocking chemical for hand sanitizer. Expected monthly demand is 800
units. The chemical can be purchased from either Supplier A or Supplier B, and the price lists
are shown in Table Q1.

Table Q1: Purchase Price

Supplier A Supplier B
Quantity Unit Price Quantity Unit Price
1 – 199 $15.00 1 – 149 $15.10
200 - 499 $14.80 150 - 349 $14.80
500+ $14.50 350+ $14.40

Ordering cost is $40 and annual holding cost is 25% of unit price. Determine the best ordering
strategy for:

(a) Supplier A (15 marks)

(b) Supplier B (8 marks)

(c) Determine which supplier is preferred. (2 marks)

Question 2 [25 marks]

A manager must decide which machine to purchase. Machine A will result in a fixed cost of $2,000
per day, while Machines B will result in a fixed cost of $3,800 per day. Variable costs will be $20
and $17 per unit for Machine A and Machine B, respectively. The final product can be sold at $4X
per unit.

(a) Determine the breakeven point for both alternatives. (6 marks)

(b) Compare Machine A and Machine B, and construct a breakeven chart comparing these
alternatives. (14 marks)

(c) If the estimated daily demand is 200 units, recommend a suitable machine to the
manager. (2 marks)

(d) Determine the profit volume ratio (PVR) for your decision in (c). (3 marks)

*For $4X, the X is last digit of your student ID. If your student is end with 2, the selling price is $42
Question 3 [25 marks]
CVR produces and supplies double wall tumbler to various coffee shops in Penang, Malaysia. In
each shift, 100 tumblers were inspected, and the defects are recorded. The inspection records of
defects and rejected tumblers for the last two weeks are presented in Table Q3.

Table Q3: Inspection Records

Inspection 1 2 3 4 5 6 7
Defect 4 4 5 4 9 3 5
Rejected
3 2 4 3 4 2 3
Tumbler

Inspection 8 9 10 11 12 13 14
Defect 5 7 10 11 13 14 15
Rejected
2 3 4 3 3 5 4
Tumbler

(a) Choose a product around you, identify and explain two important variable and two
important attribute quality characteristics of the product. You are required to snap a selfie
photo with the selected product in your submission. (6 marks)

(b) Using the data presented in Table Q3, construct two attribute control charts to monitor the
quality of the tumbler. (12 marks)

(c) Evaluate the control charts constructed in (b), and state your recommendation to the
management. (7 marks)
Question 4 [25 marks]

MD Medical is evaluating a new line of products that will require several years of R&D. New lab
equipment for R&D that costs $300,000 is needed immediately, and salaries and other expenses
will cost $200,000 per year for 4 years. Revenues from the new products begin in year 5, and
they are $250,000 per year higher than annual operation and maintenance costs. An additional
$25,000 is needed 5 years after launching the product for a large marketing campaign to promote
this product. The management is looking for a rate of return of 10%, estimates that the new
product will be in the market for 10 years.

(a) Construct a cash flow diagram for this project. (8 marks)

(b) Using the present worth method, evaluate whether MD Medical should invest in this new
product.

(17 marks)
Appendix 1: Formula Sheet

2𝐷𝑆 2𝐷𝑆 2𝐷𝑆

𝐸𝑂𝑄 = √ 𝐸𝑂𝑄 = √ 𝐸𝑂𝑄 = √
𝐻 𝑑 𝐼𝑃
𝐻 (1 − 𝑝 )

𝐷 𝑄
𝑇𝐶 = 𝑆 + 𝐻 + 𝑃𝐷
𝑄 2

𝑅𝑂𝑃 = 𝑑𝐿 + 𝑆𝑆

𝑆𝑆 = 𝑧𝜎𝑑𝐿𝑇 𝑆𝑆 = 𝑧𝑑𝜎𝐿𝑇 𝑆𝑆 = 𝑧√𝐿𝜎𝑑2 + 𝑑2 𝜎𝐿𝑇

2

𝐶𝑠
𝑆𝑒𝑟𝑣𝑖𝑐𝑒 𝑙𝑒𝑣𝑒𝑙 =
𝐶𝑠 + 𝐶0

𝑈𝐶𝐿𝑅̅ = 𝐷4 𝑅̅ 𝑈𝐶𝐿𝑥̅ = 𝑥̿ + 𝐴2 𝑅̅

𝐿𝐶𝐿𝑅̅ = 𝐷3 𝑅̅ 𝐿𝐶𝐿𝑥̅ = 𝑥̿ − 𝐴2 𝑅̅

𝑈𝐶𝐿𝑝̅ = 𝑝̅ + 3√𝑝̅ (1 − 𝑝̅)/𝑛 𝑈𝐶𝐿𝑐̅ = 𝑐̅ + 3√𝑐̅

𝐿𝐶𝐿𝑝̅ = 𝑝̅ − 3√𝑝̅ (1 − 𝑝̅ )/𝑛 𝐿𝐶𝐿𝑐̅ = 𝑐̅ − 3√𝑐̅