LAURENTIAN UNIVERSITY

SCHOOL OF COMMERCE AND ADMINISTRATION

Note:
You may use a scientific calculator
This exam is worth 100 marks. All questions are equally weighted.

Question 1
The O&B Company is in the business of making knock-down furniture. They have a well-established
market that grows 8% per year. At present (2004), they sell 1,500 units a month and have an annual
revenue of $1.5 million and annual profit of $375,000; their break-even point is 1,000 units/month. O&B
would like to increase the size of their facilities. A feasibility study shows that a new plant would lead to
an increase of 20% in fixed costs and reduction of 30% in variable costs. In how many years would it
make economic sense to expand (the answer does not have to be necessarily a whole number)? Assume
there is no change in sales price.
Question 2
The following flow-sheet is used for making baby carriage. The upholstered material is made in stations A,
B, and C; the frame is made in stations D and E. The carriages are assembled in stations F, G, and H. There
is one worker per station and room for one unit per stations. Each shift consists of 8 hours of work. and
there are 5 working days per week.

C
F

Each station requires the following amount of time (seconds):

Time (Seconds)
30
32
27
25
20
20
18
16

Required
a.
b.
c.
d.

What is the weekly output of the process if the process operates two shifts, 5 days/week?
What is the efficiency of the process?
What is the throughput time?
What is the in-process inventory?

Question 3
Outline and discuss techniques for evaluating location alternatives. In particular, discuss locational breakeven analysis, factor rating, and the centre of gravity method. Illustrate your discussion with examples
(they do not have to be real examples; you can develop fictitious cases).
Question 4
Clumsy Joes company makes a single product in a three-stage process. Production rate is
1,000 units/week, which is the maximum rate possible for the input stage (#1) of the process. The product
sells for $55/item. The company barely breaks even, mainly due to losses arising from quality complaints
and payments to customers. The payout to customers has ranged 0 to $20 per unit sold. A quality
consultant audits the plant and finds that nearly 30% of the production fails to meet specifications. Clumsy
Joe implements a strict quality assurance program; this leads to a rejection of 10, 8, and 5% of product at
stages 1, 2, and 3, respectively. Production falls to 790 units/week; there are no quality complaints but
Clumsy Joe still does not make money. A thorough analysis of the production processes leads to the
identification and solution of several deficiencies. Rejection rates fall to 2% at each of the three stages.
Required
a. What was the unit cost when Clumsy Joe produced 1,000 units/week and had no quality assurance?
b. What is the new production rate?
c. What are Clumsy Joes profits after these changes?
Case data
Fixed cost ($/week)
Input #1 ($/unit WIP* 0)
Input #2 ($/unit WIP 0)
Input #3 ($/unit WIP 0)

Stage 1

Stage 2

Stage 3

10,000
2
10
3

8,000
5

2,000
1

* Work in progress
Question 5
A manufacturer has to produce shafts with a diameter of 2.5 0.01 cm. He has a machine that might be
suitable for making the shafts. In order to test its suitability, a one-week trial was carried out in which
many such shafts were made. It was established that the machine could make shafts with an average
diameter of 2.498 cm and with a sample standard deviation of 0.002 cm, based on five measurements per
sample.
Required
Calculate the process capability of the machine. Would you recommend its use for manufacturing the
shafts? Why?
Question 6
Bettys Pet Store sells 20 cat beds per week for $75/bed. She pays $50/bed to the supplier; order
placements cost $40/order. The annual holding cost is 20% of the cost of the beds. Betty operates
52 weeks/year. At present, the order size is 400 cat beds; however, Betty decides to change this practice
and starts ordering 350 beds.
Required
a. What is the annual cost of the current practice?
b. Is the new practice any better?
c. What is the optimum order size?

Question 7
Along with their regular baked items, Nader Bakery has been experimenting with fancy and rare recipes
for the past few months. One such item is a Mediterranean loaf of bread with herbs and spices. The cost of
baking one loaf of bread is $3.25 and the selling price is $6.75. This item has a one-day shelf life and the
items left unsold at regular price by 6:00 p.m. may be sold off at $1.25 a loaf. Last two months data shows
that the daily demand for this item, at regular price, has the following probability distribution:
Demand (loaves per day)
Probability

3
0.1

4
0.3

5
0.4

6
0.2

Construct a simulation model (in tabular format) to determine the most appropriate number of loaves to
bake per day to maximize long-term profitability.
Required
a.

Test your model for a period of 10 days utilizing the following random numbers:
0.251

0.942

0.280

0.430

0.943

0.433

0.213

0.258

0.830

0.095

b. What would be the most appropriate number of loaves per day if a decision is to be made based on
this small simulation run?
Question 8
Ace Seed and Feed operates a rural supply store in northern Manitoba. Ace offers postal and banking
services on behalf of Canada Post and a major credit union. Currently, Ace has a single employee to serve
customers with their banking and postal needs. On average, this employee can handle 6 customers per
hour. Recently, the average number of customers needing postal and/or banking services has increased to 9
customers per hour and Aces manager is planning to add a second employee of similar ability to the
banking and postal service. Perform the following computation, assuming that the second employee has
been deployed. Assume a Poisson arrival pattern and an exponential service time.
Required
a. Compute the average queue length.
b. Compute the average waiting time in the queue (in hours) for customers who have to wait.
c. Compute the probability of a newly arrived customer having to wait in the queue.

Question 9
A project involves the following activities:
Activity
Time (days)
Immediate predecessor

A
6

B
8

C
4
A

D
5
A

E
4
B

F
3
B

G
8
C, D, E

H
6
E, F

Required
a. Develop a CPM/PERT network using an Activity On the Node format.
b. Utilize the method explained in the textbook to compute the minimum required time to complete the
project.
c. List the critical activities in the order appearing on the critical path.
Question 10
The level of demand for a product in the past 10 days has been recorded in the following table:
Day

Demand

Day

Demand

1
2
3
4
5

17
16
22
15
16

6
7
8
9
10

25
17
15
24
18

Required
a.

Produce a forecast (rounded to 2 decimal places) for day 11, utilizing an exponential smoothing model
with an alpha of 0.05.

b. Produce a forecast (rounded to 2 decimal places) for day 11, utilizing an exponential smoothing model
with an alpha of 0.10.
c.

Utilizing MSE of days 3 to 10, determine which of the two forecasts is most reliable.

Question 11
Three products are produced in a factory. X1, Y2, and Z3 indicate the amount of each product. Five different
resources are utilized for production. The amount of resources available is 70, 110, 90, 150, and 70 units
respectively. The computer output of a profit maximization LP problem is shown below.
MAX 10(X1) + 18(Y2) + 6(Z3) S.T.
1) 2(X1) + 4(Y2) + 1(Z3) 70
2) 6(X1) + 9(Y2) + 11(Z3) 110
3) 3(X1) + 2(Y2) + 7(Z3) 90
4) 12(X1) + 5(Y2) + 6(Z3) 150
5) 3(X1) + 4(Y2) + 7(Z3) 70
Optimal Solution
Objective Function Value = 220.000
Variable

Value

Reduced Costs

X1
Y2
Z3

0.000
12.222
0.000

2.000
0.000
16.000

Slack/Surplus

Dual Prices

21.111
0.000
65.556
88.889
21.111

0.000
2.000
0.000
0.000
0.000

Constraint
1
2
3
4
5

Objective Coefficient Ranges

Lower Limit

Current Value

Upper Limit

X1
Y2
Z3

No Lower Limit
17.333
No Lower Limit

10.000
18.000
6.000

12.000
No Upper Limit
22.000

Lower Limit

Current Value

Upper Limit

No Lower Limit
No Lower Limit
No Lower Limit
No Lower Limit
No Lower Limit

70.000
110.000
90.000
150.000
70.000

No Upper Limit
No Upper Limit
No Upper Limit
No Upper Limit
No Upper Limit

Right Hand Side Ranges

What are the optimal solution and the optimal value of the objective function?
Which constraints are binding?
Which resources have excess and by how much?
Does the optimal solution change if the objective coefficient of the third product is increased by 10?
Why?
END OF EXAMINATION