Professional Documents
Culture Documents
ExtraStudyProblemswithSolutions
Q1Q3Mr.Ksisaverypopularhairsalon.Itoffershighqualityhairstylingandphysical
relaxationservicesatareasonableprice,soitalwayshasunlimiteddemand.Theservice
processincludesfiveactivitiesthatareconductedinthesequencedescribedbelow.
(Thetimerequiredforeachactivityisshowninparenthesis):
Activity1:Welcomeaguestandofferhomemadeherbtea.(10minutes)
Activity2:Washandconditionhair.(10minutes)
Activity3:Neck,shoulder,andbackstressreleasemassage.(10minutes)
Activity4:Designthehairstyleanddothehair.(25minutes)
Activity5:Checkouttheguest.(5minutes)
Threeservers(S1,S2,andS3)offertheservicesinaworkerpacedline.Theassignment
oftaskstoserversisthefollowing:
S1doesActivity1.
S2doesActivities2andActivity3.
S3doesActivities4andActivity5.
Q1Whichserveristhebottleneckoftheprocess?
Answer:S1canprocess1/10customersperminute.S2canprocess1/20
customersperminute.S3canprocess1/30customersperminute.S3hasthe
lowestcapacityandishencethebottleneck.
Q2Whatistheutilizationofserver2?
Answer:Sinceweassumethatthereisunlimiteddemand,theflowrateisequal
tothecapacityoftheprocess,i.e.,2customersperhour.
ThecapacityofS2is3customersperhour.
TheutilizationatS2is2/3=66.7%.
Q3Toincreasetheservicerate,Mr.Ksisconsideringtwoalternatives:
AlternativeI:Tohireanewemployeetohelpanyone(andonlyone)oftheservers
withoutchangingthetasksperformedbyeachserver.
AlternativeII:Toredesigntheassignmentoftaskstoservers.Forthis,Mr.Ksis
evaluatingtoreassignActivity5fromS3toS1.
Whatwouldbethecapacityoftheprocessundereachofthetwoalternatives?Assume
thatthesystemoperatesatitscapacity.
Answer:UnderAlternativeI,theadditionalworkerwouldhelpS3andunderthis
casethebottleneckwouldbecomeS2withacapacityof3customers/hr.Under
AlternativeII,S3wouldstillbethebottleneckbutthenewcapacityofS3willbe
of60/25=2.4customers/hr.
Q4Q5ProofSmartInc.,asupplierofhomeinsulationmaterials,wasburneddownina
recentfire.Fromtheremainsofwhatusedtobetheaccountingledger,thefollowing
informationwasrecovered:
2006 2007
Inventory $2,367,121 $2,418,257
GrossMargin 42% 45%
InventoryTurns 11 [unreadable]
Priortothefire,ProofSmartsawasalesgrowthof48%in2007,arecordperformance
forthe18yearoldcompany.(NOTE:Grossmarginisdefinedas1(COGS/Sales).)
Q4.Whatwerethesalesfor2007?
Answer:2006COGS=2,367,121*11=$26,038,331
2006Sales=26,038,331/(142%)=$44,893,674
2007Sales=44,893,674*148%=$66,442,638
Q5.Whatwastheinventoryturnsfor2007?
Answer:2007COGS=66,442,638*(145%)=$36,543,451
2007InventoryTurns=36,543,451/2,418,257=15
Q6Q8LocatedalongsideacobblestonedstreetinOldCity,OldCityPhotographics(OCP)
specializesintheprocessingofthetraditional35mmnegativefilm,aoncedominant
photographicmediumnowindeclineduetothepopularityofdigitalphotography.OCP
offersthreepackagestotheircustomers.Withthestandardpackage,thecustomergets
asetof6x4printsfor$19.99.ThedeluxepackageaddstothestandardpackageaCD
ROMofhighresolutionscansofthepicturesfor$29.99.Finally,the$39.99propackage
issimilartothedeluxepackageinthatitcomeswithaCDROM,althoughthecustomer
getsacontactprintratherthanasetofprints.(Acontactprintisan8x10sheetof
photographicpaperthathasallpicturesontherolloffilmprintednexttoeachotherat
reduceddimensionsandisusedasanindex.)TheworkflowforOCPisshownbelow
(s=standard,d=deluxe,p=pro):
OCPisoperatedbyonepersonateverystation.
Q6.Onaverage,OCPreceive13jobsperhourconsistedof44%standard,37%deluxe
and19%pro.WhichofthefollowingstatementbestdescribesOCPsprocess?
a. Theprocessisdemandconstrained
b. Theprocessiscapacityconstrainedandprocessfilmisthebottleneck
c. Theprocessiscapacityconstrainedandscanfilmisthebottleneck
d. Theprocessiscapacityconstrainedandmake6x4printsisthe
bottleneck
e. Theprocessiscapacityconstrainedandmakecontactprintisthe
bottleneck
Answer:(a)Impliedutilizationis:
(100%*13jobs/hr*2min/job)/(60min/hr)=0.43atprocessfilm
((37%+19%)*13jobs/hr*5min/job)/(60min/hr)=0.61atscanfilm
((44%+37%)*13jobs/hr*4min/job)/(60min/hr)=0.70atmake6x4prints
(19%*13jobs/hr*10min/job)/(60min/hr)=0.41atmakecontactprint
Asimpliedutilizationislessthan1.0atallsteps,theprocessisdemand
constrained.
Q7.Whatistheimpliedutilization(ratioofworkloadrelativetocapacity)atScanFilm
Answer:((37%+19%)*13jobs/hr*5min/job)/(60min/hr)=0.61atscanfilm
Q8.Fixingtherelativeproportionsofjobtypes,whatisthelargestnumberofjobsper
hourthatOCPcanhandle?
Answer:FromthecalculationsforOCP1,weknowthatmake6x4printswill
becomethebottleneckoncetheprocessiscapacityconstrained(ifthemixofjobs
doesnotchange).Theanswertoourpresentquestionisthusgivenbythe
solutionXtotheequation
((44%+37%)*Xjobs/hr*4min/job)/(60min/hr)=1.00.
Rearrangingtheequationyields
X=(60min/hr)/(81%*4min/job)=18.5jobs/hr.
Q9Q10Thefollowingtableshowsfinancialdata(year2006)forDirtCheapWholesale
andKwikiMart,twoUSretailers.
DIRTCHEAP KWIKIMART
WHOLESALE STORES
Inventories($MM) 4754 40894
Sales(net$MM) 59217 397206
COGS($MM) 52762 326606
Assumethatbothcompanieshaveanaverageannualholdingcostrateof20%(i.e.it
costsbothretailers$2toholdanitemthattheyprocuredfor$10foroneentireyear).
Q9Howmanydays,onaverage,doesaproductstayinDirtCheapsinventorybeforeit
issold?Assumethatstoresoperate365daysayear.
Answer:DirtCheaphasaCOGS=$52762M=flowrateR.InventoryI=$4754M.
Therefore,flowtimeT=I/R=4754/52762=.09years,or32.89days.
Q10Howmuchlower(expressedin$s)is,onaverage,theinventorycostforDirtCheap
comparedtoKwikiMartofahouseholdcleanervaluedat$5COGS?Assumethatthe
unitcostofthehouseholdcleaneristhesameforbothcompaniesandthattheprice
andtheinventoryturnsofanitemareindependent.
Answer:InventoryturnsforDirtCheap=1/.09=11.1turns.FlowtimeforKwiki
Mart=Inventory/COGS=40894/326606=0.125.Thereforeinventoryturnsfor
KwikiMart=7.98.Holdingcostsperyear=20%or$1perunitforoneyear.This
meansinventorycostsperunitforDirtCheap=1/11.1=$0.09.ForKwikiMart,
theinventorycostsperunit=1/7.98=$0.125.SoDirtCheapscostsare3.5cents
lower.
Q11Q14ComfyShoesIncbuildsshoestailoredtomeeteachindividualcustomers
needs.CustomerswhovisitthedowntownofficesofComfyShoesinPhiladelphiacan
chooseoneormoreofthefollowingfourcustomtailoringservices.Customersreceive
theirshoesinthemailwithinaweekoftheirinitialvisit.
Service Description Time Resourceused
A.WalkingBasics Takemeasurementsforbasic 12min. 1attendant
walkingshoes.
Thewholeprocessisconductedbythreeworkersinaworkerpacedline.The
assignmentoftaskstoworkersisthefollowing:
W1doesActivity1.
W2doesActivities2and3.
W3doesActivities4and5.
Q15Whatisthebottleneckoftheprocess?
Answer:W2isthebottleneck:Thecapacitiesare1/4,1/(5+7),and1/(2+4)
respectively.
Q16Howmuchtimewillittaketoprocess100loans?(Assumethattheprocessstarts
withanemptyproductionline)
Answer:Seethefollowingcalculations:
x 1
Time through an empty process
flow rate
100 1
4 5 7 2 4
1
12
1210 minutes
Q17Whatistheutilizationofworker3?(Youcanassumethattheprocessoperatesat
capacityandyoudonothavetoconsideranyemptysystemeffects).
Answer:Seethefollowingcalculations
flow rate
utilization=
capacity
60 / (7 5)
utilization w3 0.5
60 / (2 4)
Q18Toincreasetheproductionrate,OneHourLoanisconsideringtwoalternatives:
AlternativeI:Tohireanewworkertohelpanyone(andonlyone)oftheworkers
withoutchangingthetasksperformedbyeachworker.
AlternativeII:Toredesigntheassignmentoftaskstoworkers.Forthis,thecompanyis
evaluatingtoreassignStep2fromW2toW1.
SupposethatAlternativeIischosen.Whichworkershouldthenewemployeeassist?
Answer:ShouldassistW2becauseheisthebottleneck.
Q19SupposeAlternativeIIischosen.Whatisthenewcapacityoftheprocess?
Answer:Capacitiesoftheworkersare1/(4+5),1/7,1/(2+4),sothenewbottleneck
isW1withacapacityof1/9thcustomersperminute.
Q20Q24NewtPhillyneedstodecidewheretogetahaircut.Hehasnarrowedthe
choicedowntotwolocalhairsalonsLargeHairSalon(LHS)andSmallHairCutters
(SHC).
Duringbusyperiods,anewcustomerwalksintoLHSevery15minutes(withastandard
deviationof15minutes).AtSHC,acustomerwalksineveryhour(withastandard
deviationof1hour).LHShasastaffof4barbers,whileSHChas1barber.Atypical
servicetimeateithersalonlasts30minutes(withastandarddeviationof30minutes).
Q20IfNewtwalksintoLHSduringabusyperiod,howlongmusthewaitinlinebefore
hecanseeabarber?(Onlyincludethewaitingtime,notanyservicetime)
Answer:
activity time
utilization =
interarrival time number of servers
30
= 0.5
15 4
activity time utilization 2(# of servers+1) 1 CVa 2 CVp 2
Tq
# of servers 1 utilization 2
30 0.5 2(4 1) 1 1 1
( )
4 1 0.5 2
3.35 minutes
Q21IfNewtgoestoSHC,howlongmusthewaitinlinebeforehishaircutstarts?
Answer:
30
utilization = 0.5
60 1
30 0.5 22 1
Tq 1
1 1 0.5
30 minutes
Q22AssumethatittakesNewt10minutestoleaveworkandwalktoLHSand10
minutestowalkback(i.e.eachwayofthewalktakes10minutes).Howlongwillhe
needtoleaveworkfortogetahaircutatLHS?
Answer:
Tq Activity time travel time
= 3.35 + 30 + 20
= 53.35 minutes
Q23LHSwillbuyoutSHC.LHSwillthencloseSHCsoperationsandserveallcustomers,
includingexistingSHCcustomers,attheLHSlocationonly.Assumingthattheprevious
trafficofSHCcustomersnowflowstotheLHSlocation,whatisthenewinterarrival
timeatLHS?
Answer:
60 minutes
12 minutes
4 +1 people
Q24Toaccommodatethenewflowrate,LHSnowstaffsoneadditionalbarber(to
increasetheheadcountto5).IsthenewwaitingtimeatLHSlessthanorgreaterthan
thewaitingtimeofLHSbeforethemerger?(Assumethatthecoefficientofvariationof
customerinterarrivaltimesis1).
Answer:
30
utilization = 0.5
12 5
30 0.5 26 1
Tq 1
5 1 0.5
2.17 minute
The new waiting time at LHS is shorter now than before.
Q25Considerthefollowingthreeprocessdesignstoorganizeacallcenterwith12
employees.Thecenterhandlescallsfortwocustomertypes.Type1customerscallwith
creditcardrelatedquestionsandtype2customerscallwithquestionsrelatedtothe
onlineaccountopening.Onabusydaythecallcenterreceives60callsperhourfrom
type1customersand30callsperhourfromtype2customers.Ittakesonaverage2
minutestoservicebothkindsofcalls.
Processdesign1:6employeeshandletype1calls;theother6employeeshandletype2
calls
Processdesign2:8employeeshandletype1calls;4employeestype2calls.
Processdesign3:12persons(crosstrained)handleallcalls.
Whichofthethreeprocessdesignsleadstotheshortest(longest)averagewaitingtime
forarandomincomingrequest?
Answer:3istheshortest,1isthelongest.Design3deployspooling,whichhence
significantlyreduceaveragewaitingtime.Design2allocatesemployees
proportionallyaccordingtothedemandoftype1and2customers.Thisworks
betterthanDesign1whichallocatesresourcesevenly.
Q26Intheautoindustrytheirinventoryisoftendescribedintermsofdaysofsupply,
whichisthenumberofdaysthecurrentinventorywouldlastatthecurrentsalesrate.
Forexample,ifadealerhas20carsandsellsonaverage1careveryotherday(0.5per
day)thenthedealerwouldhavea20/0.5=40daysofsupply.Supposeadealerhas80
daysofsupply.Whatisthedealersannualinventoryturns?Assume365daysperyear.
Answer:Thereare365daysperyear,soan80daysofsupplyrepresentsturnsof
365/80=4.6turnsperyear.
Q27HomeSolutions,ahardwareretailer,isconsideringaddingaLavalamptoits
assortment.GivenitsrentalcostsandthedimensionsofthisLavalamp,itwouldcostHS
$5toholdoneLavaLampforoneyear.Basedonsimilaritems,HSalsoestimatesthatit
wouldneedtoholdabout4.5monthsofsupplyofthislampanditwouldsellabouta
totalof25unitsperyear.IfHSaddsthisitemtotheassortmentandifitsestimatesare
correct,whatwouldbetheholdingcostperlampsold?
Answer:A4.5monthsofsupplymeanstheycarry4.5x(25/12)=9.38unitson
average.Theirtotalspacecostisthus$5x9.38=$46.88.Theysell25units,so
thecostperunitsoldis$46.88/25=$1.88.Thereisanotherwaytothinkabout
this.Theaverageunitspends4.5monthsininventory,whichis4.5/12=0.375
yearsininventory.Thatmeansitincursspacecostatthatrateof0.375x5=
$1.88.
Q28Considertwohomeapplianceretailers,AandB.RetailerAturneditsinventory8.1
timesin2008whereasRetailerBturneditsinventory6.3timesin2008.Interestingly,
their2008saleswerenearlyidentical($15.6b)andtheirendinginventorywasnearly
identical($1.4b).Whichofthefollowingstatementsismostlikelytrueregardingtheir
grossmargin(recall,grossmargin=salesCOGs)?
a) RetailerAhasthehighergrossmarginbecauseithasthehigherinventory
turns.
b) RetailerBhasthehighergrossmarginbecauseithasthelowerinventory
turns.
c) Theyhavethesamegrossmarginbecausetheirsalesareidentical(andit
doesntmatterthattheirinventoryisthesame).
d) Theyhavethesamegrossmarginbecausetheirinventoryisidentical(andit
doesntmatterthantheirsalesarethesame).
e) Theyhavethesamegrossmarginbecausetheirsalesandtheirinventoryare
identical.
f) Thereisnotenoughinformationtodeterminetherelationshipbetweentheir
grossmargins.
Answer(b):Turns=COGs/Inventory.SoCOGS=TurnsxInventory.ForA,COGs=
8.1x1.4=11.34.ForB,COGs=6.3x1.4=8.82.Asgrossmarginisthus15.6
11.34=$4.26bwhereasBsgrossmarginis15.68.82=$6.78b.Hence,Retailer
Bhasthehighergrossmarginandisthus,moreprofitablebecauseithasa
highergrossmarginforthesameinventoryinvestment.
Q29Onaverage500studentsenrollasfreshmaneachyeartoacollege.Onaverage750
studentsgraduatefromthesamecollegeeachyearbecausethecollegealsoaccepts
sophomore,juniorandseniortransfers.Infact,onaverage,atanygiventimethereare
625studentsenrolledinthecollegewhodidnotenrollasfreshman(i.e.,theyare
transferstudents).Onaverage,howlongdoesatransferstudentspendatthecollege?
Assumeallstudentswhoareadmitted(eitherasfreshmanorastransfers)graduate.
Answer:Ifthereare750graduateseachyearand500freshmanenrollments,
thentheremustbe250transferstudentsgraduatingeachyear.Ifthereare625
transferstudents,thenuseLittlesLawtodeterminethenumberofyearsthe
averagetransferstudentspendsatthecollege:625/250=2.5years.
Q30NetDvdisawebbasedDVDrentalservice.(ThinkNetFlix.)Theyofferoneproduct
for$20permonthacustomercanhaveupto4DVDsandessentiallyeverycustomer
alwayshas4DVDsonhisorherlist.Therearenolatefees,socustomerscankeep
moviesaslittleoraslongastheylike(butnomorethan4atatime).ToexchangeDVDs
customersmerelymailbacktheDVDtheynolongerwantandanewoneissentto
them.NetDvdhasdeterminedthattheDVDsspendonaverage18monthsintheir
system(eitherintheirmailcentersorwithcustomers),afterwhichtheyareretired
andremovedfromcirculation.Atanyonegiventime,90%oftheirDVDsareassignedto
customers(i.e.,onsomecustomerslistof4DVDs)while10%areintheirmailcenters
withoutbeingassignedtoacustomer.Theyhaveanaverageof100,000customersat
anyonegiventimeandthatamountisneithershrinkingnorgrowing.HowmanyDVDs
doesNetDVDneedtopurchaseeachmonth?
Answer:100,000customersx4DVDspercustomer=400,000DVDsassignedto
customers.Thisis90%oftheirtotalcollection,sotheirtotalcollectionis
400,000/0.9=444,444DVDs.TheaverageDVDspends18monthsintheir
system,sotheinflowofDVDsis444,444/18=24,691permonth.
Q31TheJournalofCrypticPsychologyfollowsthefollowingprocesstodecidewhatto
print.First,authorssubmittheirpaperstooneofthe40AssociateEditorswhoeither
rejectsthepaperorallowstheauthortorevisetheirpaper.Ifthedecisionis
revisethenanauthorreviseshis/herpaperbasedontheAssociateEditors
comments,andwhenfinished,submitstherevisiontotheEditor.
80%
Reject
Associate 25% Reject
Editor Authors
Editor
revise
20% Revise Accept
75%
TheEditordecidestorejectoracceptthepaperandonlyacceptedpapersare
printedinthejournal.AssociateEditorschooserevisewithonly20%ofpapersthey
seeandtheEditoracceptsonly75%ofthepapersshesees.Theaverageandstandard
deviationofprocessingtimesaregiveninthetablebelow:
Thejournalprintsonaverage30papersperyear.Onaverage,howmanymanuscripts
arecurrentlybeingrevisedbyauthors?
Answer:Thejournalprints30papersperyear,buttheEditoracceptsonly3/4ths
ofthem.SotheEditormustread30x4/3=40papersperyear.Hence,the
authorsmustberevising40papersperyear.UseLittlesLaw,I=RxT,whereR=
40andT=1/2,soI=20papers.
Q32Q34GoldmanSachs(GS)hirescandidateswithstronganalyticalskillsforitsentry
levelanalystposition.Thispositionprovidesastartingsalaryof$70,000/year.They
estimatethat1outof10candidatesisgood.Agoodcandidate(moneymaker)
generates$700,000ayear,whileanotsogoodcandidate(moneyloser)loses
$70,000inthefirstyear.However,GSdoesnotknowwhetheracandidateismoney
makerormoneyloserwhilemakingthehiringdecision.
Q32IfGSistomaximizeitsexpectedprofit,whatisthedecision(hireornothire)?What
istheexpectedprofitofthatdecision?
Answer:ifhire,theexpectedprofitis$700,000*0.1+($70,000)*0.9$70,000=
$63,000.Ifnothire,theexpectedprofitiszero.GSshouldnothire,andthe
expectedprofitiszero.
Q33Whatistheexpectedvalueofperfectinformationinthiscase?
Answer:ifGShasperfectinformationaboutthetypeofacandidate,theywillhire
thecandidateifheisamoneymaker,andnothireifheisamoneyloser.The
expectedprofitis($700,000$70,000)*0.1+0=$63,000.Expectedvalueof
perfectinformationis$63,0000=$63,000.
Q34GSdecidestoofferAptitudeTesttoeachcandidateinordertobetterevaluatethe
chancethatthegivencandidateisapotentialmoneymaker.Historicaldataonsuch
testsshowsthatamoneymakerpassesthetestwith90%probability,andthemoney
loserpasseswith30%probability.Thecostofadministeringsuchtestis$7,000per
person.Whatistheexpectedvalueofthesampleinformationofthetest?ShouldGS
conductsuchtest?
Answer:thejointprobabilityofbeingagoodcandidateandpassingthetestis
0.1*0.9=0.09.Thejointprobabilityofbeingabadcandidateandpassingthetest
is0.9*0.3=0.27.Theprobabilityofpassingthetestis0.09+0.27=0.36.The
probabilityofbeingagoodcandidateconditionalonpassingthetestis
0.09/0.36=0.25.Theprobabilityofbeingabadcandidateconditionalonpassing
thetestis0.75.Theprobabilityofbeingagoodcandidategivenfailingthetestis
0.1*0.1/(0.1*0.1+0.9*0.7)=0.0156.Theprobabilityofbeingabadcandidate
givenfailingthetestis10.0156=0.9844.
Theexpectedvalueofthetestinformationis0.36*52.5+00=18.9thousand
dollars.Thecostofthistest,$7000,islowerthantheexpectedvalue.Thus,GS
shouldconductsuchtest.
Q35Q37Yourethinkingaboutmarketinganewproduct:ChocolateCoatedCrickets
highinprotein,lowinfat.Yourfixedcostsforlargescaleproductionare$10,000,and
youwillincurthesecostsonlyifyoudecidetogoaheadwiththenewproduct.Variable
costsare10cpercricket,andrevenuesare50cpercricket.Youexpectthemarketmay
turnoutoneoftwoways:
1) Good(40%chance),inwhichcaseyoullsell50,000crickets
2) Bad(60%chance),inwhichcaseyoullsell5,000crickets
Q35Whichdecisionalternativewouldyouchooseifyouwanttomaximizetheexpected
profits?
Answer:Weshouldnotlaunchtheproduct,andtheexpectedprofitiszero.See
thefollowingcalculation:
Q36Q38Astartupcompanyisaskingforaninvestment(fromyou)for$50Million.If
thestartupsucceedsandbecomesaprofitablecompanyitwillhaveamarket
capitalizationof$500Million(i.e.thecompanywillbeworth$500Million).Ifthe
companyfailsitwillbeworthnothing.Ingeneral,youassumethat40%ofallstartup
firmsactuallyendupsucceedinginthemarketandtheremaining60%fail.Youownhalf
thestartupcompany(i.e.youget50%ownership)ifyoudecidetoinvestthe$50
Million.
Yourinlawsrunacompanyofferinginvestmentadviceforventurecapitalists.In
particularthisfirmwillgiveyoutheirpredictiononwhetheranystartupfirmwill
succeedornot.Asunpleasantasthisoptionsounds,itmaybeworthconsideringsince
theirpredictionhasthefollowingreliabilities:p(succeed|predictsucceed)=0.7and
p(fail|predictfail)=0.9.Yourinlawswillchargeyou$10millionforthisprediction.
Q36Shouldyouinvestinthisstartupcompanyifyouwanttomaximizetheexpected
profit?
Answer:
Theexpectedgainofinvestingis200*0.4+(50)*0.6=50milliondollars.The
decisionistoinvest.
Q37Whatistheexpectedvalueofperfectinformation?
Answer:Withperfectinformation,theexpectedprofitis200*0.4+0=80million
dollars.TheEVPIis8050=30milliondollars.
Q38Whatistheexpectedvalueoftheprediction?
Answer:supposetheprobabilityofpredictingsuccessisx,thenwehavex*
0.70+(1x)*0.10=0.4.Then,xis0.5.Theexpectedprofitwhenpurchasing
marketpredictionfromyourinlawswillbe125*0.5+0=62.5milliondollars.Then
EVSIis62.550=12.5milliondollars.Then,itisworthpaying$10millionforthe
information.