MgtOp 340—Operations Management (Section 1)

Washington State University

Fall 2019
Problem Set #1—Handwritten Section
Due: September 12, 2019 (in class)
(The online portion of the assignment is found in MyLab Operations Management)

Show your work!

(Please round all reliability answers and percentage answers to four decimal places, e.g., 0.1234
or 12.34%.)

1. (5 points) If inputs decrease by 22%, and outputs decrease by 18%, what is the percentage
change in productivity?

2. (10 points) Suppose that a firm is considering opening a plant on the moon, and the current
exchange rate is 12 dollars per moon piece (mp). Also, the wage rate is 1.60 mp per hour.
Suppose further that U.S. workers can produce 620 units per hour, while workers on the
moon are expected to be able to produce 500 units per hour (more items float away).

a. What is the “relative” wage rate (in dollars, rounded to the nearest penny) of operating on
the moon, after taking productivity differences into account?

b. Suppose that the U.S. wage rate is $26.50 per hour. If the U.S. managers want to become
the location of choice for production, and if they cannot lower their wage rate due to labor
union agreements, what does the labor productivity in the U.S. need to become (rounded
to one decimal place)?

3. (10 points) Consider an expensive part with a reliability of 89.8%. If the part fails, it will
cost the firm $4200.

a. What is the expected failure cost per part?

b. On each part, a backup can be installed that costs $280. What is the minimum allowable
reliability for the backup that would make installing it worthwhile? Support your answer.
 MgtOp 340—Operations Management (Section 1)
Washington State University
Fall 2019
Problem Set #2—Handwritten Section
Due: September 24, 2019
(The online portion of the assignment is found in MyLab Operations Management)

Show your work, and please complete it on a separate sheet of paper.

1. (10 points)
Suppose that a metal rod is supposed to be cut 44.6 mm. in length. The upper spec limit is
set at 45.8 mm., and the lower spec limit set at 43.4 mm. A metal rod that is out of spec
must be scrapped at a cost of $54.00. The company uses the Taguchi Quality Loss Function
to estimate quality costs. Suppose that a sample of 4 units was taken, and the rod
measurements were: 45.0, 43.5, 44.4, and 44.9 mm., respectively.

a. Simon believes that the Taguchi Quality Loss function is an appropriate measure for
quality costs. What is the total Taguchi Quality Cost of that sample of 4 units? (You can
round all costs to the nearest penny.)

b. Alternatively, Howie likes the Taguchi Quality Loss function, but he believes that a
linear function would better represent the cost of quality. Specifically, Howie prefers a
loss function of the form: L = T×|D|, where L, D, and T have the same definitions as in the
Taguchi model. What would be the quality cost of the sample of 4 units using Howie’s
model? (You can round all costs to the nearest penny.)

2. (5 points)
We watched the video, “Quality Counts at Alaska Airlines” in class. There is an associated
written case study in Chapter 6 of the textbook. To access it, get into MyLab Operations
Management and click on “Pearson eText,” then “View the eText.” Go to the Table of
Contents, then click on “6: Managing Quality.” The Alaska Airlines case appears after the
summary section of the chapter.

Answer Discussion Questions 1 and 4.

3. (10 points)
A quality inspector took the following samples of the length of time (in seconds) for glue to
dry. Please round your calculations to three decimal places.

Observation
Sample 1 2 3 4 5 6
1 125 126 122 132 114 117
2 130 100 140 121 125 126
3 110 155 129 118 142 108

a. What are the control limits for the R chart?

b. What are the control limits for the x chart?
c. Is the process in control?
 MgtOp 340—Operations Management (Section 1)
Washington State University
Fall 2019
Problem Set #3—Handwritten Section
(The online portion of the assignment is found in MyLab Operations Management.)
Due: October 3, 2019

Show your work!

1. (10 points)
Consider a firm with a plant in the U.S. and the U.K. A U.K.-based shipper charges £2.75
per unit to ship between the two countries. Assume no taxes, and consider the following
data.

U.S. U.K.
Weekly Demand 12,000 13,000
Weekly Capacity 17,000 22,000
Sales Price $40.00 £50.00
Production Cost $28.30 £25.92

a. Suppose that the exchange rate is £0.81 = $1.00. What is the best production and
distribution plan, i.e., how much should be made in each country, and how much should
be shipped between countries?

b. Given your plan in part a, what is the profit in each country (expressed in dollars)?

2. (5 points)
Consider a process with an upper spec limit of 180 grams, a lower spec limit of 170 grams,
and a mean of 176 grams. What is the highest value that the standard deviation can be for
the process to remain classified as “capable?”

3. (10 points)—Round all intermediate numbers to the nearest 4 decimal places. The final
answer can be rounded to the nearest dollar.

Consider a normally distributed process that cuts wood with a “process center” of 32 inches
and a standard deviation of .20 inches. The lower specification limit is 31.516 inches, and
the upper specification limit is 32.42 inches. A piece of wood that is cut too short must be
scrapped at a cost of $15.60. A piece of wood that is cut too long must be re-cut by hand at
a cost of $4.00. The firm runs 22,000 pieces of wood through the machine per day and
works 360 days per year. What is the annual expected fixing cost of this process?
 MgtOp 340—Operations Management (Section 1)
Washington State University
Fall 2019
Problem Set #4—Handwritten Section
Due: October 24, 2019
(The online portion of the assignment is found in MyLab.)
Show your work!

1. (7 points)
Consider the demand for trading cards listed below.

Month Demand
Jan. 49,000
Feb. 43,000
March 38,000
April 32,000
May 86,000
June 71,000
July 98,000
Aug. 94,000
Sep. 99,000

Use Excel to prepare a forecast for October, November, and December using linear regression. Print
out the sheet of results, as well as a sheet containing the formulas that you used (<CTRL> ` can
be used to toggle between displaying values and displaying formulas; or you can click on Formulas--
>Formula Auditing-->Show Formulas.)

2. (18 points)
(You can round all quantities to the nearest whole unit, and you can round all annual costs to the
nearest whole dollar.)

Suppose that your firm manufactures rubber chickens. Monthly demand for the chickens is 32,000
units. Setup cost per order is $85, and the annual holding cost percentage is 17%. The chickens cost
$8 to produce and are sold for $18.

a. If you have one warehouse, what is the economic order quantity for the chickens? What is the
total of the annual setup and holding costs of this quantity?

b. Suppose that you have 25 warehouses instead of one, and total demand is equally distributed
among the warehouses. If setup and holding costs are the same in the smaller warehouses as they
would be for the single large warehouse, what is the EOQ for the chickens at each of the 25
warehouses? What is the total of the annual setup and holding costs at each warehouse? What is
the total of the company’s annual setup and holding costs?

c. Using centralized warehousing as in part (a) implies that products must be shipped over longer
distances. Suppose that shipping costs $0.80 per unit when using one warehouse and $0.64 per
unit when using 25 warehouses. Which option should the company choose, considering all
relevant costs? Support your answer.

d. (2 points) Based on your answers to (a) and (b) above, if total company demand is D, what is the
general formula for the total company EOQ cost of using N warehouses instead of one (if the
demand is spread evenly over those warehouses)?
 MgtOp 340—Operations Management (Section 1)
Washington State University
Fall 2019
Problem Set #5
Due: October 31, 2019
(The online portion of the assignment is found in Myomlab.)

Show your work!

1. (6 points)
Scary Clowns, Inc., supplies special makeup cases to a major circus. The circus orders its
EOQ of 900 cases every four months from Scary Clowns. Scary Clowns incurs setup costs
of $5100 every time it produces these cases, and its annual holding cost per case is $12.

a. How many units should Scary Clowns produce in each batch?

b. What is the total annual setup and holding cost for Scary Clowns using this policy?

2. (3 points)
Johnson’s Juice sells bottles of “Keep Me Awake During Class” fruit juice to college
students. Annual demand is 88,000 bottles. The company uses an annual holding cost
percentage of 16%, it its setup cost is $45 per order. The current price per bottle from the
supplier is $0.75, and Johnson’s Juice resells it to customers for $2.00 each. However, the
supplier has notified Johnson’s Juice that starting next week, the purchase price will rise to
$1.15 due to tariffs imposed by the government. Johnson’s inventory of bottles is about to be
depleted. How many bottles should Johnson’s Juice purchase in the next order? (Assume
that the bottles are so full of chemicals that the drinks never expire.)

3. (8 points)
Consider a periodic review system, where orders are placed every 20 days. The firm strives
to provide a 94.6% cycle service level. Demand averages 420 units per day, and the standard
deviation of demand per day is 106 units. Lead time is 11 days.

a. How many units of safety stock should be held?

b. What should the target inventory level (order-up-to level) be?
c. Suppose that it is time to review the item. There are 160 units in inventory, and there is an
outstanding backorder for 400 units. An order for 128 units is on the way. How many
units should be ordered now?

4. (4 points)
Consider a continuous review inventory system. Demand is normally distributed with an
average of 28,000 per month and a monthly standard deviation of 5000 units. Lead time is
three weeks (assume four weeks per month). If the firm desires only an 87% cycle service
level, how many units of safety stock should be held?

5. (4 points)
Skinner’s Fish Market buys fresh Boston bluefish daily for $4.20 per pound and sells it for
$5.50 per pound. At the end of each business day, any remaining bluefish is sold to a
producer of cat food for $1.60 per pound. Daily demand can be approximated by a uniform
distribution between 200 and 320 pounds. What is the optimal order quantity?
 MgtOp 340—Operations Management (Section 1)
Washington State University
Fall 2019
Problem Set 6
Due: Thursday, November 21, 2019

1. (10 points)
Today is March 14. The following jobs need to be scheduled on the same machine.

Job Processing Time (days) Due Date

A 22 April 10
B 5 March 19
C 4 March 20
D 18 April 13
E 8 March 29

a. Schedule the jobs according to (i) SPT, (ii) LPT, and (iii) EDD.

b. For the EDD schedule from part a, calculate the (i) average completion time and (ii) average
lateness.

2. (5 points) Seven jobs must be scheduled on 3 machines. Use Johnson’s Rule to schedule them.

Processing Time (minutes)

Job 1 Machine 2nd Machine 3rd Machine
st

A 20 19 5
B 7 10 8
C 24 16 1
D 31 20 8
E 25 31 22
F 12 7 16
G 2 46 5

3. (10 points) Suppose that a firm just made the first unit of a new product in 36 hours, and the
second unit in 27 hours. The firm expects to complete the first 75 units this year. The demand
next year is expected to be for 575 units. If management expects their rate of learning to
continue for this product, how many total hours will be required to produce the product next
year?
 MgtOp 340—Operations Management (Section 1)
Washington State University
Fall 2019
Problem Set #1—Handwritten Section
Solutions

 1+ Y %   1 − .18  0.82
1. Percentage increase =   −=
1   −=
1 −=
1 1.0513 −= = 5.13% ;
1 0.0513
 1+ X %   1 − .22  0.78
5.13% increase

2. W = 1.60
X = .0833 mp/$
U = 620
F = 500

W 1.60
=
a. C = = $19.20 per hour
X 0.08333
U   620 
= R C=   19.20 =  $23.81 per hour
F  500 
b. We know our target R, and we need to solve for the new U:

 U 
26.50 = 19.20  
 500 
 500 
26.50   =U
 19.20 
U = 690.1 units per hour

3. a. P(failure) = 1 − 0.898 = 0.102

Cost of failure = $4,200(0.102) = $428.40

b. To be worthwhile, the new expected failure cost cannot exceed $428.40 − $280.00 =
$148.40.

So, $4,200(1−Rs) ≤ $148.40

(1−Rs) ≤ $148.40 / $4,200
(1−Rs) ≤ 0.0353
1−0.0353 ≤ Rs
Rs ≥ 0.9647, i.e., the new overall reliability needs to be at least 96.47%.

New reliability with backup:

Rs = 1 – P(1st fails)×P(2nd fails) ≥ 0.9647
1 – (0.102)×P(2nd fails) ≥ 0.9647
1−0.9647 ≥ (0.102)×P(2nd fails)
0.0353 ≥ (0.102)×P(2nd fails)
0.0353 / 0.102 ≥ P(2nd fails)
P(2nd fails) ≤ 0.3461
Thus, Reliability of the Backup ≥ 1 – 0.3461 = .6539 or 65.39%
 MgtOp 340—Operations Management (Section 1)
Washington State University
Fall 2019
Problem Set #2—Handwritten Section
Solutions

1a. L = TD2
54 = T(45.8 − 44.6)2
54 = T(1.2)2
54 = T(1.44)
T = 54 / 1.44 = 37.5

Thus, L = 37.5D2

Unit Taguchi Cost

1 37.5(45.0 – 44.6)2 = 37.5(0.4)2 = 37.5(0.16) = $6.00
2 37.5(43.5 – 44.6)2 = 37.5(−1.1)2 = 37.5(1.21) = $45.38
3 37.5(44.4 – 44.6)2 = 37.5(−0.2)2 = 37.5(0.04) = $1.50
4 37.5(44.9 – 44.6)2 = 37.5(0.3)2 = 37.5(0.09) = $3.38

Total cost = $6.00 + $45.38 + $1.50 + $3.38 = $56.26

1b. L = T|D|
54 = T|45.8 − 44.6|
54 = T|1.20|
54 = T(1.20)
T = 54 / 1.20 = 45

Thus, L = 45|D|

Unit Taguchi Cost

1 45|45.0 – 44.6| = 45|0.4| = 45(0.4) = $18.00
2 45|43.5 – 44.6| = 45|−1.1| = 45(1.1) = $49.50
3 45|44.4 – 44.6| = 45|−0.2| = 45(0.2) = $9.00
4 45|44.9 – 44.6| = 45|0.3| = 45(0.3) = $13.50

Total cost = $18.00 + $49.50 + $9.00 + $13.50 = $90.00

2. Question 1. Solutions vary

Question 4. 93.2% of flights scanned = 1.5 points

63.5% of bags scanned = 2 points
89.6% of bags dropped within 20 minutes = 0 points
Outliers: 15 bags arriving longer than 25 minutes = 1 point

Total TTC = 1.5 + 2 + 0 + 1 = 4.5 points, so the new total equals 93.5
(including the 10-point bonus)
3.
Sample Ri x-bari
1 132 − 114 = 18 (125+126+122+132+114+117) / 6 = 736 / 6 = 122.67
2 140 − 100 = 40 (130+100+140+121+125+126) / 6 = 742 / 6 = 123.67
3 155 − 108 = 47 (110+155+129+118+142+108) / 6 = 762 / 6 = 127.00

R = (18 + 40 + 47) / 3 = 105 / 3 = 35

x = (122.67 + 123.67 + 127) / 3 = 373.34 / 3 = 124.45

a. UCLR = D4 R = 2.004(35) = 70.140

LCLR = D3 R = 0(35) = 0.000

b. UCLx= x + ( A2 R ) = 124.45 + 0.483(35) = 124.45 + 16.905 = 141.355

LCLx= x − ( A2 R ) = 124.45 − 0.483(35) = 124.45 − 16.905 = 107.545

c. Yes.
 MgtOp 340—Operations Management (Section 1)
Washington State University
Fall 2019
Problem Set #3—Handwritten Section
Solutions

1. a. UK production cost in dollars = ₤25.92 × ($1.00 / ₤0.81) = $32.00

Shipping cost in dollars = ₤2.75 × ($1.00 / ₤0.81) = $3.40

Total cost to make in the US and ship to the UK = $28.30 + $3.40 = $31.70 < $32.00, so
it’s cheaper for the UK to import from the US.

Plan: Produce 17,000 units in the US. Use 12,000 for US consumption, and ship 5,000
to the UK. Produce 13,000 – 5,000 = 8,000 in the UK.

b. Sales price in the UK in dollars = ₤50 × ($1.00 / ₤0.81) = $61.73

Profit in the US = 12,000($40.00 − $28.30) = 12,000($11.70) = $140,400

Profit in the UK = 8,000($61.73 − $32.00) + 5,000($61.73 −$28.3 − $3.40)

= 8,000($29.73) + 5,000($30.03) = $237,840 + $150,150 = $387,990

2. USL = 180, LSL = 170, µ = 176

Since the mean is closer to the USL than the LSL, we need to focus on the probability of
being too high.

180 − 176
Set =1
3σ
180 − 176 =3σ
4 = 3σ
σ = 1.33

3. LSL = 31.156, USL = 32.42, σ = 0.20, µ = 32.00

Zup = (32.42 – 32) / 0.20 = 2.10

P(>USL) = 1 – Φ(2.10) = 1 – 0.9821 = 0.0179
Zdown = (31.516 – 32) / 0.20 = −2.42
P(<LSL) = Φ(−2.42) = 0.0078

Fixing cost per unit = $4.00(0.0179) + $15.60(0.0078) = $0.0716 + $0.1217 = $0.1933

Annual fixing cost = (22,000)(360)($0.1933) = 7,920,000($0.1933) = $1,530,936

 MgtOp 340, Sections 1
Fall 2019
Problem Set 4 Solutions

1.

A B C D E F
1 MgtOp 340, Section 1
2 Problem Set 4
3 Problem 1
4
5 Month Month # Demand INTERCEPT 25,111.11
6 Jan 1 49,000 SLOPE 8,533.33
7 Feb 2 43,000
8 Mar 3 38,000
9 Apr 4 32,000
10 May 5 86,000
11 Jun 6 71,000
12 Jul 7 98,000
13 Aug 8 94,000
14 Sep 9 99,000
15 Oct 10 110,444
16 Nov 11 118,978
17 Dec 12 127,511

A B C D E F
1 MgtOp 340, Section 1
2 Problem Set 4
3 Problem 1
4
5 Month Month # Demand INTERCEPT =INTERCEPT(C6:C14,B6:B14)
6 Jan 1 49000 SLOPE =SLOPE(C6:C14,B6:B14)
7 Feb 2 43000
8 Mar 3 38000
9 Apr 4 32000
10 May 5 86000
11 Jun 6 71000
12 Jul 7 98000
13 Aug 8 94000
14 Sep 9 99000
15 Oct 10 =$F$5+B15*$F$6
16 Nov 11 =$F$5+B16*$F$6
17 Dec 12 =$F$5+B17*$F$6
2. D = 32,000(12) = 384,000
S = $85
I = 17%
c = $8

2(384, 000)(85) 65, 280, 000

a. Q*    48, 000, 000  6928 units
(.17)(8) 1.36

TC*  2(384,000)(85)(.17)(8)  88,780,800  $9, 422

2(15,360)(85) 2, 611, 200

b. Q*    1,920, 000  1,386 units
(.17)(8) 1.36

TC*  2(15,360)(85)(.17)(8)  35,512, 232  $1,884

Total company cost = 25($1,884) = $47,100.

c. Annual shipping cost for one warehouse = 384,000($0.80) = $307,200

Annual shipping cost for 25 warehouses = 384,000($0.64) = $245,760

Total cost for one warehouse = $9,422 + $307,200 = $316,622

Total cost for 25 warehouses = $47,100 + $245,760 = $292,860

Thus, the decision of 25 warehouses is preferable.

d. The answer is: TC = N 2 DSH (The cost in part b is 25 = 5 times larger than the
cost in part a.)
 MgtOp 340—Operations Management, Fall 2019
Problem Set 5
Solutions

1. This is a lumpy demand problem.

D = 900(3) = 2700
S = $5,100
H = $12
Q = 900 units
1  8(2700)(5100)  
a. K *   1  1  
2  12 (900) 2   
  

1  110,160, 000  
  1  1  
 2  9, 720, 000  

1
2
 
  1  1  11.33 



1
2
 
  1  12.33 



1  1 
  1  3.511     4.511    2.256   2
2  2 

Order K*Q = 2(900) = 1800 units

2700  (2  1)900 
b. TC  ($5100)    $12  $7650  $5400  $13, 050
2(900)  2

2. This is equivalent to a one-time sale problem.

D = 88,000
S = $45
I = 16%
c = $1.15
Δ = $0.40

2(88, 000)(45)
EOQ =  6,561 units
0.16($1.15)

88, 000(0.40) 1.15 35200 1.15

Q1*   (6561)   (6561)  293,333  10, 060  303,393
0.16(1.15  0.40) 1.15  0.40 0.12 0.75
3. P = 20 days
L = 11 days
sl = 94.6%
d = 420
σday = 106

a. Z.946 = 1.61
σP+L = 106 20  11  590.18
SS = ZσP+L = 1.61(590.18) = 950 units

b. DP+L = 420(20+11) = 420(31) = 13,020 units

T = DP+L + SS =13,020 + 950 = 13,970 units

c. IP = 160 + 128 – 400 = −112

Q = T – IP = 13,970 – (−112) = 14,082 units

4.  L  5000 3  4330.13
4
Z.87 = 1.13
SS = ZσL = 1.13(4330.13) = 4,893 units

5. This is a newsvendor problem with a uniform demand distribution.

U = $5.50 − $4.20 = $1.30
O = $4.20 − $1.60 = $2.60

U 1.30
  0.3333
O  U 2.60  1.30

Q* = 200 + (320−200)(0.3333)
= 200 + 40
= 240 units