INTERNATIONAL UNIVERSITY VNU HCMC

SCHOOL OF BUSINESS

PROBLEMS FOR THE FINAL EXAM (SEMESTER 2, 2012-2013)

CHAPTER 9 - LAYOUT STRATEGY

Problem 1: Case: State Automobile License Renewals (p. 382)
Problem 2: adapted from Problem 1
A license-renewal process has the following steps and associated times required to perform
each step. A review of the jobs indicated that step 1, reviewing renewal applicatins for
correctness, had to be performed before any other step. Step 6, issuing temporary licenses,
could not be performed untill all the other steps were completed. Each step was assigned to a
different clerk.
Automobile License-Renewal Process Times
Step
Average Time to
Perform (sec)
1. Review renewal application for
15
correctness
2. Process and record payment
30
3. Check file for violations and
60
restrictions
4. Conduct eye test
40
5. Photograph applicant
20
6. Issue temporary license
30
Questions:
a) Where may the bottleneck (long queue), if any, occur in the existing work process
during the peak-demand time?
b) What is the maximum number of applications per hour that can be handled by the
present process?
c) Assuming the addition of a second clerk to check file for violations, what is the
maximum number of applications the process can handle?
d) How would you suggest modifying the process to accommodate 120 applications per
hour?

Problem 3: See Problem 9.16 (p. 380)

Problem 4: adapted from Problem 3
Tailwind, Inc. produces high-quality but expensive training shoes for runners. The Tailwind shoe,
which sells for $210, contains both gas and liquid-filled compartments to provide more stability and
better protection against knee, foot, and back injuries. Manufacturing the shoes requires 10 separate

tasks. There are 400 minutes available for manufacturing the shoes in the plant each day. Daily
demand is 60. The information for the tasks is as follows:
Task
Performance Task must follow
Time (min)
task listed below
A
1
_
B
3
A
C
2
B
D
4
B
E
1
C, D
F
3
A
G
2
F
H
5
G
I
1
E, H
J
3
I
a) Draw the precedence diagram
b) Assign tasks to the minimum feasible number of workstations according to the ranked
postioned weight decision rule.
c) What is the efficiency of the process?
d) What is the idle time per cycle?
Problem 5 (P 9.17 - textbook)
Problem 6a
An assemply line in a can-producing factory requires the following activities. The factory
operates 8 hours per day, 5 days a week.
Task
A
B
C
D
E
F
G
H
I
J
K
L
M
a)
b)
c)
d)
e)

Time (minutes)
1
1
1
2
1
2
1
1
1
1
2
2
1

Predecessor(s)

B
B
B
C, D, E
A
G
H
I
F
J, K
L

Draw the precedence diagram

Without balancing the assemly line, what is the weekly production rate?
Balance the assembly line. What is the new weekly production rate?
If the weekly demand is 3,000 cans, what is the greatest possible cycle time.
Assign tasks to the minimum feasible number of workstations.

Problem 6b: An assemply line in a can-producing factory requires the following activities. The
factory operates 5 hours per day, 5 days a week.
Task
A
B
C
D
E
F
G
H
I
J
K
L
M
a)
b)
c)
d)
e)

Time (minutes)
2
2
2
3
2
3
1
1
3
1
2
2
1

Predecessor(s)

B
B
B
C, D, E
A
G
H
I
F
J, K
L

Draw the precedence diagram

Without balancing the assemly line, what is the weekly production rate?
Balance the assembly line. What is the new weekly production rate?
If the weekly demand is 3,600 cans, what is the greatest possible cycle time.
Assign tasks to the minimum feasible number of workstations.

Problem 9.19 (textbook, p.381)

a) Precedence Diagram
b) CT=(1/96)*60*24=15 min/unit
c) CT=10, OR=1/10 per minute or (1/10)*24*60 per day
d) CT=10, min # of stations = 50/10 = 5

CHAPTER 12 - INVENTORY MANAGEMENT

Problem 12.37 (textbook, p. 521)
Emarpy Appliance is a company that produces all kinds of major appliances. Bud Banis, the
president of Emarpy, is concerned about the production policy for the companys best-selling
refrigerator. The annual demand for this has been about 8,000 units each year, and this demand has
been constant throughout the year. The production capacity is 200 units per day. Each time
production starts, it costs the company $120 to move materials into place, reset the assembly line,
and clean the equipment. The holding cost of a refrigerator is $50 per year. The current production
plan calls for 400 refrigerators to be produced in each production run. Assume there are 250 working
days per year.
a) What is the daily demand of this product?
b) If the company were to continue to produce 400 units each time production starts, how many
days would production continue?

c) Under the current policy, how many production runs per year would be required? What
would the annual setup cost be?
d) If the current policy continues, how many refrigerators would be in inventory when
production stops? What would the average inventory level be?
e) If the company produces 400 refrigerators at a time, what would the total annual setup cost
and holding cost be?
f) If Bud Banis wants to minimize the total annual inventory cost, how many refrigerators
should be produced in each production run? How much would this save the company in
inventory costs compared to the current policy of producing 400 in each production run.
Solution:
a) Daily demand d=D/250=8,000/250=32
b) Q/p=400/200 = 2
c) D/Q=8,000/400=20 Annual S = 20*120=2400
d) Max. Inv. Level = Q(1-d/p)=400(1-32/200) = 336
Average inventory level = 336/2=168
e) (168)50+20(120)=$10,800
f) Q=[2(8,000)120/50(1-32/200)]=213.81

INDEPENDENT DEMAND INVENTORY

Problem 1a
Below is a partial listing of the items on a firms computer printout of inventory. Using annual dollar
value as the criterion, arrange these items into an A-B-C classification. Assign three items to the B
category.
Part
Unit Annual
Number Price Volume
C150
C175
MM09
TL44
MT45
T418
C110
UN04
UN12
BA28
T400

$1
2
200
4
70
30
3
3
60
60
5

30,000
7,000
400
6,000
3,00
3,000
5,000
6,000
2,000
2,000
4,000

Solution to Problem 1
Part
Unit
Number
Price
C150
C175
MM09
TL44
MT45
T418
C110
UN04
UN12
BA28
T400

$1
2
200
4
70
30
3
3
60
60
5
TOTAL

Annual Amount
Volume in $
30,000
7,000
400
6,000
3000
3,000
5,000
6,000
2,000
2,000
4,000
68,400

$30,000
$14,000
$80,000
$24,000
$210,000
$90,000
$15,000
$18,000
$120,000
$120,000
$20,000
741,000

%
explained
4%
2%
11%
3%
28%
12%
2%
2%
16%
16%
3%
100%

Sorted by
%
explanation
Part
Number

Unit
Price

Annual Amount
Volume in $

%
Cumulative Class
explained %

MT45
UN12
BA28
T418
MM09
C150
TL44
T400
UN04
C110
C175

70
60
60
30
200
$1
4
5
3
3
2

3000
2,000
2,000
3,000
400
30,000
6,000
4,000
6,000
5,000
7,000
TOTAL

$210,000
$120,000
$120,000
$90,000
$80,000
$30,000
$24,000
$20,000
$18,000
$15,000
$14,000
$741,000

28%
16%
16%
12%
11%
4%
3%
3%
2%
2%
2%
100%

28%
45%
61%
73%
84%
88%
91%
94%
96%
98%
100%

A
A
A
A
B
B
B
C
C
C
C

Problem 2a Probabilistic Model

Gemtronics Corporation produces electrical components for appliance and automotive industries.
Previous daily demand for part XK202 has shown little seasonal variation, but has been normally
distributed with a mean of 700 per day and a standard deviation of 100. The company works 250
days per year. Ten days lead time is required to schedule, wait for an available machine, and set up
for a production run. The cost to initiate a production run is approximately $200, and the production
rate for part XK202 is 4,000 per day. The holding cost for each unit of this product is $0.25 per year.
(a) Compute the optimal production quantity for this item
(b) Compute a reorder level that will provide a 0.96 probability of meeting customer demand
during the lead time.
(Hint: Use the normal distribution table, for 0.95 Z-value is 1.65; for 0.96 Z-value is 1.76)
Problem 2b Probabilistic Model
Alien Auto Co. distributes parts for foreign cars in a large midwestern city. Demand for a particular
size of oil filter has been uniform. The lead time to obtain the filters in one month, and the average
use rate is 600 per month. The lead-time use is normally distributed with a standard deviation of 70
units. Order cost is $12 and holding cost $0.40 a year per filter. The estimated cost of a stockout is
$1.50 per filter.
(a) What is the EOQ?
(b) How many orders per year will be placed at this EOQ?
(c) What is the optimum probability of a stockout?
(d) What is the optimum reorder level?
(e) How much will Alien Auto spend per year to hold inventory on this filter if it implements the
values you determined above/

Problem 3a
Because of theft, vandalism, abuse and normal wearouts, a large hotel replaces approximately 260
color television sets per year. Ordering cost is $65 for each order, and annual holding cost is $40 per
set. Lead-time demand can be described by a normal distribution with a mean of 8 and standard
deviation of 3.5 sets. The manager of housekeeping is willing to accept an average shortage of 2 sets
per lead time due to the ability to transfer sets among rooms, except for a relatively few times when
the rooms are completely booked.

a.
b.
c.
d.
e.

What is the economic order quantity of televisions?

How many orders per year will be made?
What is the expected number of units short per year?
What ROP should be used to achieve the desired protection?
What is the risk of a stockout during lead time for the ROP?

Problem 4
A professional football team uses large quantities of adhesive tape during and immediately
preceding the football season. Daily usage tends to be normal with a mean of 40 rolls and a standard
deviation of 6 rolls. Ordering lead time is also approximately normal, and it has a mean of 3 days
and a standard deviation of day. The front office wants a stockout risk of 2%.
a. What ROP is appropriate?
b. By how much could safety stock reduced if there were some way to reduce the lead-time
variability to zero? What effect on safety stock would result if a constant lead time of 1 day could be
achieved?
Problem 5
Hoa Phat Furniture Company produces a wide variety of furniture products. The production rate for
one model of bookcase is 24 units per day (250 working days per year). The sales rate for this case is
7 units per day. It costs $72 per production equipment setup and the cost to hold a case for a year is
$18.
a. What is the annual demand for the case?
b. To minimize the total annual inventory cost, how many cases should be produced in each
production run?
c. What is the maximum number of cases that will be in inventory at Hoa Phat Co.?
d. How many production runs of cases will Hoa Phat have in a year?
Solution:
Parameter
Value
Parameter
Value
Demand rate(D)
1750
Optimal production quantity (Q*)
Setup/Ordering cost(S)
72
Maximum Inventory Level (Imax)
Holding cost(H)
18
Average inventory
49.79
Daily production rate(p)
24
Production runs per period (year)
Days per year (D/d)
250
Annual Setup cost
896.24
Daily demand rate
7
Annual Holding cost 896.24
Unit cost
0
Unit costs (PD)
0
Total Cost
1792.48

140.59
99.58
12.45

Problem 6 (problem 13-14, Russel & Taylor)

The TransCanada Lumber Company and Mill possesses 10,000 logs annually, operating 250 days
per year. Immediately upon receiving an order, the logging companys supplier begines delivery to
to the lumber mill at the rate of 60 logs per day. The lumber mill has determined that the ordering
cost is $1600 per order, and the cost of carrying logs in inventory before they are processed is $15
per log on an annual basis. Determine the following:

a. The optimal order size

b. The total inventory cost associated with the optimal order quantity
c. The number of operating days between orders.
d. The number of operating days required to receive an order.
Problem 7 (adapted from 13-22, Russel & Taylors textbook)
Nhu Lan Bakery can make cake at the rate of 116 frozen cakes per day. It operates six days a week,
52 weeks per year. The bakery sets up the cake-production operations and produces until a
predetermined number (Q) have been produced. When not producing cakes, the bakery uses its
personnel and facilities for producing other bakery items. The setup cost for a production run of
cakes is $700. The cost of holding frozen cakes in storage is $9 per cake per year. The annual
demand for frozen cakes, which is constant over time, is 8,000 cakes. Determine the following:
a) Optimal production run quantity (Q)
b) What is the annual setup cost?
c) What is the annula holding cost?
d) Optimal number of production runs per year
Solution
Parameter Value
Demand rate(D)
Setup/Ordering cost(S)
Holding cost(H)
Daily production rate(p)
Days per year (D/d)
Daily demand rate
Unit cost

Parameter Value
8000
700
9
116
312
25.64
0
Unit costs (PD)
Total Cost 8861.09

Optimal production quantity (Q*)

Maximum Inventory Level (Imax)
Average inventory
492.28
Production runs per period (year) 6.33
Annual Setup cost
4430.54
Annual Holding cost 4430.54

1263.95
984.57

Problem 8 (Basic EOQ):

A coffee shop in San Francisco sells Cappuccino at a fairly steady rate of 1000 pounds
annually. Assume one pound of Cappuccino is made from 0.25 pound of some certain coffee
beans. The beans are purchased from a local supplier for $2.70 per pound. The setup cost for
this coffee shop to place an order from its supplier is $50. The holding cost for coffee beans is
based on a 20 percent annual interest rate.
a. Determine the optimal order quantity for the coffee beans. (10 points)
b. If the replenishment lead time is three weeks, determine the reorder level based on the onhand inventory. (5 points)
c. The current reorder policy is to buy the coffee beans once a year, what is the additional cost
incurred by this policy. (10 points)

Solution
a.

D = 1000(0.25)=250 pounds per year

S = $50 per order
H = $0.20(2.7) per unit per year
Q* =

2DS
= 215 pounds
H

b. The reorder point should be

ROP = 250*3/52 = 14.42 15

c.
Average annual cost for setup cost and holding cost under optimal order policy is

C* =

D
Q*
S+
H = 116.19
Q*
2

Average annual cost for setup cost and holding cost under current order policy is

D
Q
250
250
S+ H =
50 +
0.54 = 117.5
Q
2
250
2
Additional cost is 117.5 - 116.19 = 1.3
C=

Problem 9
Gamestop buys Wii from Nintendo. Since Wii sells very well in US, Nintendo wants to discourage
large amount purchases, so a reverse quantity discount is applied. In particular, when the order
quantity is less than 1500 (include 1500), the unit cost is $150, while if the order quantity is higher
than 1500, the unit cost is $160. Suppose the setup cost for Gamestop to place an order is $1600, and
the annual demand is 50000. Holding costs are based on a 10 percent annual interest rate. How many
Wiis should Gamestop order each time?
Solution

D=
S=
I=

50,000
1,600
0.1
Max Q'ty
1,500

50,000
1,600
0.1 of price
Min Q'ty
1,501

150

160

Q*

3,266

3,162

Order Qty (adjusted)

1,500

3,162

Annual Setup cost

53,333

25,298

Annual Holding cost

11,250

25,298

Product Cost

7,500,000

8,000,000

Total cost

7,564,583

8,050,596

Unit price, P

The order quantity of 1500 is optimal solution because its total cost is cheaper.

CHAPTER 14 INVENTORY FOR DEPENDENT DEMAND

Problem 1a:
Daily demand for an item is shown here. Assume a holding cost of $0.50 per unit per day, a setup
cost of $100 per setup, a lead time of one day and 70 units on hand.
Period
Gross
Requirements

1
50

2
30

3
25

4
35

5
40

6
50

7
35

8
45

9
70

10
75

a) Develop a lot-for-lot solution

b) Calculate total inventory-related costs for the data above.
Problem 1b:
Daily demand for an item is shown here. Assume a holding cost of $0.50 per unit per day, a setup
cost of $100 per setup, a lead time of one day and 70 units on hand.
Period
Gross
Requirements

1
50

2
30

3
25

4
35

5
40

6
50

7
35

8
45

9
70

10
75

c) Develop an EOQ solution

d) Calculate total inventory-related costs for the data above.

CHAPTER 15 SCHEDULING
Problem 1a: Nam has four jobs waiting to be run this morning. He has four printing presses
available. However, the presses are of different vintage and operates at different speeds. The
approximate times (in minutes) required to process each job on each press are given next. Assign
jobs to presses to minimize the press running times.
PRESS
JOB
A
B
C
D

1
10
40
30
60

2
50
45
70
45

Solution:
Optimal cost = $125 Press 1 Press 2 Press 3 Press 4
A
Assign 10
50
40
20
B
40
45
50
Assign 35
C
30
70
Assign 35
25
D
60
Assign 45
70
40

3
40
50
35
70

4
20
35
25
40

Problem 1b: Nguyen has four jobs waiting to be run this morning. He has four printing presses
available. However, the presses are of different vintage and operates at different speeds. The
approximate times (in minutes) required to process each job on each press are given next. Assign
jobs to presses to minimize the press running times.

PRESS
JOB
A
B
C
D

1
30
23
17
28

2
18
22
31
19

3
26
32
24
13

4
17
25
22
18

Solution:
Optimal cost = $69
A
30
B
23
C
Assign 17
D
28

Press 1
18
Assign 22
31
19

Press 2
26
32
24
Assign 13

Press 3
Press 4
Assign 17
25
22
18

Problem 2a. The following set of seven jobs is to be processed through two work centers at a
printing company. The sequence is first printing, then binding. Processing time at each of the work
centers is shown below.

Printing
(hours)
Binding
(hours)

A
14

B
6

C
3

JOBS
D
6

10

E
9

F
3

G
6

a) What is the optimal sequence for these jobs?

b) Draw Gantt chart for these work centers.
c) What is the total length of time of this optimal solution?
Solution
a) C F B D G E A
b)

c) The seven jobs are completed in 53 hours.

Problem 2b. The following set of seven jobs is to be processed through two work centers. The
sequence is first work center 1, then work center 2. Processing time at each of the work centers is
shown below.

Work
center 1
(hours)
Work
center 2
(hours)

A
3

B
11

C
15

JOBS
D
6

10

11

E
12

F
5

G
8

10

a) What is the optimal sequence for these jobs?

b) Draw Gantt chart for these work centers.
c) What is the total length of time of this optimal solution?
Solution:
a) A F D - G C E B
b) Gantt Chart:

c) The seven jobs are completed in 70 hours.

CHAPTER 10 and SUP 10
Problem 1:
A brake system installer in an auto factory has an actual average time of 10 minutes on her task.
The performance rating of the worker timed was estimated at 110%. Practice in this department is
to allow 9% for the constant allowances. There is currently no variable allowance.
a. Find the normal time for the operation.
b. Compute the standard time for the operation.
c. Recompute the standard time if a variable allowance of 7% is factored in.

Answer: a) Normal time: 11 minutes; b) Standard time: 12.09 minutes; c) New standard time: 12.10
minutes

EXAMS
Problem 1a. (10 points)
Casumina Company produces a type of tire called CA120A. The annual demand at its distribtuion
center is 12,400 tires per year. The transport and handling costs are $2600 each time a shipment of
tires is ordered at the distribution center. The annual carrying cost is $3.75 per tire.
a. Determine the optimal order quantity and the minimum total annual cost. (2.5 pt)
b. What is the maximum inventory level and average inventory? (2.5 pt)
c. Draw a graph showing total inventory cost, total holding cost, total ordering cost and optimal
inventory level. (2.5 pt)
d. The company is thinking about relocating its distribution center, which would reduce
transport and hanling costs to $1,900 per order but increase carrying costs to $4.5 per tire per
year. Should the company relocate based on inventory costs. (2.5 pts)
Solution
D = 12,400 units/year; S = $2600/unit/year; H = $3.75/unit/year
a.
Optimal order quantity (Q*)
Annual Setup cost
Annual Holding cost
Total Cost

4,146.65
7,774.96
7,774.96
15,549.92

b.

Maximum Inventory Level (Imax)

Average inventory

c.

4146.65
2073.32

d.
Parameter
Demand rate(D)
Setup/Ordering
cost(S)
Holding cost(H)

Value
12400
1900

Parameter
Optimal order
quantity (Q*)
Annual Setup
cost
Annual Holding
cost

Value
3,235.91

Total Cost

14,561.59

4.5

7,280.8
7,280.8

The total inventory cost of the new option is $14,562, less than $15,549.92 of the current option.
Therefore, the company should relocate the distribution center.

Problem 1b
Bridgestone Corporation produces a type of tire called . The annual demand at its distribtuion
center is 12,000 tires per year. The transport and handling costs are $2000 each time a shipment of
tires is ordered at the distribution center. The annual carrying cost is $3 per tire.
a. Determine the optimal order quantity and the minimum total annual cost. (2.5 pt)
b. What is the maximum inventory level and average inventory? (2.5 pt)

c. Draw a graph showing total inventory cost, total holding cost, total ordering cost and optimal
inventory level. (2.5 pt)
d. The company is thinking about relocating its distribution center, which would reduce
transport and hanling costs to $1,500 per order but increase carrying costs to $4 per tire per
year. Should the company relocate based on inventory costs. (2.5 pts)
Solution
Parameter
Optimal order
quantity (Q*)
Maximum
Inventory Level
(Imax)
Average
inventory
Orders per
period(year)
Annual Setup
cost
Annual Holding
cost

Value
4000

Unit costs (PD)

Total Cost

0
12000

Graph

d.

4000

2000
3
6000
6000

Parameter
Demand rate(D)

Value
12000

Setup/Ordering
cost(S)

1500

Holding cost(H)

Unit cost

Parameter
Optimal order
quantity (Q*)
Maximum
Inventory Level
(Imax)
Average
inventory
Orders per
period(year)
Annual Setup
cost
Annual Holding
cost

Value
2683.28

Unit costs (PD)

Total Cost

0
13416.41

2683.28

1341.64
4.47
6708.2
6708.2

The company should relocate the distribution center because the total inventory cost for this option
($13,416) will be higher than that of the current option ($12,000).

Problem 2a
A big university plans to issue smart identification cards to all of its faculty and students. The
cards store information on library usage, class schedules, insurance, emergency contacts. They may
also be used as debit cards to buy meals and stationery. According to the plan, 60,000 new cards
should be issued. The following table shows the relevant steps of the card-issuing steps.
Steps
1. Review application for correctness
2. Verify inofrmation and check for outstanding debt
3. Process and record payment
4. Take photo
5. Attach photo and laminate
6. Magnetize and issue card

Time
(seconds)
10
60
30
20
10
10

a. Is it possible to process one applicant every minute? Explain.

b. How would you assign tasks to wokers in order to process 60 applicants an hour?
c. How many workers are required? How efficient is your line?

Solution
a. Yes. The largest cycle time of the process is 60 seconds or 1 minute. Therefore, the output
rate is 1 student per minute.

b. The number demanded is 60 applicants per hour

The desired cycle time is 60 sec/applicant (= 3600 sec/60).
Assignment should be as follows.
Worker 1: step 1
Worker 2: step 2
Worker 3: step 3, 4, 5
Worker 4: Step 6
c. Four workers should be required. Efficiency rate is 58.33%.

Problem 2b
A big university plans to issue smart identification cards to all of its faculty and students. The
cards store information on library usage, class schedules, insurance, emergency contacts. They may
also be used as debit cards to buy meals and stationery. According to the plan, 60,000 new cards
should be issued. The following table shows the relevant steps of the card-issuing steps.
Steps
1. Review application for correctness
2. Verify inofrmation and check for outstanding debt
3. Process and record payment
4. Take photo
5. Attach photo and laminate
6. Magnetize and issue card

Time
(seconds)
10
50
28
18
8
8

d. Is it possible to process one applicant every minute? Explain.

e. How would you assign tasks to wokers in order to process 60 applicants an hour?
f. How many workers are required? How efficient is your line?

Solution
c. Yes. The largest cycle time of the process is 60 seconds or 1 minute. Therefore, the output
rate is 1 student per minute.
d. The number demanded is 60 applicants per hour
The desired cycle time is 60 sec/applicant (= 3600 sec/60).
Assignment should be as follows.
Worker 1: step 1, step 2
Worker 2: step 3, step 4, step 5
Worker 3: step 6
c. Three workers should be required. Efficiency rate is 67.78 %.