operation research

Royal Commission for Jubail and Yanbu Jubail University College

Department of Business Administration

Cover Page

FX-ACA-002 Issue 0 Rev. 1 January 2, 2014

i

Exam Type: Take Home Assessment 2 (Theory) Semester: 402

Course Code BUS 242 Course Title Operations Research

Exam Date 21-Apr-20 03.00 PM Exam Due date 21-Apr-20 09.00 PM

Exam Session - Version A

Students are requested to comply with all JUC examination rules and regulations strictly.

PART I TO BE FILLED BY THE STUDENT

STUDENT’S

NAME

ID. No.

Course Section FB

MB 101

TO BE FILLED BY THE CONCERNED DEPARTMENT

PART II 1st Marker 2nd Marker

Question

No.

Max

Marks

Actual

Marks Comments/Remarks

Actual

Marks Comments/Remarks

1 5

2 5

3 10

Total 20

Name: Ms. Sabitha Niketh Name:

Signature: Signature:

Name: Dr. B. Wardono Name:

Signature: Signature:

Take Home Assessment 2, BUS 242, Sem 402, JUC-Male Branch & Female Branch Page 2 of 2

INSTRUCTION:

Upload the scan copy of the answer to BlackBoard in one single file,

before the specified due date.

Take Home Assessment 2, BUS 242, Sem 402, JUC-Male Branch & Female Branch Page 1 of 4

QUESTION 1

The Jubail Bicycle Shop operates 7 days per week, closing 5 days each for Eid-ul-Fitr and Eid- Ul

-Adah (this gives 355 working days in a year). The shop pays SAR 600 for a particular bicycle

purchased from the manufacturer. The annual holding cost per bicycle is estimated to be 25% of

the SAR value of inventory. The shop sells an average of 25 bikes per week. Frequently, the dealer

does not have a bike in stock when a customer purchases it, and the bike is back ordered. The

dealer estimates his shortage cost per unit back-ordered, on an annual basis, to be SAR 400 due to

lost future sales (and profits) and the lead time is 2 weeks. The ordering cost for each order is SAR

300. Determine the following

a. [1 Mark] Optimal order quantity

b. [1 Mark] Shortage level (Maximum number of back orders)

c. [1 Mark] Total minimum cost.

d. [1 Mark] Optimal ordering policy

e. [1 Mark] How long will there be stock out?

ANSWER:

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QUESTION 2

Our college purchases sweatshirts from a vendor emblazoned with the college name and logo. The

vendor sells the sweatshirts to the college for 45 SAR a piece. The cost to the college for placing

an order is 175 SAR and the carrying cost is 20% of the average annual inventory value. The

college administration estimates that 2,000 sweatshirts will be sold during the year. The vendor

has offered the college the following volume discount schedule:

Quantity Discount (%)

1 – 299 0%

300 – 499 5%

500 – 799 8%

800+ 12%

[5 Marks] The college admin staff wants to determine the optimal order quantity, given the

foregoing quantity discount information.

ANSWER:

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QUESTION 3

A. ArmaCo must determine whether or not to drill for oil at the Northern part of Jubail. It costs

$100,000 to drill, and if oil is found, the value is estimated to be $600,000. At present, ArmaCo

believes there is a 45% chance that the field contains oil with the profit payoffs give in the

table below.

Alternatives State of Nature

Oil Dry

Drill 500 –100

No Drill 0 0

a. [0.5 Mark] Show the decision tree for the situation.

b. Which alternative should the Armaco choose using:

i. [1 Mark] the optimistic approach

ii. [1 Mark] the conservative approach

iii. [1 Mark] the minimax regret approach.

c. [1 Mark] Determine which alternative should be chosen based on expected value.

d. [1 Mark] Determine the expected value with perfect information.

e. [1 Mark] Determine the expected value of the perfect information.

B. Before drilling, ArmaCo can hire (for $10,000) a geologist to obtain more information about

the likelihood that the field will contain oil. There is a 50% chance that the geologist will issue

a favorable report and a 50% chance of an unfavorable report. Given a favorable report, there

is an 80% chance that the field contains oil. Given an unfavorable report, there is a 10% chance

that the field contains oil.

f. [1 Mark] Show the decision tree for the situation.

g. [1 Mark] Determine ArmaCo’s optimal course of action.

h. [0.5 Mark] How much is the expected profit?

i. [1 Mark] Determine the Expected Value of Sample Information.

ANSWER

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- END OF EXAM PAPER –