FOR A-PLUS WRITER

Assignment 2

Operations & Supply Chain Management – BA 360 Fall 2015

To be turned in at the beginning of class on the day of Test 2. Be sure to follow the

instructions on the syllabus on the format for turning in an assignment.

You must work in teams so your report would be better analyzed and edited by all

members. Each team shall not be more than 4 members – ideal team size 3-4; all team

members will get the same grade.

1. A toy manufacturer makes stuffed kittens and puppies that have relatively lifelike

motions. There are three different mechanisms which can be installed in these "pets."

These toys will sell for the same price regardless of the mechanism installed, but each

mechanism has its own variable cost and setup cost. Profit, therefore, is dependent upon

the choice of mechanism and upon the level of demand. The manufacturer has in hand a

forecast of demand that suggests a 0.2 probability of light demand, a 0.45 probability of

moderate demand, and a probability of 0.35 of heavy demand. Payoffs for each

mechanism-demand combination appear in the table below.

Mechanism

Demand

Wind-up

Action

Pneumatic

Action

Electronic

Action

Light $250,000 $90,000 -$100,000

Moderate 400,000 440,000 400,000

Heavy 650,000 740,000 780,000

a. (4 points) Construct the appropriate decision tree to analyze this problem by using

standard symbols for the tree (please be neat).

b. (3 points) Analyze the decision tree and select the optimal decision for this

manufacturer.

c. (2 points) What is the EVPI for this manufacturer

2. Maxine’s Hat Company produces three distinct hat styles. The operations manager has

modeled the operations using linear programming. He is using x1, x2, and x3 to represent

each hat style. Below is his formulation:

Maximize Z = 70 x1 + 80 x2 + 60 x3

Subject to:

Machine A: 2 x1 + 4 x2 + 2 x3 < 120 hours

Machine B: 5 x1 + 3 x2 + 2 x3 < 400 hours

Machine C: 2 x1 + 2 x2 + 4 x3 < 110 hours

x1 > 0; x2 > 0; x3 > 0

a. (6 points) Use Excel and Solver to find the optimal solution for this problem. Provide printouts of worksheets for the final solution and the sensitivity report. Then consider the

statements below independently, state whether they are true or false and explain each

answer.

b. (3 points) If the price of Hat 3 were to increase by $55, it would still remain to be part of the optimal product mix.

c. (3 points) The capacity of Machine B can be reduce to 280 hours without affecting profits.

d. (3 points) If machine C had a capacity of 115 hours, the production output would remain unchanged.