Tomica - Week 1.pdfGBA 334 Application Assignment 4 Instru.docx

Tomica - Week 1.pdf
GBA 334 Application Assignment 4 Instructions
Application assignments require solving problems from the
textbook. Most of the
problems require that you use Excel OM. Some chapters will
require you to use POM
OM for Windows or TreePlan. The answers must be submitted
to the Dropbox in a
Microsoft Word or Microsoft Excel file.
You must state your answers within a complete sentence so that
your understanding of
applying the results of the computations can be observed. You
should also include the
work for your computation; this will assist in applying partial
credit if your answers are
not correct.
Do not submit OM for Windows files as server security policies
do not allow many of
these files to be passed in the system. If you need to show the
OM work, either save as
an Excel file (a function within OM) or paste a screen capture
of the OM Entry Screen
before solving AND the OM result screen(s).
NOTE: OM files should not be sent through the online system.
If using OM for your
solution, run the file in OM and then copy and paste the
solution into a MS Excel file

(within OM there is an option tab at bottom of the screen to
save as MS Excel.) If you
cannot do this, with the OM solution file open on your screen,
select alt-print screen and
then paste the image into a MS Excel file.
If you need any assistance, please do not hesitate to contact
your instructor. He or she
will be happy to assist.
For this module, you will complete the following problems from
the textbook: "Inventory
Control Models," pages 231-233, Problems 31 (Part a only) and
37 using Excel OM.
Submit Application Assignment 4 to the Dropbox no later than
Sunday 11:59 EST/EDT
of Module 4. Remember, the required formats are Microsoft
Word and Microsoft Excel.
INVENTORY CONTROL MODELS
The reorder point for AS 1 is 60 units. What level
of safety stock should be maintained for the AS I
model?
Victoria Blunt is in charge of maintaining hospital
supplies at Mercy Hospital. During the past year,
the mean lead time demand for bandage BX-5 was
600. Furthermore, the standard deviation for BX-5
was 70. Ms. Blunt would like to maintain a 95%
service level.
(a) What safety stock level do you recommend for
BX-5?

scissors for one year. How many scissors should
Blaine produce in each batch?
Carter Cohen, inventory control manager for
Raydex, receives wheel bearings from Wheel &
Gears, a small producer of metal parts. Unfortu-
nately, Wheel & Gears can produce only 5,000
wheel bearings per day. Raydex receives 100,000
wheel bearings from Wheel & Gears each year.
Because Raydex operates 200 working days each
year, the average daily demand of wheel bearings
by Raydex is 500. The ordering cost for Raydex is
$400 per order, and the carrying cost is $6 per wheel
bearing per year. How many wheel bearings should
Raydex order from Wheel & Gears at one time?
Wheel & Gears has agreed to ship the maximum
number of wheel bearings that it produces each day
to Raydex when an order has been received.
Chandler Manufacturing has a demand for 1,000
pumps each year. The cost of a pump is $50. It
costs Chandler Manufacturing $40 to place an
order, and the carrying cost is 25% of the unit cost.
If pumps are ordered in quantities of 200, Chandler
Manufacturing can get a 3% discount on the cost of
the pumps. Should Chandler Manufacturing order
200 pumps at a time and take the 3% discount?
Arms of Steel is an organization that sells weight
training sets. The carrying cost for the AS I model
is $5 per set per year. To meet demand, Arms of
Steel orders large quantities of AS 1 seven times a
year. The stockout cost for AS 1 is estimated to be
$50 per set. Over the past several years, Arms of
Steel has observed the following demand during
the lead time for AS 1:
IDENTIFICATION UNIT DEMAND

CODE COST (UNITS)
UI $ 2.00 1.110
V2 $ 5.40 1.110
W3 $ 2.08 961
X4 $74.54 1,104
Y5 $ 5.84 1,200
Z6 $ 1.12 896
(b) Victoria has just been severely chastised for
her inventory policy. Dwight Seymour, her
boss, believes that the service level should be
99%. Compute the safety stock levels for a
99% service level.
(c) Victoria knows that the carrying cost of BX-5
is $0.50 per unit per year. Compute the carry-
ing cost associated with 95% and 99% service
levels.
Finn simply does not have time to analyze all the
items in his company's inventory. As a young man-
ager, he has more important things to do. The fol-
lowing is a table of six items in inventory, along
with the unit cost and the demand, in units:
Which item(s) should be carefully controlled us-
ing a quantitative inventory technique, and what
item(s) should not be closely controlled?
The demand for barbeque grills has been fairly
large in the past several years, and Estate Supplies,

Inc., usually orders new barbeque grills five times a
year. It is estimated that the orderiRg cost is $60 per
order. The carrying cost is $10 per grill per year.
Furthermore, Estate Supplies, Inc., has estimated
that the stockout cost is $50 per unit. The reorder
point is 650 units. Although the demand each year
is high, it varies considerably. The demand during
the lead time is as follows (see Table for Problem 30
at the top of the next page).
The lead time is 12 working days. How
much safety stock should Estate Supplies, Inc.,
maintain?
Omar Haaris receives 5,000 tripods annually from
Top-Grade Suppliers to meet his annual demand.
Omar runs a large photographic outlet, and the tri-
pods are used primarily with 35mm cameras. The
ordering cost is $15 per order, and the carrying cost
is $0.50 per unit per year. Weekly demand is 100
tripods.
(a) What is the optimal order quantity?
(b) Top-Grade is offering a new shipping option.
When an order is placed, Top-Grade will ship
one-third of the order every week for three
weeks instead of shipping the entire order at
one time. What is the order quantity if Omar
30
31
29
0.1

0.2
0.2
0.2
0.2
0.1
PROBABILITY
40
50
60
70
80
90
DEMAND DURING
LEAD TIME
28
27
25
26
,
t,
t
I
;i

231
The cost for Amco to place an order is $60, and the
cost to store a hammer in inventory for a year is $2.
What quantity should Amco order?
Asbury Products offers the following discount
schedule for its 4- by 8-foot sheets of good-quality
plywood:
chooses to use this option? To simplify your
calculations, assume that the average inventory
is equal to one-half of the maximum inventory
level for Top-Grade's new option.
(c) Suppose Top-Grade Suppliers offers to ship
one-fifth of the order every week for five
weeks. What is the order quantity under this op-
tion? Make the same assumption as in part (b).
(d) Calculate the total cost for each option. What
do you recommend?
Amco Convenience Store purchases 500 hammers
a year for its inventory from its supplier, who of-
fers pricing at quantity discounts. The quantities
and pricing from this supplier are shown in the
following table:
Home Sweet Home Company orders plywood
from Asbury Products. Home Sweet Home has an

otdering cost of $55. The carrying cost is 25%, and
the annual demand is 1,000 sheets. What do you
recommend?
34 Tropic Citrus Products produces orange juice,
grapefruit juice, and other citrus-related items.
Tropic obtains fruit concentrate from a coop-
erative in Orlando that consists of approximately
50 citrus growers. The cooperative will sell a
minimum of 100 cans of fruit concentrate to cit-
rus processors such as Tropic. The cost per can
is $9.90.
Last year, a cooperative developed an in-
centive bonus program (IBP) to give an incen-
tive to its large customers to buy in quantity.
Here is how it works: If 200 cans of concentrate
are purchased, 10 cans of free concentrate are
included in the deal. In addition, the names of
the companies purchasing the concentrate are
added to a drawing for a new personal com-
puter. The personal computer has a value of
about $3,000, and currently about 1,000 compa-
nies are eligible for this drawing. At 300 cans of
concentrate, the cooperative will give away 30
free cans and will also place the company name
in the drawing for the personal computer. When
the quantity goes up to 400 cans of concentrate,
40 cans of concentrate will be given away free
with the order. In addition, the company is also
placed in a drawing for the personal computer
and a free trip for two. The value of the trip for
two is approximately $5,000. About 800 com-
panies are expected to qualify and to be in the
running for this trip.

Tropic estimates that its annual demand for
fruit concentrate is 1,000 cans. In addition, the
ordering cost is estimated to be $10.00, and the
carrying cost is estimated to be 10%, or about
$] .00 per unit. The firm is intrigued with the
IBP. If the company decides that it will keep the
trip or the computer if they are won, what
should it do?
35 Lindsay Hawkes sells discs that contain 25 soft-
ware packages that perform a variety of financial
functions typically used by business students. De-
pending on the quantity ordered, Lindsay offers the
following price discounts:
$12.00
$11.50
$10.50
$ 9.80
0.25
0.23
0.12
0.10
0.08
0.05
0.05

0.04
0.03
0.03
0.02
UNIT PRICE
PROBABILITY
600
650
700
750
800
850
900
950
1,000
1,050
1,100
DEMAND DURING

LEAD TIME
Table for Problem 30
ORDER QUANTITY
0-149
150-349
350-599
600 or more
33
32
ORDER QUANTITY
99 sheets or less
100 to 500 sheets
More than 500 sheets
UNIT PRICE
$18.00
$17.70
$17.45
ORDER QUANTITY
1 to 600

601 to 1,100
1,101 to 1,550
1,551 and up
PRICE
$10.00
$ 9.92
$ 9.86
$ 9.80
232 .,
~.
The annual demand is 3,000 units on aver-
age. Lindsay's setup cost to produce the discs
is $350. She estimates holding costs to be 10%
of the price, or about $1 per unit per year. What
is the optimal number of discs to produce at a
time?
36 Demand during lead time for one brand of TV
is normally distributed with a mean of 56 TVs
and a standard deviation of 18 TV s. What safety
stock should be carried for a 95% service level?
What is the appropriate RaP?

37 Based on available information, lead time demand
for CD-ROM drives averages 250 units (normally
distributed), with a standard deviation of 25 drives.
Management wants a 98% service level. How
many drives should be carried as safety stock?
What is the appropriate RaP?
38 A product is delivered to Monica's company
once a year. The Rap, without safety stock,
is 300 units. Carrying cost is $25 per unit per
year, and the cost of a stockout is $80 per unit
per year. Given the following demand probabilities
during the reorder period, how much safety stock
should be carried?
Perform an ABC analysis on her data.
40 The Century One Store has 10 items in inventory,
as shown in the following table. The manager wants
to divide these items into ABC classifications. What
would you recommend?
ANNUAL
ITEM DEMAND UNIT COST
A 1,750 $ 10
B 300 $1,500
C 500 $ 500
D 6.000 $ 10
E 1.000 $ 20

F 1.500 $ 45
G 4.000 $ 12
H 600 $ 20
3.000 $ 50
J 2,500 $ 5
I
DEMAND DURING
REORDER PERIOD
100
200
300
400
500
PROBABILITY
0.3
0.1
0.3
0.2
0.1

41 Lea Ash opens a new cosmetics store. There are
numerous items in inventory, and Lea knows
that there are costs associated with inventory.
Lea wants to classify the items according to dol-
lars invested in them. The following table pro-
vides information about the 10 items that she
carries:
Barb's company has compiled the following data
on a small set of products:
39
ITEM
1
2
3
4
5
6
7
8
9
10
ANNUAL

DEMAND
410
330
300
200
240
625
85
75
100
125
UNIT COST
$ 0.75
$ 17.00
$ 3.00
$ 0.90
$110.00
$ 0.75

$ 25.00
$ 2.00
$125.00
$ 1.50
ITEM UNIT DEMAND
NUMBER COST (UNITS)
A $4 1,500
B $1 1,500
C $3 700
D $1 1,200
E $8 200
F $6 500
G $2 1,000
H $7 800
I $8 1.200
J $4 800
Use ABC analysis to classify these items into cat-
egories A, B, and C.
233
00000001000000020000000300000004

Tomica - Week 2.pdf
GSA 334 Application Assignment 3 Instructions
to the Dropbox in a
not correct.

the textbook:
• Chapter 4, pages 146-147, Problems 30,31, and 32 using the
Data Analysis
Add-In for Microsoft Excel
• Chapter 5, pages 188-189, Problems 25 and 31 using either
Excel's Data
Analysis Add-In or Excel OM
ACTUAL PASSENGER ACTUAL PASSENGER
WEEK MILES (l,OOOS) WEEK MILES (1,OOOS)
1 17 7 20
2 21 8 18
3 19 9 22
4 23 10 20

5 18 11 15
6 16 12 22
j;: 26
~:27
FORECASTING
Passenger rrtiles flown on Northeast Airlines, a com-
muter firm serving the Boston hub, are as follows
for the past 12 weeks:
(a) Assuming an initial forecast for week 1 of
17,000 miles, use exponential smoothing to
compute miles for weeks 2 through 12. Use
a = 0.2.
(b) What is the MAD for this model?
(c) Compute the RSFE and tracking signals. Are
they within acceptable limits?
Emergency calls to Winter Park, Florida's 911 sys-
tem, for the past 24 weeks are as follows:
MONTH INCOME ($1 ,OOOS)
February 70.0
March 68.5
April 64.8
May 71.7

June 71.3
July 72.8
Use exponential smoothing to forecast August's in-
come. Assume that the initial forecast for February
is $65,000. The smoothing constant selected is
a = 0.1.
Resolve Problem 29 with a = 0.3. Using MAD,
which smoothing constant provides a better forecast?
A major source of revenue in Texas is a state sales
tax on certain types of goods and services. Data are
compiled and the state comptroller uses them to
project future revenues for the state budget. One par-
ticular category of goods is classified as Retail
Trade. Four years of quarterly data (in $millions) for
one particular area of southeast Texas follow:
I
WEEK CALLS WEEK CALLS WEEK CALLS
1 50 9 35 17 55
2 35 10 20 18 40
3 25 11 15 19 35
4 40 12 40 20 60
5 45 13 55 21 75
6 35 14 35 22 50
7 20 15 25 23 40

8 30 16 55 24 65
j: 28
(a) Compute the exponentially smoothed forecast of
calls for each week. Assume an initial forecast of
50 calls in the first week and use a = 0.1. What
is the forecast for the 25th week?
(b) Reforecast each period using a = 0.6.
(c) Actual calls during the 25th week were 85.
Which smoothing constant provides a superior
forecast?
Using the 911 call data in Problem 27, forecast calls
for weeks 2 through 25 using a = 0.9. Which is
best? (Again, assume that actual calls in week 25
were 85 and use an initial forecast of 50 calls.)
Consulting income at Kate Walsh Associates for the
period February-July has been as follows:
QUARTER YEAR 1 YEAR 2 YEAR 3 YEAR 4
I 218 225 234 250
2 247 254 265 283
3 243 255 264 289
4 292 299 327 356
(a) Compute seasonal indices for each"quarter based
onaCMA.

(b) Deseasonalize the data and develop a trend line
on the deseasonalized data.
(c) Use the trend line to forecast the sales for each
quarter of year 5.
(d) Use the seasonal indices to adjust the forecasts
found in part (c) to obtain the final forecasts.
Using the data in Problem 3], develop a multiple re-
gression model to predict sales (both trend and sea-
sonal components), using dummy variables to
incorporate the seasonal factor into the model. Use
this model to predict sales for each quarter of the
next year. Comment on the accuracy of this model.
Trevor Harty, an avid mountain biker, always wanted
to start a business selling top-of-the-line mountain
bikes and other outdoor supplies. A little over
6 years ago, he and a silent partner opened a store
called Hale and Harty Trail Bikes and Supplies.
Growth was rapid in the first 2 years, but since that
189
FORECASTING
A three-month moving average forecast was devel-
oped in the section on moving averages in Table 3..
Using MAD, determine whether the forecast in
Problem 13 or the forecast in the section concerning
Wallace Garden Supply is more accurate.
Data collected on the yearly demand for 50-pound
bags of fertilizer at Wallace Garden Supply are

" shown in the following table. Develop a 3-year mov-
ing average to forecast sales. Then estimate demand
again with a weighted moving average in which
sales in the most recent year are given a weight of 2
and sales in the other 2 years are each given a weight
of 1. Which method do you think is best?
: 17
(a) Using a moving average with three periods, de-
termine the demand for vacuum cleaners for next
February.
(b) Using a weighted moving average with three pe-
riods, determine the demand for vacuum clean-
ers for February. Use 3, 2, and 1 for the weights
of the most recent, second most recent, and third
most recent periods, respectively. For example,
if you were forecasting the demand for February,
November would have a weight of 1, December
would have a weight of 2, and January would
have a weight of 3.
(c) Evaluate the accuracy of each of these methods.
(d) What other factors might R. Lowenthal consider
in forecasting sales?
The sales manager had predicted, before the busi-
ness started, that year l's sales would be 410 air con-
ditioners. Using exponential smoothing with a
weight of Q' = 0.30, develop forecasts for years 2
through 6.
Using smoothing constants of 0.6 and 0.9, develop
forecasts for the sales of Cool-Man air conditioners
(see Problem 19).

What effect did the smoothing constant have on the
forecast for Cool-Man air conditioners? (See Prob-
lems 19 and 20.) Which smoothing constant gives
the most accurate forecast?
Use a three-year moving average forecasting model
to forecast the sales of Cool-Man air conditioners
(see Problem 19).
Using the trend projection method, develop a fore-
casting model for the sales of Cool-Man air condi-
tioners (see Problem 19).
Would you use exponential smoothing with a
smoothing constant of 0.3, a 3-year moving average,
or a trend to predict the sales of Cool-Man air condi-
tioners? Refer to Problems 19,22, and 23.
Sales of industrial vacuum cleaners at R. Lowenthal
Supply Co. over the past 13 months are as follows:
SALES ($I,OOOs) MONTH SALES ($1,000s) MONTH
11 January 14 August
14 February 17 September
16 March 12 October
10 April 14 November
15 May 16 December
17 June II January
11 July
Q: 25X.
• 24

: 21
Q.22
AC
Q 23
.II,"
.Q .20
¥
?
SALES
450
495
518
563
584
DEMAND FOR FERTILIZER
(I,OOOSOF BAGS)
4
6
4
5

10
8
7
9
12
14
15
YEAR
I
2
3
4
5
6
Develop a trend line for the demand for fertilizer in
Problem 15, using any computer software.
In Problems 15 and 16, three different forecasts
were developed for the demand for fertilizer. These
three forecasts are a 3-year moving average, a
weighted moving average, and a trend line. Which
one would you use? Explain your answer.

Use exponential smoothing with a smoothing con-
stant of 0.3 to forecast the demand for fertilizer
given in Problem 15. Assume that last period's fore-
cast for year 1 is 5,000 bags to begin the procedure.
Would you prefer to use the exponential smoothing
model or the weighted average model developed in
Problem IS? Explain your answer.
Sales of ,Cool-Man air conditioners have grown
steadily during the past 5 years:
YEAR
I
2
3
4
5
6
7
8
9
10
11
Q: 19

.Q:18
188
i: 15
REGRESSION MODELS
.'.:":.
..).~~ [
f~~~i~..,t
;'.~'.'."1.'.,;,;,,"'.' :"r",,~::1! ,iI
,J
Peg was to report back by February 26 with the answer, along
with quantitative and graphical descriptions of the relationship.
Peg's first step was to have her staff construct the average
age of Northern and Southeast B727-300 fleets, by quarter,
since the introduction of that aircraft to service bY each airline
in late 1993 and early 1994. The average age of each fleet was
calculated by first multiplying the total number of calendar days
each aircraft had been in service at the pertinent point in time
by
the average daily utilization of the respective fleet to total fleet
hours flown. The total fleet hours flown was then divided by the
number of aircraft in service at that time, giving the age of the
"average" aircraft in the fleet.' . .,
The average utilization was found by taking the actual total
fleet hours flown on September 30,2007, from Northern and

Southeast data, and dividing by the total days in service for all
aircraft at that time. The average utilization for Southeast was
8.3 hours per day, and the average utilization for Northern was
8.7 hours per day. Because the available cost data were calcu-
lated for each yearly period ending at the end of the first quar-
ter, average fleet age was calculated at the same points in time.
147
In January 2008, Northern Airlines merged with Southeast
Airlines to create the fourth largest U.S. carrier. The new
North-South Airline inherited both an aging fleet of Boeing
727-300 aircraft and Stephen Ruth. Stephen was a tough for-
mer Secretary of the Navy who stepped in as new president and
chairman of the board.
Stephen's first concern in creating a financially solid com-
pany was maintenance costs. It was commonly surmised in the
airline industry that maintenance costs rise with the age of the
aircraft. He quickly noticed that historically there had been a
significant difference in the reported B727-300 maintenance
costs (from ATA Form 41s) both in the airframe and engine ar-
eas between Northern Airlines and Southeast Airlines, with
Southeast having the newer fleet.
On February 12, 2008, Peg Jones, vice president for opera-
tions and maintenance, was called into Stephen's office and
asked to study the issue. Specifically, Stephen wanted to know
whether the average fleet age was correlated to direct airframe
maintenance costs, and whether there was a relationship be-
tween average fleet age and direct engine maintenance costs.
North-South Airline
Case Study

- TEAM W ERA AVO MONTH DJIA STOCK 1 STOCK 2
NewYorkYankees 103 4.26 0.283
1 11,168 48.5
32.4
LosAngelesAngels 97 4.45 0.285
2 11,150 48.2 31.7
BostonRedSox 95 4.35
0.270 3 11,186 44.5
31.9
MinnesotaTwins 87 4.50 0.274
4 1l.381 44.7 36.6
TexasRangers 87 4.38
0.260 5 1[.679 49.3
36.7
DetroitTigers 86 4.29 0.260
6 12,081 49.3 38.7
SeattleMariners 85 3.87 0.258
7 12,222 46.1 39.5
TampaBayRays 84 4.33 0.263
8 12,463 46.2 41.2
ChicagoWhite Sox 79 4.14 0.258
9 12,622 47.7 43.3
Toronto BlueJays 75 4.47 0.266
10 12,269 48.3 39.4

OaklandAthletics 75 4.26 0.262
11 12,354 47.0 40.1
ClevelandIndians 65 5.06 0.264
12 13.063 47.9 42.1
KansasCity Royals 65 4.83 0.259
13 13,326 47.8 45.2
BaltimoreOrioles 64 5.15 0.268
(c) Which of the two models is better for predicting
(a) Develop a regression model to predict the price
the number of victories?
of stock 1 based on the Dow Jones Industrial
(d) Develop a multiple regression model that in-
Average.
cludes both ERA and batting average. How does
(b) Develop a regression model to predict the price
this compare to the previous models?
of stock 2 based on the Dow Jones Industrial
j: 33 The closing stock price for each of two stocks was
Average.
recorded over a 12-month period. The closing price
(c) Which of the two stocks is most highly corre-
for the Dow Jones Industrial Average (DJIA) was
lated to the Dow Jones Industrial Average over

also recorded over this same time period. These val-
this time period?
ues are shown in the following table:
CATEGORY TOTAL COST ($) MEDIAN SAT
Public 21,700 1990
Public 15,600 1620
Public 16,900 1810
Public 15,400 1540
Public 23,100 1540
Public 21,400 1600
Public 16,500 1560
Public 23,500 1890
Public 20,200 1620
Private 30,400 1630
Private 41,500 1840
Private 36,100 1980
Private 42,100 1930
Private 27,lOO 2130

Private 34,800 2010
Private 32,100 1590
Private 31,800 1720
Private 32,100 1770
146
.~
"
taken into consideration? Discuss how accu .c
b l. h 1 " rateye leve t ese resu ts are usmg mformation "
the regression models. rel~
In 2008, the lotal payroll for the New York y~'
was $209.1 million, while the total payroll :~~
Tampa Bay Rays was about $43.8 million, Orabo
one-fifth that of the Yankees. Many people have su
gested that some teams are able to buy winning g
d h . h' b' d' seasons an c amplOns IpS y spen mg a lot of m ',
one
on the most talented players aVailable. The tabl '
below lists the payrolls (in millions of dollars) for~
14 Major League Baseball teams in the Amen' "can
Leag~e as well as the total number of victories for
each m the 2008 season: -
Develop a regression model to predict the total num-
ber of victories based on the payroll of a team. Based
on the results of the computer output, discuss how

accurate this model is. Use the model to predict the
number of victories for a team with a payroll of $79
million.
In 2009, the New York Yankees won 103 baseball
games during the regular season. The table on the next
page lists the number of victories (W), the earned-
run-average (ERA), and the batting average (AVO)
of each team in the American League. The ERA is
one measure of the effectiveness of the pitching staff,
and a lower number is better. The batting average
is one measure of effectiveness of the hitters, and a
higher number is better.
(a) Develop a regression model that could be used to
predict the number of victories based on the ERA.
(b) Develop a regression model that could be used to
predict the number of victories based on the bat-
ting average.
PAYROLL NUMBER
TEAM ($M1LLlONS) OF VICTORIES:
New York Yankees 209.1 89
Detroit Tigers 138.7 74
Boston Red Sox 133.4 95
Chicago White Sox 121.2 89
Cleveland Indians 79.0 81
Baltimore Orioles 67.2 68
Oakland Athletics 48.0 75

Los Angeles Angels 119.2 100
Seattle Mariners 118.0 61
Toronto Blue Jays 98.6 86
Minnesota Twins 62.2 88
Kansas City Royals 58.2 75
Tampa Bay Rays 43.8 97
Texas Rangers 68.2 79
~: 31
Q.32¥•.
HORSEPOWER WEIGHT
124 2,922
97 2,434
114 3,248
102 2,812
114 3.382
142 3,197
153 4.380
139 4,036

REGRESSION MODELS
Use the data in Problem 27 to develop a multiple lin-
ear regression model. How does this compare with
each of the models in Problem 277
Use the data in Problem 27 to find the best quadratic
regression model. (There is more than one to con-
sider.) How does this compare to the models in
Problems 27 and 287
A sample of nine public universities and nine private
universities was taken. The total cost for the year
(incl4ding room and board) and the median SAT
score (maximum total is 2400) at each school were
recorded. It was felt thal schools with higher median
SAT scores would have a better reputation and
would charge more tuition as a result of that. The
data is in the table below. Use regression to help an-
swer the following questions based on this sample
data. Do schools with higher SAT scores charge
more in tuition and fees? Are private schools more
expensive than public schools when SAT scores are
20
21
18
18
16
16
22

MPG
25
~: 28
Q: 29~
~: 30
J
0000000100000002000000030000000400000005
Tomica - Week 3.pdf
to the Dropbox in a
not correct.

the textbook: Chapter 3,
page 107, Problem 24 using Excel/Excel OM and page 110,
Problem 37 using
TreePlan.
DECISION ANALYSIS

-,fbi:
;" ...•. ,
~.
22 Waldo Books needs to decide how many copies of
a new hardcover release to purchase for its shelves.
The store has assumed that demand will be 50, 100,
150, or 200 copies next month, and it needs to decide
whether to order 50, 100, 150, or 200 books for this
period. Each book costs Waldo $20 and can be sold
for $30. Waldo can sell any unsold books back to the
supplier for $4.
(a) Which option should Waldo choose if it uses the
maximax criterion?
(b) Which option should Waldo choose if it uses the
maximin criterion?
(c) Which option should Waldo choose if it uses the
equally likely criterion?
(d) Which option should Waldo choose if it uses the
criterion of realism with ex = 0.7?
(e) Which option should Waldo choose if it uses the
minimax regret criterion?
23 After researching the market, Waldo Books (see
Problem 21) has concluded that the probabilities of
selling 50, 100, 150, and 200 books next month are
0.2,0.35,0.25, and 0.2, respectively.
(a) Using EMVs, how many books should Waldo
order?

(b) Using EOL, how many books should Waldo
order?
(c) Compute Waldo's EVwPI and EVPI.
24 A souvenir retailer has an opportunity to establish
a new location inside a large airport. The annual
returns will depend primarily on the size of the
space she rents and if the economy will be favorable.
The retailer has worked with the airport concession
commission, and has projected the following possi-
ble annual earnings associated with renting a small,
medium, large, or very large space:
GOOD FAIR POOR
SIZE ECONOMY ECONOMY ECONOMY
Small $ 70,000 $28,000 -$ 14,000
Medium $112,000 $42,000 -$ 28,000
Large $140,000 $42,000 -$ 56,000
Very large $420,000 $35.000 -$224,000
(a) What is the souvenir retailer's maximax decision?
(b) What is her maximin decision?
(c) What is her equally likely decision?
(d) What is her criterion of realism decision, using
ex = 0.8?
(e) What is her minimax regret decision?
25 An ambulance driver has three major routes from the
hospital base station to the university, to which he
makes several trips weekly. The traffic patterns are,

however, very complex. Under good conditions, Broad
Street is the fastest route. When Broad is congested,
one of the other routes, either Drexel Avenue or the
expressway, is usually preferable. Over the past two
months, the driver has tried each route several times,
under different traffic conditions. This information
is summarized (in minutes of travel time to work) in
the following table:
NO MILD SEVERE
ROUTE CONGESTION CONGESTION CONGESTION
Broad 10 21 30
Street
Drexel 13 17 23
Avenue
Expressway 20 21 20
In the past 50 days, the driver has encountered se-
vere traffic congestion 10 days and mild traffic con-
gestion 20 days. Assume that the past 50 days are
typical of traffic conditions.
(a) Which route should the driver take? Remember
that we want to find the fastest route.
(b) If the ambulance had a traffic scanner to accu-
rately inform the driver of the level of conges-
tion in this part of town, how much time could
he potentially save?
26 A group of medical professionals is considering con-
structing a private clinic. If patient demand for the
clinic is high, the physicians could realize a net profit
of $100,000. If the demand is low, they could lose

$40,000. Of course, they don't have to proceed at all,
in which case there is no cost. In the absence of any
market data, the best the physicians- can guess is that
there is a 50-50 chance that demand will be good.
(a) Construct a decision tree to help analyze this
problem. What should the medical professionals
do?
(b) The physicians have been approached by a mar-
ket research firm that offers to perform a study
of the market at a fee of $5,000. The market
researchers claim that their experience enables
them to use Bayes' theorem to make the follow-
ing statements of probability:
probability of high demand given a positive study result = 0.82
probability oflow demand given a positive study result = 0.18
probability of high demand given a negative study result, .=
0.11
probability of low demand given a negative study result = 0.89
probability of a positive study result = 0.55
probability of a negative study result = 0.45
Expand the decision tree in part (a) to reflect the op-
tions now open with the market study. What should
the medical professionals do now?
(c) What is the maximum amount the physicians
would be willing to pay for the market study?
107
DECISION ANALYSIS

The following table describes your utility values
for various payoffs:
MONETARY VALUE UTILITY
-$100 0.00
_$ 50 0.50
$ 0 0.80
$ 50 0.95
$100 1.00
(a) Redo Problem 35 using this information.
(b) How can you best describe your attitude toward
risk? Justify your answer.
37 Shamrock Oil owns a parcel of land that has the
potential to be an underground oil field. It will cost
$500,000 to drill for oil. If oil does exist on the land,
Shamrock will realize a payoff of $4,000,000 (not
including drilling costs). With current information,
Shamrock estimates that there is a 0.2 probability
that oil is present on the site. Shamrock also has the
option of selling the land as is for $400,000, without
further information about the likelihood of oil being .
present. A third option is to perform geological tests
at the site, which would cost $100,000. There is a
30% chance that the test results will be positive,
after which Shamrock can sell the land for $650,000
or drill the land, with a 0.65 probability that oil
exists. If the test results are negative, Shamrock can
sell the land for $50,000 or drill the land, with a 0.05
probability that oil exists. Using a decision tree,
recommend a course of action for Shamrock Oil.

38 Shamrock Oil (see Problem 37) has some revised
information concerning the accuracy of the geologi-
cal test probabilities. According to this new infor-
mation, the probability that the test will be positive,
given that oil is present in the ground, is 0.85. The
probability that the test will be negative, given that
oil is not present, is 0.75. Calculate the posterior
probabilities and reevaluate the decision tree from
Problem 37. Does this new information affect Sham-
rock Oil's original decision?
39 Shamrock Oil (see Problem 37) has decided to rely on
utility theory to assist in the decision concerning the oil
field,.The following table describes its utility function;
all monetary values are in thousands of dollars:
MONETARY VALUE UTILITY
_$ 600 0.00
_$ 500 0.03
_$ 50 0.10
$ 400 0.15
$ 550 0.17
$3,400 0.90
$3,500 1.00
(a) Redo Problem 37 using this information.
(b) How can you best describe Shamrock Oil's
attitude toward risk? Justify your answer.
40 Jim Sellers is thinking about producing a new type
of electric razor for men. If the market is good, he
would get a return of $140,000, but if the market
for this new type of razor is poor, he would lose
$84,000. Because Ron Bush is a close friend of

Jim Sellers, Jim is considering the possibility of
using Bush Marketing Research to gather additional
information about the market for the razor. Ron has
suggested two options to Jim. The first alternative is
a sophisticated questionnaire that would be adminis-
tered to a test market. It will cost $5,000. The second
alternative is to run a pilot study. This would involve
producing a limited number of the new razors and
trying to sell them in two cities that are typical of
American cities. The pilot study is more accurate
but is also more expensive. It will cost $20,000. Ron
has suggested that it would be a good idea for Jim to
conduct either the questionnaire or the pilot before
making the decision concerning whether to produce
the new razor. But Jim is not sure if the value of
either option is worth the cost.
For the sake of solving this problem, assume
that Jim has the following probability estimates
available: the probability of a successful market
without performing the questionnaire or pilot study
is 0.5, the probability of a successful market given a
positive questionnaire result is 0.78, the probability
of a successful market given a negative question-
naire result is 0.27, the probability of a successful
market given a positive pilot study result is 0.89, and
the probability of a successful market given a nega-
tive pilot study result is 0.18. Further, the probability
of a positive questionnaire result is 0.45 and the prob-
ability of a positive pilot study result is also 0.45.
(a) Draw the decision tree for this problem and
identify the best decision for Jim.
(b) What is the value of the questionnaire's informa-
tion? What is its efficiency? .

(c) What is the value of the pilot study's informa-",,
tion? What is its efficiency? ":""~)-
41 Jim Sellers (see Problem 40) has been able to esti~,f:;!G
mate his utility for a number of different values, an4,~:jl(::
he would like to use these utility values in makin~d).i,'
his decision. The utility values are U(_$104,000»,
= 0, U(-$89,000) = 0.5, U(-$84,000) = 0.59:
U(-$20,000) = 0.7, U(-$5,000) = 0.8, U($O),,;
0.81, U($120,000) = 0.9, U($135,000) = 0.95, a
U($140,000) = 1.
(a) Solve Problem 40(a) again using utility value~
(b) Is Jim a risk avoider or risk seeker? Justify Y
answer.
42 Jason Scott has applied for a mortgage to pure
a house, and he will go to settlement in two mon,;
000000010000000200000003
Tomica - Week 4.pdf
to the Dropbox in a

not correct.
the textbook:
• Chapter 1, page 18, Problems 22 and 23 using Excel
• Chapter 2, page 63, Problems 43 and 45 using Excel (disregard
instructions to
use Appendix C in Problem 43 Part a; use Excel instead)

'22!'f (1-50 ~l,O) - , DO 0 ~0
'I -- l DOq f CJ 0:::- 57,8 c:; ~ffJ
INTRODUCTION TO QUANTITATIVE ANALYSIS
~. 15
terrible losing streak, and attendance has fallen off.
In fact, Katherine believes that she will sell only 500
programs for the next game. If it was possible to
raise the selling price of the program and still sell
500, what would the price have to be for Katherine
to break even by selling 500?
Farris Billiard Supply sells all types of billiard
equipment, and is considering manufacturing their
own brand of pool cues. Mysti Farris, the production
manager, is currently investigating the production of
a standard house pool cue that should be very popu-
lar. Upon analyzing the costs, Mysti determines that
the materials and labor cost for each cue is $25, and
the fixed cost that must be covered is $2,400 per
week. With a selling price of $40 each, how many
pool cues must be sold to break even? What would
the total revenue be at this break-even point?
Mysti Farris (see Problem 19) is considering raising
the selling price of each cue to $50 instead of $40. If
this is done while the costs remain the same, what
would the new break-even point be? What would the

total revenue be at this break-even point?
Mysti Farris (see Problem 19) believes that there is a
high probability that 120 pool cues can be sold if the
selling price is appropriately set. What selling price
would cause the break-even point to be 120?
Golden Age Retirement Planners specializes in pro-
viding financial advice for people planning for a
comfortable retirement. The company offers semi-
nars on the important topic of retirement planning.
For a typical seminar, the room rental at a hotel is
$1,000, and the cost of advertising and other inci-
dentals is about $10,000 per seminar. The cost of the
materials and special gifts for each attendee is $60
per person attending the seminar. The company
charges $250 per person to attend the seminar as this
seems to be competitive with other companies in the
same business. How many people must attend each
seminar for Golden Age to break even?
A couple of entrepreneurial business students at
State University decided to put their education into
practice by developing a tutoring company for busi-
ness students. While private tutoring was offered, it
was determined that group tutoring before tests in
the large statistics classes would be most beneficial.
The students rented a room close to campus for $300
for 3 hours. They developed handouts based on past
tests, and these handouts (including color graphs)
cost $5 each. The tutor was paid $25 per hour, for a
total of $75 for each tutoring session.
(a) If students are charged $20 to attend the session,
how many students must enroll for the company
to break even?
(b) A somewhat smaller room is available for $200
for 3 hours. The company is considering this

possibility. How would this affect the break-even
point?
: 21
~:23
Q.19
X
~: 18
~: 17
18
8 Describe the use of sensitivity analysis and postopti-
ma1ity analysis in analyzing the results.
9 Managers are quick to claim that quantitative a~a-
1ysts talk to them in a jargon that does not sound hke
English. List four terms that might not be under-
stood by a manager. Then explain in nontechnical
terms what each term means.
10 'Why do you think many quantitative analysts don't
like to participate in the implementation process?
What could be done to change this attitude?
11 Should people who will be using the results of a new
quantitative model become involved in the technical
aspects of the problem-solving procedure?
12 C. W. Churchman once said that "mathematics ...
tends to lull the unsuspecting into believing that he
who thinks elaborately thinks well." Do you think

that the best QA models are the ones that are most
elaborate and complex mathematically? Why?
13 What is the break-even point? What parameters are
necessary to find it?
Note: Q means the problem may be solved with ~M for
Windows; ¥ means
the problem may be solved with Excel QM; and x means the
problem may be
solved with QM for Windows and/or Excel QM.
Problems
Q.• 14 Gina Fox has started her own company, Foxy Shirts,
oK which manufactures imprinted shirts for special oc-
casions. Since she has just begun this operation, she
rents the equipment from a local printing shop when
necessary. The cost of using the equipment is $350.
The materials used in one shirt cost $8, and Gina can
sell these for $] 5 each.
(a) If Gina sells 20 shirts, what will her total rev-
enue be? What will her total variable cost be?
(b) How many shirts must Gina sell to break even?
What is the total revenue for this?
Ray Bond sells handcrafted yard decorations at
county fairs. The variable cost to make these is $20
each, and he sells them for $50. The cost to rent a
booth at the fair is $150. How many of these must
Ray sell to break even?
Ray Bond, from Problem ]5, is trying to find a new
supplier that will reduce his variable cost of produc-
tion to $]5 per unit. If he was able to succeed in re-
ducing this cost, what would the break-even point be?

Katherine D' Ann is planning to finance her college
education by selling programs at the football games
for State University. There is a fixed cost of $400 for
printing these programs, and the variable cost is $3.
There is also a $1,000 fee that is paid to the univer-
sity for the right to sell these programs. If Katherine
was able to sell programs for $5 each, how many
would she have to sell in order to break even?
Katherine D' Ann, from Problem 17, has become
concerned that sales may fall, as the team is on a
PROBABILITY CONCEPTS AND APPLICATIONS
63
the past 6 years. On the average, Armstrong Faber
has sold 457,000 pencils each year. Furthermore,
90% of the time sales have been between 454,000
and 460,000 pencils. It is expected that the sales
follow a normal distribution with a mean of
457,000 pencils. Estimate the standard deviation of
this distribution. (Hint: Work backward from the
normal table to find Z. Then apply Equation 15.)
The time to complete a cons~ruction project is nor-
mally distributed with a mean of 60 weeks and a
standard deviation of 4 weeks.
(a) What is the probability the project will be fin-
ished in 62 weeks or less?
(b) What is the probability the project will be fin-
ished in 66 weeks or less?
(c) What is the probability the project will take

longer than 65 weeks?
A new integrated computer system is to be installed
worldwide for a major corporation. Bids on this
project are being solicited, and the contract will be
awarded to one of the bidders. As a part of the pro-
posal for this project, bidders must specify how
long the project will take. There will be a significant
penalty for finishing late. One potential contractor
determines that the average time to complete a proj-
ect of this type is 40 weeks with a standard devia-
tion of 5 weeks. The time required to complete this
project is assumed to be normally distributed.
(a) If the due date of this project is set at 40 weeks,
what is the probability that the contractor will
have to pay a penalty (i.e., the project will not
be finished on schedule)?
(b) If the due date of this project is set at 43 weeks,
what is the probability that the contractor will
have to pay a penalty (i.e., the project will not
be finished on schedule)?
(c) If the bidder wishes to set the due date in the
proposal so that there is only a 5% chance of
being late (and consequently only a 5% chance
of having to pay a penalty), what due date
should be set?
Patients arrive at the emergency room of Costa Val-
ley Hospital at an average of 5 per day. The
demand for emergency room treatment at Costa
Valley follows a Poisson distribution.
(a) Using Appendix C, compute the probability of
exactly 0, 1,2,3,4, and 5 arrivals per day.

(b) What is the sum of these probabilities, 'and why
is the number less than I?
Using the data in Problem 43, determine the proba-
bility of more than 3 visits for emergency room
service on any given day.
Cars arrive at Carla's Muffler shop for repair work
at an average of 3 per hour, following an exponen-
tial distribution.
(a) What is the expected time between arrivals?
(b) What is the variance of the time between
arrivals?
: 41
: 43
: 45
only 5% of all cases are deemed defective due to
discolorations. If 6 such cases are sampled, what is
the probability that there will be 0 defective cases if
the process is operating correctly? What is the prob-
ability that there will be exactly 1 defective case?
Refer to the Trowbridge Manufacturing example in
Problem 35. The quality control inspection proce-
dure is to select 6 items, and if there are 0 or 1 de-
fective cases in the group of 6, the process is said to
be in control. If the number of defects is more than
1, the process is out of control. Suppose that the true
proportion of defective items is 0.15. What is the
probability that there will be 0 or 1 defects in a sam-
ple of 6 if the true proportion of defects is 0.15?
An industrial oven used to cure sand cores for a
factory manufacturing engine blocks for small cars

is able to maintain fairly constant temperatures.
The temperature range of the oven follows a nor-
mal distribution with a mean of 450°F and a stan-
dard deviation of 25°F. Leslie Larsen, president of
the factory, is concerned about the large number of
defective cores that have been produced in the past
several months. If the oven gets hotter than 475°F,
the core is defective. What is the probability that the
oven will cause a core to be defective? What is the
probability that the temperature of the oven will
range from 460° to 470°F?
Steve Goodman, production foreman for the
Florida Gold Fruit Company, estimates that the av-
erage sale of oranges is 4,700 and the standard de-
viation is 500 oranges. Sales follow a normal
distribution.
(a) What is the probability that sales will be greater
than 5,500 oranges?
(b) What is the probability that sales will be greater
than 4,500 oranges?
(c) What is the probability that sales will be less
than 4,900 oranges?
(d) What is the probability that sales will be less
than 4,300 oranges?
Susan Williams has been the production manager
of Medical Suppliers, Inc., for the past 17 years.
Medical Suppliers, Inc., is a producer of bandages
and arm slings. During the past 5 years, the de-
mand for No-Stick bandages has been fairly con-
stant. On the average, sales have been about 87,000
packages of No-Stick. Susan has reason to believe
that the distribution of No-Stick follows a normal

curve, with a standard deviation of 4,000 packages.
What is the probability that sales will be less than
81,000 packages?
Armstrong Faber produces a standard number-two
pencil called Ultra-Lite. Since Chuck Armstrong
started Armstrong Faber, sales have grown steadily.
With the increase in the price of wood products,
however, Chuck has been forced to increase the
price of the Ultra-Lite pencils. As a result, the
demand for Ultra-Lite has been fairly stable over
: 40.
x: 39
000000010000000200000003

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