Mai Quynh Le- 2013190148

Production and Operations Management

Professor Sung Joo Bae
Homework 5
#15, p.67:

a.

b. To achieve the highest expected payoff, management should build large plant.
#17, p.68:
a.

b. The company should buy 2 machines initially. The expected payoff for this
alternative will be $90,000 if demand is low and $180,000 if demand is high.
#20, p. 68:
Benjamin Moses should try the new facility. Since the payoff for the case that new
technology works is $8 million ($20 million* 0.4) is bigger than the payoff for when
the new facility fail ($10 million * 0.6)

#3, p. 238:
If the demand is expected to increase from 70 customers per day to 84 customers
per day, the demand is expected to increase by 20 percent, hence the capacity
requirements also need to increase by 20 percent.
If the desired capacity cushion is 25 percent, management should plan for enough
capacity to serve [84/(1-0.25)]= 112 customers in 3 years.
#4, p. 238:
a. The number of hours of operation per year, N, is:
N= (2 shifts/day)(8 hours/shift)(260 days/ machine-year)= 4160 hours/machine-year
- The number of machines required to meet minimum (pessimistic) demand,
Mpessimistic, is:

[ ( )] [ ( )] [ ( )]
Dp+

Mpessimistic=

D
D
D
s A+ Dp+
s B+ Dp+
s C
Q
Q
Q

( 100C )]

N [1

( 150000.05 )+

10000
17000
1.0 + ( 100000.20 ) +(
4.5 +[ ( 170000.05 ) +(
8.2]
( 15000
)
)
]
[
]
60
80
120 )
4160[1

1000+ 2562.5+ 2011.6

3328

20
]
100

1.675 or 2 machines

- The number of machines required to meet expected demand, M expected, is:

Mexpected= =

Dp+

( QD ) s ] A+[ Dp+( QD ) s ] B+[ Dp+( QD ) s ] C

C
N [1(
]
100 )

( 180000.05 )+

13000
25000
+ ( 130000.20 ) + (
4.5 + ( 250000.05 ) + (
8.2
( 18000
)
)
]
[
]
[
60
80
120 ) ]

4160 1

1200+3331.25+ 2958.4
=2.2504
=
3328

20
100

or 3 machines

- The number of machines required to meet maximum (optimistic) demand, M optimistic,

is:

[ ( )] [ ( )] [ ( )]
Dp+

Moptimistic= =

D
D
D
s A+ Dp+
s B+ Dp+
s C
Q
Q
Q

( 100C )]

N [1

( 250000.05 )+

17000
40000
+ (170000.20 ) + (
4.5 + (400000.05)+(
8.2
( 25000
)
)
]
[
]
[
60
80
120 ) ]

4160 1

20
100

1666.7+ 4356.25+ 4733.4

=3.232 or 4 machines
3328

b. If the operations manager decides to double lot sizes:

Component
A
B
C

Lot Size
(Units/lot)
120
160
240

- The number of machines required to meet minimum (pessimistic) demand,

Mpessimistic, is:

[ ( )] [ ( )] [ ( )]

D
D
D
s A+ Dp+
s B+ Dp+
s C
Q
Q
Q

Dp+

Mpessimistic=

( 100C )]

N [1

( 150000.05 )+

10000
17000
1.0 + ( 100000.20 ) +(
4.5 +[ ( 170000.05 ) +(
8.2]
( 15000
)
)
][
]
120
160
240 )
4160[1

875+2281. 25+1430.8
3328

20
]
100

1.378 or 2 machines

- The number of machine required to meet expected demand, M expected, is:

Mexpected= =

Dp+

( QD ) s ] A+[ Dp+( QD ) s ] B+[ Dp+( QD ) s ] C

C
N [1(
]
100 )

( 180000.05 )+

13000
25000
+ ( 130000.20 ) + (
4.5 + ( 250000.05 ) + (
8.2
( 18000
)
)
]
[
]
[
120
160
240 ) ]

4160 1

20
100

1050+ 2965.6+2104.2
=1.838 or 2 machines
3328

- The number of machine required to meet maximum (optimistic) demand, M optimistic,

is:

Moptimistic= =

Dp+

( QD ) s ] A+[ Dp+( QD ) s ] B+[ Dp+( QD ) s ] C

C
N [1(
]
100 )

( 250000.05 )+

17000
40000
+ (170000.20 ) + (
4.5 + (400000.05)+(
8.2
( 25000
)
)
]
[
]
[
120
160
240 ) ]

4160 1

20
100

1458.4 +3878.1+ 1566.7

=2.074 or 3 machines
=
3328
c. New set up

Component
A
B
C

Setup (hr/lot)
0.8
3.6
6.56

time:

- The number of machine required to meet minimum (pessimistic) demand,

Mpessimistic, is:

[ ( )] [ ( )] [ ( )]
Dp+

Mpessimistic=

D
D
D
s A+ Dp+
s B+ Dp+
s C
Q
Q
Q

( 100C )]

N [1

( 150000.05 )+

10000
17000
0.8 + ( 100000.20 ) + (
3.6 +[ ( 170000.05 )+ (
6.56]
( 15000
)
)
]
[
]
60
80
120 )
4160 [1

275+ 650+1779.4
3328

20
]
100

0.812 or 1 machine

For pessimistic demand, if the operations manager has 3 machines, the plant has
adequate capacity if they want to reduce the setup time by 20 percent without
increasing lot sizes.
- The number of machine required to meet expected demand, M expected, is:

[ ( )] [ ( )] [ ( )]
Dp+

Mexpected= =

D
D
D
s A+ Dp+
s B+ Dp+
s C
Q
Q
Q

( 100C )]

N [1

( 180000.05 )+

13000
25000
0.8 + ( 130000.20 ) + (
3.6 + ( 250000.05 ) +(
6.56
( 18000
)
)
][
][
]
60
80
120 )

4160 1

1140 +3185+2616.7
=2.085
3328

20
100

or 3 machines

For expected demand, if the operations manager has 3 machines, the plant has
adequate capacity if they want to reduce the setup time by 20 percent without
increasing lot sizes.
- The number of machine required to meet maximum (optimistic) demand, M optimistic,
is:

Moptimistic =

Dp+

( QD ) s ] A+[ Dp+( QD ) s ] B+[ Dp+( QD ) s ] C

C
N [1(
]
100 )

( 250000.05 )+

17000
40000
0.8 + (170000.20 ) + (
3.6 + (400000.05)+ (
6.56
( 25000
)
)
]
[
]
[
]
60
80
120 )

4160 1

20
100

1583.4 +4165+ 4186.7

=2.985 or 3 machines
3328

For optimistic demand, if the operations manager has 3 machines, the plant has
adequate capacity if they want to reduce the setup time by 20 percent without
increasing lot sizes.

#8, p.238:
The number of hours of operation per year, N, is:
N= (2 shifts/day)(8 hours/shift)(200days/ machine-year)= 3200 hours/machine-year
The number of machine required to meet upcoming years demand are:

[ ( )] [ ( )]
Dp+

M=

D
D
s kites+ Dp+
s wind socks
Q
Q
N [1

( 300000.3 )+

( 100C )]

12000
3.0 +[ ( 120001.0 ) +(
4.0 ]
( 30000
)
]
20
70 )
3200 [1

25
]
100

13500+12685.7
=10.9 or 11
2400

machines
Currently the company has 4 machines, 7 more machines need to be purchased in
order to meet the upcoming years demand without resorting to any short-term
capacity solutions.