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PRACTICE PROBLEM LP 2

PROBLEM 1

Win Big Gambling Club promotes gambling junkets from a large Midwestern city to casinos in the
Bahamas. The club has budgeted up to \$8,000 per week for local advertising. The money is to be allocated
goal is to reach the largest possible high-potential audience through the various media. The following Table
presents the number of potential gamblers reached by making use of an advertisement in each of the four
media. It also provides the cost per advertisement placed and the maximum number of ads that can be
purchased per week.
Medium

Audience Reached
5,000
TV spot (1 minute)
8,500
Radio spot (30 seconds prime time) 2,400
2,800

Cost
800
925
290
380

per Week
12
5
25
20

Win Bigs contractual arrangements require that at least five radio spots be placed each week. To ensure a
broad-scoped promotional campaign, management also insists that no more than \$1,800 be spent on radio
advertising every week. Determine the optimal mix of these advertising mediums using Linear
Programming.

PROBLEM 2
Management Sciences Associates (MSA) is marketing and computer research firm based in Washington,
DC, that handles consumer surveys. One of the clients is a national press service that periodically conducts
political polls on issues of widespread interest. In a survey for the press service, MSA determines that it
must fulfil several requirements in order to draw statistically valid conclusions on the sensitive issue of new
US immigration laws aimed at countering terrorism:
1.
2.
3.
4.
5.

Survey at least 2,300 people in total in the United States.

Survey at least 1,000 people who are 30 years of age or younger.
Survey at least 600 people who are between 31 and 50 years of age.
Ensure that at least 15% of those surveyed live in a state that borders Mexico.
Ensure that at least 50% of those surveyed who are 30 years of age or younger live in a state that
does not border Mexico.
6. Ensure that no more than 20% of those surveyed who are 51 years of age or over live in a state that
borders Mexico.
MSA decides that all surveys should be conducted in person. It estimates that the costs of reaching people
in each age and region category are as the following table. MSAs goal is to meet the six sampling
requirements at least possible cost.

Region
State bordering Mexico
State not bordering Mexico

Cost per Person Surveyed

Age 30 Age 31-50 Age 51
\$7.50
\$6.80
\$5.50
\$6.90
\$7.25
\$6.10

PROBLEM 3
International City Trust (ICT) invests in trade credits, corporate bonds, precious metal stocks, mortgagebacked securities, and construction loans. ICT has \$5 million available for immediate investment and
wishes to maximize the interest earned on its investments over the next year. The specifics of the investment
possibilities are shown in the following table. For each type of investment, the table shows the expected
return over the next year as well as a score that indicates the risk associated with the assessment. (A lower
score implies less risk).

To encourage a diversified portfolio, the board of directors has placed several limits on the amount that can
be committed to any one type of investment: (1) No more than 25% of the total amount invested may be in
any single type of investment, (2) at least 30% of the funds invested must be in precious metals, (3) at least
45% must be invested in trade credits and corporate bonds , and (4) the average risk score of the total
investment must be 2 or less.
INVESTMENT
Corporate bonds
Gold Stocks
Platinum, stocks
Mortgage securities
Construction loans

INTEREST EARNED
7%
10%
19%
12%
8%
14%

RISK SCORE
1.7
1.2
3.7
2.4
2.0
2.9

PROBLEM 4

Hong Kong Bank of Commerce and Industry is a busy bank that has requirements for between 10 and 18
tellers, depending on the time of day. The afternoon time, from noon to 3 P.M, is usually heaviest. The
following table indicates the workers needed at various hours that the bank is open.
TABLE: Tellers Required for Hong Kong Bank
TIME PERIOD

NUMBER
REQUIRED
9 A.M - 10 A.M 10
10 A.M - 11 A.M 12
11 A.M - Noon 14
16
Noon - 1 P.M
18
1 P.M - 2 P.M
17
2 P.M - 3 P.M
15
3 P.M - 4 P.M

10
4 P.M - 5 P.M
The bank now employs 12 full time tellers but also has several people available on its roster of
part-time employees. A part-time employee must put in exactly 4 hours per day but can start anytime
between 9 A.M and 1 P.M. Part-timers are a fairly inexpensive labor pool because no retirement or lunch
benefits are provided for them. Full-timers, on the other hand, work from 9 A.M and 5 P.M. but are allowed
1 hour for lunch.( Half of the full-timers eat at 11 A.M and the other half at noon.) Each full-timer thus
provides 35 hours per week of productive labor time.
The banks corporate policy limits part-time hours to a maximum of 50% of the days total
requirement. Part-timers earn \$7 per hour (or \$28 per day) on average, and full-timers earn \$90 per day in
salary and benefits, on average. The bank would like to set a schedule that would minimize its total
personnel costs. It is willing to release one or more of its full-time tellers if it is cost-effective to do so.

PROBLEM 5

Vehicle loading problems involve deciding which items to load on a vehicle (e.g. truck, ship, aircraft) to
maximize the total value of the load shipped. The items loaded may need to satisfy several constraints, such
as weight and volume limits of the vehicle, minimum levels of certain items that may need to be accepted,
etc. As an example, we consider Goodman Shipping, an Orlando firm owned by Steven Goodman. One of
his trucks, with a weight capacity of 15,000 pounds and a volume capacity of 1,300 cubic feet, is about to
be loaded. Awaiting shipment are the items shown in Table 1. Each of these six items, we see, has an
associated total dollar value, available weight and volume per pound that the item occupies. The objective
is to maximize the total value of the items loaded onto the truck without exceeding the trucks weight and
volume capacities.
Table: Shipments for Goodman Shipping
ITEM VALUE
1
2
3
4
5
6

\$15.500
\$14,400
\$10,350
\$14,525
\$13,000
\$9,625

WEIGHT

VOLUME

(POUNDS )

(CU.FT.PER POUND)

5,000
4,500
3,000
3,500
4,000
3,500

0.125
0.064
0.144
0.448
0.048
0.018

PROBLEM 6

Greenberg Motors, Inc., manufactures two different electrical motors for sale under contract to Drexel
Corp., a well-known producer of small kitchen appliance. Its model GM3A is found in many Drexel food
processors, and its model GM3B is used in the assembly of blenders.
Three times each year, the procurement officer at Drexel contracts Irwin Greenberg, the founder of
Greenberg Motors, to place a monthly order for each of the coming four months. Drexels demand for
motors varies each month, based on its sales forecasts, production capacity, and financial position.

Greenberg has just received the January-April order and must begin his own four month production plan.
The demand for motors is shown in the following table.

MODEL
GM3A
GM3B

800
700
1,000
1,000
1,200
1,400

APRIL
1,100
1,400

The following additional data are available regarding Greenbergs problem:

1. Production costs are currently \$10 per GM3A motor produced and \$6 per GM3B unit. However, a
planned wage increase going into effect on March 1 will raise each figure by 10%.
2. Each GM3A motor held in stock costs \$0.18 per month, and each GM3B has a holding cost of \$0.13 per
month. Greenbergs accountants allow monthly ending inventories as an acceptable approximation to the
average inventory levels during the month.
3. Greenberg is starting the new four-month production cycle with a change in design specifications that
has left no old motor of either type in stock on January 1.
4. Greenberg wants to have ending inventories of 450 GM3As and 300 GM3Bs at the end of April.
5. The storage area can hold a maximum of 3,300 motors of either type (they are similar in size) at any one
time. Additional storage space is very expensive and is therefore not available as an option.
6. Greenberg has a no-layoff policy, which has been effective in preventing unionization of the shop. The
company has a base employment level of 2,240 labor hours per month, and, by contract, this level of labor
must be used each month. In busy periods, however, the company has the option of bringing on board two
skilled former employees who are now retired .Each of these employees can provide up tp 160 labor hours
per month.
7. Each GM3A motor produced requires 1.3 hours of labor, and each GM3B takes a worker 0.9 hours to
assemble.
PROBLEM 7
Consider the example of Larry Fredendall , who is trying to plan for his daughter Susans college expenses.
Based on current projections (it is now the start of year1), Larry anticipates that his financial needs at the
start of each of the following years is as shown in the following table.
Table: Financial Needs for Larry Fredendall
YEAR
\$NEEDED
3
\$20,000
4
\$22,000
5
\$24,000
6
\$26,000
Larry has several investment choices to choose from at the present time, as listed in the following
table. Each choice has a fixed known return on investment and a specified maturity date. Assume that each
choice is available for investment at the start of every year and also assume that returns are tax free if used
for education. Because choices C and D are relatively risky choices, Larry wants no more than 20% of his
total investment in those two choices at any point in time.

Table: Investment Choices for Larry Fredendall

CHOICE
ROI
MATURITY
A
5%
1 years
B
13%
2 years
C
28%
3 years
D
40%
4 years
Larry wants to establish a sinking fund to meet his requirements. Note that at the start of year 1, the
entire initial investment is available for investing in the choices. However, in subsequent years, only the
amount maturing from a prior investment is available for investment.

CASE STUDY: Chase Manhattan Bank

The workload in many areas of bank operations has the characteristics of a non-uniform distribution with
respect to time of day. For example, at Chase Manhattan Bank in New York, the number of domestic money
transfer requests received from customers if plotted against time of day, would appear to have the shape of
an inverted U curve, with the peak around 1 P.M. For efficient use of resources, the personnel available
should, therefore, vary correspondingly. Figure 1 shows a typical workload curve and corresponding
personnel requirements at different hours of the day.
A variable capacity can be achieved effectively by employing part-time personnel. Because parttimers are not entitled to all the fringe benefits, they are often more economical than full-time employees.
Other considerations, however, may limit the extent to which part-time people can be hired in a given
department. The problem is to find an optimum workforce schedule that would meet personnel requirements
at any given time and also be economical.
Some of the factors affecting personnel assignment are listed here:
a. Full-time employees work for 8 hours per day, with a 1 hour break for lunch included.
b. Fifty percent of the full-timers go to lunch between 11 A.M. and noon, and the remaining 50% go
between noon and 1 P.M.
c. Part-timers work for at least 4 continuous hours but no more than 7 continuous hours per day and
are not allowed a lunch break.
d. By corporate policy, part-time personnel hours are limited to a maximum of 40% of the days total
requirement.
e. The shift starts at 9 A.M and ends at 7 P.M (i.e overtime is limited to 2 hours). Any work left over
at 7 P.M is considered holdover for the next day.
f. A full-time employee is not allowed to work more than 1 hour of overtime per day. He or she is paid
at the normal rate even for overtime hours not at one and one-half times the normal rate typically
applicable to overtime hours. Fringe benefits are not applied to overtime hours.
In addition, the following costs are pertinent:
a. The average normal rate per full-time personnel hour is \$24.08.
b. The fringe benefit rate per full-time personnel hour is charged at 25% the normal rate.
c. The average rate per part-time personnel hour is \$17.82.
The personnel hours required, by hour of day, are given in the following table. The banks goal is
to achieve the minimum possible personnel cost subject to meeting or exceeding the hourly
workforce requirements as well as the constraints on the workers listed earlier.

Table: Data for Chase Manhattan Bank

TIME PERIOD HOURS REQUIRED
9-10 A.M
14
10-11
25
11-12
26
12-1P.M
38
1-2
55
2-3
60
3-4
51
4-5
29
5-6
14
6-7
4
Discussion Questions
1. What is the minimum cost schedule for the bank?
2. What are the limitations of the model used to answer question 1?