Final Exam – Part A
1. (10 points) A production foreman pulls 50 samples of 6 items. Construct Upper and Lower
control limits for both a means chart and a range chart using the data on the SPC data tab of
the excel work book. Plot both charts. Is the process in control?
2. (10 points) Repair calls are handled by one repairman. Repair time (including travel time) is
exponentially distributed with a mean of one hour per call. On average, the repairman receives 4
repair calls per day. What are the characteristics of this system? How many service calls in an
average day would cause you to recommend hiring a second repairman?
3. (10 points) A company is evaluating the option to develop a new product. The initial
investment is $200,000 (Year 1). Fixed costs are estimated to be 10,000/year once production
begins in year 2. Demand is expected to be 2,500 units in years 2-5 and 3,500 units in years 6-
10. The selling price is $45 per unit and the variable costs are $25 per unit.
a. Compute the IRR. If the target IRR is 8%, would you recommend investing?
b. Compute the NPV of the investment.
4. (10 points) You want to buy a new home theater system (home theater system tab). You have a
budget of $2000 to buy this. Develop a model to determine how best to allocate your $2,000 to
maximize your overall utility for the system. You must have 1 item from each category in your
final bundle.
5. (10 points) Assume you own an ice cream truck (Part A – Q.5 in the excel workbook)
Assumptions
There are 30 days in a month
Next month, you expect 65% of the days to be over 80
Eskimo Pies come in cases of 24
Cost per case is $12.99
You donate the unsold eskimo pies to the local Children's Hospital at the end of each day
The selling price of an eskimo pie is $4.00
a. What is the EMV for the upcoming month, how many cases should you order?
b. What is the value of perfect information?
Final Exam – Part B
6. (5 points) Before shipping to dealers, an inspector attempts to start each portable generator
and notes then number that did not start on the first attempt. The sample size is 100 generators
and an average of 5 did not start on the first attempt. Construct the appropriate control chart
7. (5 points) Use the SPC data. Assume the upper limit is 40 and the lower limit is 25. Eliminate
and out of control points. Compute the process capability index. Is the process capable of
meeting specifications?
8. (10 points) A barista can fill 35 coffee orders per hour. If customers arrive at the rate of 20 per
hour, what are the characteristics of this system? How many customers arriving each hour
would cause you to suggest management schedule 2 baristas?
9. (10 points) A company is evaluating the option to develop a new product. Fixed costs are
estimated to be 7,500/year starting in year 2. Demand is expected to be 1,500 units in years 2-5
and 1,850 units in years 6-10. The selling price is $15 per unit and the variable costs are $5 per
unit.
a. What is the maximum initial (year 1) investment you would make to exceed the target
IRR of 8%
b. Compute the NPV of the investment given your computed initial investment
10. (10 points - Use Granola data). A company wants to package its own custom trail mix. The
company would like to produce the least costly mix of ingredients, but still be able to claim that
each package provides:
a) at least 40g of vitamins, 15g of minerals, 10g of protein, and 600 calories per 2-lb
package.
b) Furthermore, they want each ingredient to account for at least 5% of the package weight,
but no more than 50% in order to guarantee diversity.
11. (10 points). You rent White water rafts for use on the river. (Part B – Q.11 in the excel workbook)
Assumptions
You have 50 boats that you can have available to rent.
There are 30 days in a month
The rental price is $100/day
50% of people buy insurance
Insurance is 10% of the rental fee
5% of trips have $175 in damages
If the customer bought insurance, this is part of your cost
It costs $15 per boat to have them available to rent (take it out of the warehouse and deliver it
to the river ready for use)
a) What is the EMV for the upcoming month?
b) What is the expected value of perfect information (EVPI)?