QUESTION 1

 A leading manufacturer is planning to make a new production and distribution facility either in Mauritius, Madagascar, India or China. The charge of the facility will differ between countries and will even vary within countries depending on the economic and political climate, including monetary exchange rates. The company has approximate the facility cost in each country under three dissimilar future economic or political climates as follows-

(a)  Conclude manufacturer’s optimal decision using the

(i)  Maximax criterion                           

(ii)  Maximin criterion                            

(iii)  Management has no information on how demand will be likely to shape up.

Using the criterion of realism, with a = 0.75, decide the best choice for the company under these conditions.      

(b)  Assume management approximate following climates namely Decline, Same and Improve as 20%, 35%, 45% respectively.  Decide optimal decision if the manufacturer was to use the expected monetary value criterion.        

(c) Compute the expected opportunity loss for each decision, and hence determine manufacturer’s optimal decision.                

(d)  The manufacturer considers hiring a private consulting firm to behaviour a study to obtain a better estimate of demand for this new product. Find out the amount that the manufacturer should be willing to pay for this study.         

 Do you think it would be worth trying to get additional information concerning which scenario is likely to occur? Give details of your answer.

QUESTION 2

 House Appliances Ltd produces two models of industrial toaster, the ‘Standard’ and ‘Deluxe’. Components of the toasters are processed by two different machines A and B. To complete one unit of the ‘Standard’ model requires 1 hr of machine A and 1 hr of model B; likewise, one unit of the ‘Deluxe’ model requires 2 hrs of machine A and 5 hrs of machine B.

Throughout a week there are only 20 hrs of machine a time available and 35 hrs of machine B time available. The company can sell all units produced and the profit on each unit sold is $10 for ‘Standard’ model and $ 30 for the ‘Deluxe’ model. The company wishes to maximize its weekly profit.

(a)  Create above in terms of a Linear Programming problem              

(b)  Solve this linear program graphically. Find out quantity of each type of toaster that will maximise the maximum profit.            

QUESTION 3

(a)  In brief describe the requirements for an effective inventory management.    

(b)  Recognize and discuss the different types of costs that are involved in an inventory system.                   

(c)  Carpet World Ltd in London stocks carpet in its biggest warehouse and sells it during its different sales point throughout the United Kingdom. The store keeps several brands and styles of carpet in stock; however its biggest seller is Cashmeri carpet.

The company has estimated an annual demand of 10 000 m2 of this type of carpet.

The annual carrying cost per meter of carpet is £0.75 and the ordering cost is £150. 

(i)  Find out the optimal order size and total inventory cost for this brand of carpet.