University of Windsor

Odette School of Business

Operations Management I 73-331-01 Fall 2007
Assignment 2
Due Date: Monday, November 12, 2007 (1:00pm in class)

• Assignments are to be collected during the first 10 minutes of the class on

November 12, 2007. Late assignments up to 2:20pm on November 12 will be
accepted but a 30% penalty applies. No assignment will be accepted after 2:20pm
November 12, 2007.
• Attach a cover page with your assignment showing Course number, student name,
and student ID.

1. Harold Gray owns a small farm in the Salinas Valley that grows apricots. The
apricots are dried on the premises and sold to a number of large supermarket chains.
Based on past experience and committed contracts, he estimates that sales over the
first six months of year 2008 will be as follows:

Month Forecasted
Demand
(packages)
January 550
February 300
March 650
April 250
May 800
June 500

There are currently three workers on the payroll. Grey estimates that he will have
100 packages on hand at the end of December 2007. Each worker is paid $1250 per
month. Inventory costs have been estimated to be 25 cents per package per month,
and shortages are not allowed. Grey estimates that it costs $600 for each worker
hired and $1100 for each work fired.
a. Assuming that shortages are not allowed, determine the minimum constant
workforce that Grey will need over the first six months of 2008
b. Develop a production plan if no shortage and no ending inventory is allowed.
c. Evaluate the cost of your plans found in parts (a) and (b).
2. A company has the option of purchasing Product X from an outside supplier or
manufacturing internally. If Product X is purchased, the company will be charged
$32 per unit plus a cost of $7 per order. If the company manufactures Product X
internally, it has the production capacity of 8000 units per year. It costs $65 to set up
a production run, and annual demand is 4500 units per year. If the annual holding
cost is 15% and the cost of manufacturing one unit is $25, determine whether the
company should purchase or manufacture the item.

3. To produce a tape recorder doll the Educational Toy Company purchases all the doll
material from the same vendor. The annual demand is 9,000 units, ordering cost is
$11 and holding a dollar value in inventory for one year costs $0.22.
The vendor offers the following discount prices:
• Order < 500 units: $2 per unit
• 500 <= Order < 1000 units: $1.75 per unit
• Order >= 1000 units: $1.5 per unit
Find the optimal order quantity for Educational Toy Company for doll material.

4. Rapid Gear has a single CNC machine for producing four types of gears. One lot of
each type will be produced in a cycle, which may include idle time. The relevant
information concerning the products is given in the table below:

Produc Monthly Setup Time Unit Cost Production

t requirement (hours) Rate
s (units/day)
A 550 7 250 250
B 600 6 350 350
C 450 5 400 200
D 750 3 450 350

Worker time for setups is valued at $75 per hour, and holding costs are based on a 22
percent annual interest charge. Assume 8 hours per day, 20 working days per month
and 12 months per year for your calculations.
a. Determine the optimal length of the rotation cycle.
b. What are the optimal lot sizes for each product?
c. What is the percentage of uptime (in each cycle) for the CNC machine assuming
that it is not used for any other purpose? Note: The uptime for the CNC machine is
the total time required to produce items A, B, C and D.
d. What is the percentage of idle time (in each cycle)?