Kellogg

Graduate School of Management

Operations
Northwestern University

MORE SAMPLE MIDTERM EXAM QUESTIONS: SOLUTIONS

[1]

Consider the life cycle of a product from introduction to maturity to decline. What kind of
process (job shop, batch process, or line flow) would be appropriate at each stage and why?

At the introduction phase, product volumes are small and design changes frequent. Thus
production in a job shop setup is likely to most appropriate. At maturity volumes will be large
and price pressures more significant. Thus production in a line flow or batch setting (depending
on volumes) is likely to be more appropriate. As the product declines, volumes decrease and a
return to job shops is most appropriate.
[2]

A small printed circuit board manufacturer has established itself based on the ability to supply a
large variety of small orders in a timely manner. A firm approaches the manufacturer to place
a large order (equal to the current volume from all other orders) but asks for a 30 percent
discount. Do you think the circuit board manufacturer should accept the order? Justify your
answer.

The circuit board manufacturer should either reject the order or set up a separate line to
process this order. The current production process is likely to be good at flexibility but not
provide the lowest cost. Producing the large order on the same process will not result in lower
costs for the large order but will disrupt timeliness of the current orders that are small.
[3]

Explain why the overall performance of Wriston will deteriorate if the Detroit plant is closed
and products moved for production to lines in other plants.

Variety and scale are two important drivers of overhead costs for Wriston. Detroit has focused on products with
high variety and low volumes. This allows other plants to focus on lower variety with higher volumes. Moving
the Detroit products to other plants will result in a large increase in variety at these plants with very little
increase in volume. This will increase overhead hurting performance. The other plants will lose their focus
further hurting their performance.

[4]

Compare the differences in patient needs at an emergency room in a hospital with that of a
department doing knee replacements in terms of price, quality, time, and variety. Which of
these departments should follow the approach taken by Shouldice? Why?

Patients arriving at an emergency room are likely to focus on quality and the ability of the emergency room to
be flexible and handle a variety of ailments. A department doing knee replacements only on the other hand
does not have to handle variety. It can put in place processes that exploit this fact to improve quality and
reduce cost. Thus a department doing knee replacements is more likely to follow the approach taken by
Shouldice and exploit the fact that it requires no variety.

[5]

Consider CRU Computer Rentals with the following data (different from the original case).
Rentals occur at the rate of 1,000 per week. Each rental averages 6 weeks, and generates

OPNS-430 mid-term

$35/wk. Shipping cost is $2.5/unit. Receiving cost is $2.5/unit. Preconfig cost is $6/unit. Repair
cost is $130/unit. Each unit costs $780 and is depreciated over 3 years. Flow time, inventory
and throughput at each stage are as shown in the Table below.

Status 40
30%

Repairs

Receiving
70%
Status 24

15%

Status 41

Customer
Pre- Config

Config

Throughput (units /
week)
Inventory (units)
Flow Time (weeks)
a)

Repairs

Status 20

Status 42

Customer Receivin Status Status Status Status Status

g
24
40
41
42
20
1,000
1,000
700 405 405 405 1,000
6,000

500

1,500 1,000

905

500

2,000

6.0

0.5

2.14

2.23

1.23

2.47

Calculate the performance metric "utilization" that CRU uses.

Total number of units =12,405
Number on rent = 6,000
Utilization = 6,000/12,405 = 0.48

b)

A rented computer follows one of three possible routes depending upon its classification at
receiving:
1.
2.
3.

Classified correctly as ready for preconfig (Status 24)

Classified incorrectly as Status 24 (needing repair)
Classified as status 40 (repair)

Evaluate the flow time of each route (this can also be called the duration of the rental cycle in
each case).
[6
points]

OPNS-430 mid-term

Case 1: Duration of cycle = Customer + Receiving + Pre-config + Status 20 = 6 + 0.5 +

2.14 + 2 = 10.64 weeks.
Case 2: Duration of cycle = Customer + Receiving + Pre-config + Status 40+ Status 41
+ Status 42 + Status 20 = 6 + 0.5 + 2.14 + 2.47 + 2.23 + 1.23 + 2 = 16.57 weeks.
Case 3: Duration of cycle = Customer + Receiving + Status 40+ Status 41 + Status 42 +
Status 20 = 6 + 0.5 + 2.47 + 2.23 + 1.23 + 2 = 14.43 weeks.
c)

Evaluate the contribution per route (or cycle) per computer in each of the three cases in part
(b). What is the weekly contribution of a computer in each of the three cases in part(b).
[8 points]
Case 1: Computers that only go through pre-config
Revenue per cycle = 635 = $210;
Cost per cycle = pre-config + shipping cost = $6+$5 = $11
Depreciation per cycle = 10.64(780/156=5) = $53.2
Contribution per cycle = 210 - (11 + 53.2) = $145.8
Contribution per week = 145.8 / 10.64 = $13.70
Case 2: Computers that are mis-classified and go through both pre-config and repairs
Revenue per cycle = 635 = $210;
Cost per cycle = Repair cost + shipping = $130 + 5 = $135
Depreciation per cycle = 16.575 = $82.85
Contribution per cycle = 210 - (135 + 82.85) = -7.85
Contribution per week = -7.85 / 16.57 = - $0.47
Case 3: Computers that only go through repairs
Revenue per cycle = 635 = $210;
Cost per cycle = Repair cost + shipping = $135
Depreciation per cycle = 14.43(5) = $72.15
Contribution per cycle = 210 - (135 + 72.15) = $2.85
Contribution per week = 2.85 / 14.43 = $0.20

[6] Kristinas Pizzeria: Kristens friend Kristina has watched Kristens incredible success with
selling fresh, home-made cookies, and decided to set up shop similarly, to sell fresh, hot pizzas and
quiches. She initially plans on a one-woman operation. After exhaustive analysis, she has decided to
make and sell one or both of her two favorite dishes: All-the-works mini pizza and Hawaiian
pineapple quiche. Customers stand in line and place orders. It takes Kristina a negligible amount of
time to note down the orders.
After careful study of the student market, she determines that the pizzas can be sold for $6.00 each
and the quiche for $7.00 each. The process for making these is slightly different.
To make the pizza, Kristina quickly applies pizza sauce on to ready-made crust, and then layers it with
cheese, meat and vegetable toppings. Then she pops it into the oven. Layering the pizza crust with
toppings takes her 3 minutes; the pizza has to bake for 10 minutes.

OPNS-430 mid-term

The quiche is much more labor-intensive. The dough for the crust has to be laid out artfully on the
baking plate, and the stuffing (of cheese, pineapple, spinach and assorted condiments) has to be loaded
with care. Then the edges of the dough base have to be trimmed. This entire process takes Kristina 8
minutes to do. Then the quiche is loaded into the oven. Baking the quiche takes just 5 minutes.
The cost of materials (particularly, the fresh, luscious pineapples) is greater for the quiche than for the
pizza. It costs $3.00 for the materials for the quiche, but just $1.50 for the pizza raw materials.
After baking, the pizza or quiche is quickly removed from the oven, and served piping hot to customers.
To finish an order, Kristina has to pack the pizza or quiche, add packets of mozzarella cheese, hot
peppers and other dining accoutrements, and then take money from customers. All of these (postbaking) activities take a total of 2 minutes per order.
The oven can bake exactly one pizza or quiche at a time. Your job is to help your friend Kristina with
process-analysis, and make recommendations. Assume that, at the prices she has set, the demand is
sufficiently high that all the pizza and quiches Kristina makes can be sold.
[To answer the following questions, you may find it useful to draw a process flow chart for pizza and
quiche making].
a)

What is the theoretical flow time for pizza? What is the theoretical flow time for quiche?

Ans:

Theoretical flow time for pizza is _ 15 minutes.

Theoretical flow time for quiche is _15 minutes.

b) Suppose Kristina were to make and sell only pizzas. What is the theoretical process capacity
per hour?

Ans:

Theoretical Process Capacity for pizza only is 6 per hour. Bottleneck is oven.

c) Suppose Kristina were to make and sell only quiche. What is the theoretical process capacity
per hour?

Ans: Theoretical Process Capacity for quiche only is 6 per hour. Bottleneck is
Kristina.
d) If Kristina wanted to make only one of the two dishes (pizza or quiche), which would you
recommend to her? How much money could she make per hour by following your
recommendations?
Capacity for both pizzas and quiche is 6 per hour. However, the margins per pizza is $(61.50)= $4.50, and the margin per quiche is $(7-3)= $4.00. Hence, it is better to make only
pizza, and generate $(4.50 6) per hour = $27.00 per hour.

OPNS-430 mid-term

e) Could Kristina do still better than your solution for (d)? If so, how? If not, why not? You will
need to substantiate your arguments with actual calculations.
The trick is to observe that bottlenecks are different for pizzas and quiche. The right product
mix could lower the stress on the individual bottlenecks, thus increasing effective capacity and
profits. For pizza, oven capacity is the constraint. For quiche, manpower (Kristina) is the
constraint. In fact, the resource utilizations are inversely related. Making and selling one pizza
takes 5 minutes of Kristinas time and 10 minutes of oven time. Making and selling quiche takes
10 minutes of Kristinas time and 5 minutes of oven time. Consider now an order consisting of
one quiche and one pizza. Unit loads for such order are: (10+5)=15 minutes for Kristina and
15 minutes of oven time: Thus, both resources are bottlenecks and will be used maximally. The
process capacity is 1order/15min = 4 orders/hr. Thus, with this mix, the process can make 4
pizzas and 4 quiche per hour, generating $(4 4.50 + 4 4.00) = $34.00 per hour, which is
significantly higher than the $27.00 per hour generated by making pizza alone.
[7]

National Cranberry: Workers at the RP1 plant are very unhappy at the long overtimes they
need to put in during the peak season, and are threatening to go on strike. National Cranberrys
management is now considering measures to address this. Indicate whether overtime will
decrease, increase or remain unchanged by each of the following changes (circle your
answer):
a) Buying a new Kiwanee dumper.
Effect on processing overtime:

Increase

Decrease

Remain unchanged

b) Increase in prices paid by RP1 to growers for dry berries resulting in more dry berries being
grown by farmers
Effect on processing overtime:

Increase

Decrease

Remain unchanged

c) Fall in prices of bagged berries resulting in less bagged berries at plant

Effect on processing overtime:

Increase

Decrease

Remain unchanged

Increase

Decrease

Remain unchanged

d) Purchase of a dryer
Effect on processing overtime:

[8]

Indicate which of the following statements is (are) correct

(i)

(ii)

A functional layout is preferred to a product focus cell layout

when a large variety of products is to be produced with very
uncertain demand for each product.
A product focus cell layout is preferred to a functional layout when a
large variety of products is to be produced with very uncertain
demand for each product.

OPNS-430 mid-term

(iii)

(iv)
(v)
[9]

A functional layout is preferred to a product focus cell layout when a

small variety of products is to be produced with stable demand for
each product.
A product focus cell layout is always preferred to a functional layout.
A functional layout is always preferred to a product focus cell layout.

Tikes, Inc. makes toy houses. A toy house consists of two main components a base and a
roof (much like our house game exercise in class). Their facility is setup in cells with seven
persons per cell. Variety and speed are competitive priorities in this business. Market research
suggests that the following color combinations will be popular. [Preliminary monthly forecasts
are also given.]
Roof Color
Green
Black
Burgundy
Red

Base Color
Red
Yellow
Beige
White

Total Monthly Forecast

4000
2000
500
1000

The management of Tikes wishes to implement Toyota Production System (TPS).

Just-in-Time, Pull Systems, and Heijunka are some of the key ideas in TPS.
(a) For the forecast given above, suggest an ideal production schedule that implements
Heijunka.
Heijunka level loads the plant and thus replicates the above mix with the smallest
repeatable cycle. Such cycle cannot have less than 1 unit of burgundy-beige. This then
implies that the optimal heijunka cycle contains 8green-red, 4 black-yellow, 1 burgundy
beige, and 2 red white. (The sequence within a cycle can also be leveled and various
sequences are possible. For example, 4 green-red, 2 black yellow, 1 red white, 4 greenred, 2 black yellow, 1 red white, 1 burgundy beige repeated.)
(b) Consider the process flow to produce a toy house as shown below. Suggest TWO pull
mechanisms to implement the mixed model production schedule developed in part (a). For
each of the mechanisms specify what color(s) material each buffer may contain (indicate
this in the respective flow charts shown below).
Mechanism 1: Multiple buffers (one for each color at each stage). Multiple
buffers shown only on base portion.

Base Cut

Base
Form

Production
Control
inputs

Final
Assembly
Roof Cut

Roof
Form

outputs

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Mechanism 2: Sequenced flow with a single buffer at each stage.

Base Cut

Base
Form

Production
Control
inputs

Final
Assembly
Roof Cut

Roof
Form

outputs

(c) Heijunka production suggested in part (a) requires some information regarding the
sequence of toy production. For each of the mechanisms suggested in (b), specify which
stage in the process flow needs this information.
With multiple buffers, final assembly needs to know the sequence in which products are
produced. With sequenced flow, production control needs to know the sequence in
which products are produced.
(d) Compare the two mechanisms outlined in (b) along TWO dimensions giving pros and cons
of each.
Multiple kanbans is easier to implement but will require more inventory to be stored in
the work area, It is best suited for lower cost components with limited variety and small
size. Sequenced flow ensures only one unit at the assembly area. Quality requirements
from stations are very high if this system is to function. Sequenced flow is better suited
for high value components with high variety and large size such as seats in a car.
[10]

Company ABC manufactures widgets using a two-stage system in which there is one machine
in the first stage and 2 identical machines in the second stage. The machine in the first stage
can produce at an average rate of 10 jobs per shift. Each machine in the second stage can
produce at an average rate of 5 jobs per shift. Each product has to be first processed on the
first machine and then on one of the three second stage machines. The demand for widgets is
10 jobs / shift. Recently a Japanese company entered the market and ABC faces severe
competition. Mr. O.M. Veep, V.P. Operations of ABC has heard about the Japanese
approach to operations and after visits to several facilities in Japan concludes that the key to
Japanese cost and time competitiveness is zero inventories. Based on the data supplied by the
accountant, Mr. Veep dictates that no inventories be carried in the shop floor.

OPNS-430 mid-term

You were just hired as ABCs new management intern and given responsibility to implement
Mr. Veeps directives. Preliminary data collection shows that the first machine produces at an
average rate of 10 jobs per shift but there are fluctuations from one week to the next. Similarly,
each machine in the second stage produces at an average rate of 5 jobs/shift but there are
fluctuations from one shift to the next. Due to Mr. Veeps decisions, you believe the
throughput of the facility will be:
Less than 10 jobs / shift
More than 10 jobs / shift
Unchanged
Explain.
Reducing the buffer size will decrease output. Limiting the buffer size results in more situations
where the first stage is blocked because the buffer is full. As a result there are more situations
where the second stage has nothing to work on because the buffer is empty. This reduces
output. The link between buffer size and throughput is as discussed in the machine simulation in
class and the river analogy.