BUS 321 OPERATIONS

MANAGEMENT

REVIEW EXERCICES
CHAPTER 2-3

Example 1 - Productivity
2
Assume 40 hour weeks and an hourly wage of $12. Overhead is 1.5 times weekly
labor cost. Material cost is $ 6 per pound.
(a) Compute the average multi-factor productivity measure for each of the weeks
shown.
(b) Calculate the productivity growth rates throughout the weeks.
(c) What do the productivity figures suggest? Draw the productivity figures and
briefly explain.

Week

Output (units)

Workers

30,000

33,600

32,200

35,400

Materials (lbs)
450
470
460
480

Example 1 - Productivity
3

Week

1
2
3
4

Output

Worker cost

(units)

12*40

30,000
33,600
32,200
35,400

2880
3360
3360
3840

Overhead Material

Total

MFP

cost

s cost

cost

4320

2700

9900

3.03

5040

2820

11220

2.99

5040

2760

11160

2.89

5740

2880

12480

2.84

Example 1 - Productivity
4

Week 1- 12*40*6 =2880= worker cost

Week 1- 12*40*6 =2880* 1.5=4320= overhead cost
Week 1- 450*6 = 2700=material cost
Week 1- 2880+4320+2700=9900 total cost

Week 1-MFP=output (units)/

(labor+materials+overhead) =30000/9900= 3.03 unit
per dollar input

Example 2 - Productivity
2. The Cool-Tech Company produces various types of
fans. In May, the company produced 1,728 window
fans at a standard price of $40.00. The company has
12 direct labor employees whose compensation
(including wages and fringe benefits) amounts to
$21.00 per hour. During May, window fans were
produced on 9 working days (of 8 hours each), and
other products were produced on other days.
Determine the labor productivity of the window fans.

Example 2 - Productivity
P = Productivity

W = Number of window fans = 1728

H = Number of direct labor hours = 8 hours per day
E = Number of employees = 12
D = Number of working days = 9
fans per hour.

Example 3 - Productivity
3. The Cool-Tech Company (see # 1) also produces
desk fans at a standard price of $25.00. During May,
1,872 desk fans were produced on 11 working days
(of 8 hours each). On one day, two employees called
in sick.
Determine the labor productivity of the desk fans.
Was productivity higher for the window fans or for
the desk fans in May?

Example 3 - Productivity
P = Multi-factor productivity
Standard price of window fans = $40
Standard price of desk fans = $25
L = Labor cost per hour = $21
Direct material cost of window fans = $7
Direct material cost of desk fans = $5
H = Total direct labor hours = 864 + 1040 = 1904

Example 3 - Productivity
P = Multi-factor productivity
Standard price of window fans = $40
Standard price of desk fans = $25
L = Labor cost per hour = $21
Direct material cost of window fans = $7
Direct material cost of desk fans = $5
H = Total direct labor hours = 864 + 1040 = 1904

A dollar's worth of inputs produces $1.89 worth of outputs.

Example 4 - Productivity
4. In June, the Cool-Tech Company produced 1,730
window fans (see #1) in 10 working days.
What was the percentage change in labor
productivity of window fans from May?

Example 4 - Productivity

2 fans per hour (Problem #2)

fans per hour

Productivity Growth
Productivity declined from May to June.

Example 1 - Forecasting
A company records indicates that monthly

sales for a seven-month period are as follows:

Example 1 - Forecasting
Plot the monthly data as can be seen in the table
above.
b. Forecast the monthly sales using linear trend
equation,
c. A five-month moving average and exponential
Smoothing technique? Assume that smoothing
constant and march forecast value are 0.20 and 19
respectively.
d. Use the nave approach to compute forecasting figure
in the next period
e. A weight average method conducting 0.60 for August,
0.30 for July, and 0.10 for June.
f. Which method seems least appropriate? Why?
a.

Example 1 - Forecasting

Example 1 - Forecasting

Example 1 - Forecasting

Example 1 - Forecasting

Example 1 - Forecasting
(c) Ft = Ft-1 + (At-1 - Ft-1)
Ft = forecast for period t
Ft-1 = forecast for the previous period
= smoothing constant
At-1 = actual data for the previous period
April-F=19+0.20(18-19)=18.8
May- F=18.8+0.20(15-18.8)=18.04
June- F=18.04+0.20(20-18.04)=18.43
July- F=18.43+0.20(18-18.43)=18.34
Aug- F=18.34+0.20(22-18.34) =19.07
Sep- F=19.07+0.20(20-19.07) =19.26

Example 1 - Forecasting
(d) It may be around 20 (19.26)
(e) WA=0.60 (20) + 0.30 (22) + 0.10 (18) =20.4
(f) Probably trend method because the data
appear to vary around Y = 16.86 + 0.50(4)
=18.86.

Example 2 - Forecasting
2. A cosmetics manufacturers marketing
department has developed a linear trend equation
that can be used to predict annual sales of its
popular hand-foot cream.
Ft = 80 + 15 t
Where Ft =Annual sales (000 bottles), and assume that
t= 0 in1990
a. Are annual sales increasing or decreasing? By how much.
b. Predict annual sales for the year 2006 using the equation.
c. Predict changes in annual sales the year between 1995
and 2005 using the equation.

Example 2 - Forecasting
a. Ft = 80 + 15 t
15 is the slope of the equation so this value show us
whether annual sales increase or decrease. The sign of the
value is positive thats why annual sales are increasing by
15000 bottles per year.
b. Ft = 80 + 15 t= 80+ 15(16) = 320000
Where t=2006-1990=16
Ft = 80 + 15 t= 80+ 15(5) = 155000 in 1995
Ft = 80 + 15 t= 80+ 15(15) = 305000 in 2005
Change in sales between the relevant years=
305000-155000=150000

Example 3 - Forecasting

Example 3 - Forecasting

Period

1
2
3
4
5
6
7
8

( lel/act

Deman

F1

d
68
75
70
74
69
72
80
78

586

66

68

72

-2

71

72

-3

70

71

74

ual)*10

lel

0
3

49

9.3

2.8

4.3

2.7

81

11.2

16

5.1

32

176

42.4

Period

1
2
3
4
5
6
7
8

Deman
d
68
75
70
74
69
72
80
78

( lel/act
F2

66

68

70

72

74

-5

76

-4

78

80

-2

lel

ual)*10

0
3

49

10.2

2.7

25

6.7

16

5.2

2.5

2.5

24

106

32.9

Example 3 - Forecasting

Example 4 - Forecasting
A product is manufactured in distinct batches of various sizes. The cost accountant
wished to obtain an equation to use for estimating the cost of a batch. He obtained data
on a number of batches, consisting of the size of the batch, measured in number of
pieces, and the total cost of the batch, consisting of the setup cost and the variable costs
of labor, material, etc. The total cost is stated in thousands of dollars.
a. Which is the dependent variable? The independent variable?
b. Draw the scatterplot of this data. Does a straight line look like a reasonable fit?
c. Obtain the , xy, and columns.
d. What is the value of the slope?
e. What is the interpretation of the slope?
f. What is the value of the y intercept?
g. What is the interpretation of the y intercept?
h. Estimate the cost of a batch of 125 pieces.
i. What is the value of the coefficient of correlation? Does it appear to indicate a high
degree of association between the size of the batch and the cost?
j. What is the value of ?

Example 4 - Forecasting

Example 4 - Forecasting

Example 5 - Forecasting
The president of the Rich and Greene College of Business Administration
wishes to forecast the enrollment for next fall. The enrollment is
measured in Full Time Equivalents (FTE), which represent the number
of full-time students, which is equivalent to the existing mixture of fulltime and part-time students. Data representing the fall enrollment for
the past ten years is given below:
a. Draw a scatterplot. Does the data appear to contain a linear trend?
b. Obtain the t, y, and ty columns.
c. What is the value of the slope?
d. What is the interpretation of the slope?
e. What is the value of the y intercept?
f. What is the interpretation of the y intercept?
g. Forecast the enrollment for next fall.

Example 5 - Forecasting
time(t)

Enrollment

907

981

1014

1015

1050

1071

1123

1118

1175

10

1216

Example 5 - Forecasting