# Operations Management Midterm 2011 Essay

1052 words - 5 pages

REVIEW QUESTIONS FOR THE MIDTERM EXAM

In the midterm review class, we will solve the following questions and, if time permits, solve questions from the 1st assignment.

QUESTION 1 (PRODUCTIVITY)

A company has introduced a process improvement that reduces processing time for each unit so that output is increased by 25%, but one additional worker is required. Under the old process, five workers could produce 60 units per hour and material input was \$16/unit. For the new process, material input is now \$10/unit. Overhead is charged at 1.6 times direct labor cost. Finished units sell for \$31 each and labor costs are \$12/hour. What increase in total productivity is associated with the ...view middle of the document...

b) Find the critical path and project duration.
c) What is the total project cost using the normal times?
d) Crash the project to 18 weeks and find out the project completion cost in 18 weeks.
e) Crash the overall project completion time by as much as possible. Determine the shortest project completion time and the minimum cost of completing the project within this time.

QUESTION 4 (BREAK-EVEN ANALYSIS)

A manufacturing firm is considering two alternative technologies to use in the production of their new product. Alternative A is the standard technology in the industry. Alternative B is more costly to install (higher fixed cost), but provides economies of scale (i.e. variable costs decrease as output increases). For each alternative, the annual fixed cost and the variable cost of production for different annual output ranges is given in the table below. The selling price of the product is expected to be \$10.

|ALTERNATIVE A |ALTERNATIVE B |
|Fixed Cost (\$) = 15,000 | |
| |Fixed Cost (\$) = 24,000 |
|Output Range |Variable Cost (\$) |Output Range |Variable Cost(\$) |
|0-10,000 |8.5 |0-10,000 |8 |
|10,001-20,000 |8.5 | 10,001-20,000 |6* |

* Variable cost of \$6 applies only to those units that are produced in excess of 10,000.

a) Calculate the break-even point for each alternative technology.

b) Determine the range for which each alternative is best.

c) If the annual demand for the product is estimated to be 16,000 units and the demand has to be satisfied, which alternative should be chosen?

d) What should the choice be if the annual demand is estimated as 11,500 units and the demand has to be satisfied?

QUESTION 5 (REAL OPTIONS ANALYSIS)

Petroil is a major oil company that extracts oil and runs refinery operations globally. The company is considering expanding its operations in a new area which has been identified to have significant oil reserves. The acquisition cost of the land is estimated to be \$50Million. Once the land is purchased, Petroil has to...

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