QUANTITATIVE TECHNIQUES FOR DECISION MAKING

PROBABILITY ANALYSIS

Problem 1. The company asks you, the consultant, on what product they should develop. The
company has limited resources and can only choose between developing a smoke detector, a
motion detector, or to develop nothing. The smoke detector costs P100,000 to develop, will
generate P1,000,000 in revenue and has a 50% chance of success. The motion detector costs
P10,000 to develop, will generate P400,000 in revenue, and has an 80% chance of success. Both
products will not yield any revenue if they fail. What should the company develop?

Problem 2. Refer to number 1. Suppose after giving your recommendation, the company contacts
you days later with new information. The company learns that if the company will successfully
develop the smoke detector, it may or it may not register for certification. If it will not register, the
company will not be able to sell the product and therefore no revenue is generated. If the company
will register, it will have a 30% chance of obtaining Grade A certification, 60% chance of Grade B
certification, and 10% chance of failing the certification process. A Grade A certification will yield
P1,000,000 revenue (as previously predicted). A Grade B certification will only result in P800,000
revenue. If the company fails the certification process, the company will not be able to sell the
product. Applying for certification will cost P5,000. Should the company still develop the smoke
detector given these new information?

LEARNING CURVE

Problem 3. A particular manufacturing job is subject to an estimated 60% learning curve. The
first unit required 20 labor hours to complete.
REQUIRED:
a. What is the cumulative average time per unit after four units are completed?
b. What is the total time required to produce 2 units?
c. How many hours are required to produce the second unit?

Problem 4.A construction company has just completed a bridge over the Visayan area. This the
first bridge the company ever built and it required 100 weeks to complete. Now having hired a
bridge construction crew 'with some experience, the company would like to continue building
bridges. Because of the investment in heavy machinery needed continuously by' this crew, the
company believes it would have to bring the average construction time to less than one year (52
weeks) per bridge to earn a sufficient return on investment. The average construction time will
follow an 80% learning curve. To bring the average construction time (over all bridges
constructed) below one year per bridge, the crew would have to build approximately.

INVENTORY MODELING

PROBLEM 5.Otil Company buys pingpong balls at P25 perdozen from tis wholesaler. Otis will sell
35,000 dozen balls evenly throughout the year. Otis desires a 12% ROI on inventory. In addition,
rent, insurance, taxes for each dozen pingpong balls in inventory is P0.50. The order cost is P10
per order.
Required:
1. EOQ

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PROBLEM 6.Bing Products is involved in the production of camera parts and has the following
inventory, carrying and storage costs:
a. Orders must be placed in round lots of 200 units.
b. Annual unit usage is 600,000 (Assume a 50 week year in your calculations)
c. The carrying cost is 15 percent of the purchase price.
d. The purchase price is P3 per unit
e. The ordering cost is P90 per order.
f. The desired safety stock is 15,000 units (This does not include delivery time stock.)
g. The delivery time is one week.
Required:
1. EOQ
2. Order Point

PROBLEM 7.A reseller of Chinese zodiac figurines is planning for next year’s sales. They only
started the business in 2013, with snake figurines selling like hotcakes throughout the year thus
far. They will be selling a same-priced horse variant in 2014, when they are expecting an increase
of total annual demand by 595 units.
Unfortunately, on June 30, 2013, the company’s all-around accountant had gone missing after a
trip to Batanes. The owner, based on his brief conversations with the said accountant, remembers
the number “325” as the EOQ in 2013 and the words “thirty pesos per snake” every time an order
is made, and that it would take 7 days (out of 360 total workdays in a year) after he signs a
purchase order before the shipment of figurines arrive at the store. The owner also recalls a
certain percentage as required return on funds locked up in inventories of 10%. The temporary
accountant, whom the owner hired, found scraps of paper on the lost accountant’s desk from
which he learned of paper and envelope costs of P14, postage costs of P11, and cellular phone
costs of P100 in preparation for each purchase from the supplier. A post-it note on the old
accountant’s desk showed a list of numbers with rent, insurance and taxes totaling P15. A small
scribble on the lower right corner of the note indicated “/figurine/yr to carry.”
Requirements:
1. EOQ
2. Total annual inventory costs for 2014
3. Reorder point in 2014 if there is an estimated maximum daily demand of 36 units

PERT

Problem 8
Activity Time
(months)
AB 5
AC 3
BE 7
BD 6
CD 7
DE 3
DF 10
EF 8

1. Illustrate
2. Find the critical path.
3. How long is the project expected to take?

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Problem 9

NORMAL CRASH
Activity Cost Time (days) Cost Time (days)
AB P9,000 13 P12,000 5
AD 15,000 10 15,750 9
AC 12,000 11 14,250 8
BE 18,000 14 21,000 10
DE 24,000 13 27,600 10
CE 18,000 15 20,250 13
BD 7,500 2 10,500 1
BC 6,000 1 7,500 0.5
In order to keep costs at a minimum and decrease the completion time of the project by three days, the
company should crash an activity.

What is the critical path?

Which activity should be crashed first? Second?

Problem 10

a) PERT Chart
b) Critical path
c) Activity to crash first

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