CONFIDENTIAL CS/APR2006/QMT429/425/365/360/TPT420

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE QUANTITATIVE BUSINESS ANALYSIS

COURSE CODE QMT429/425/365/360/TPT420
EXAMINATION APRIL 2006
TIME 3 HOURS

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of two (2) parts: PART A (5 Questions)

PART B (5 Questions)

2. Answer ALL questions from all two (2) parts.

i) Answer PART A in the Answer Booklet.

ii) Answer PART B in the Answer Booklet. Start each answer on a new page.

3. Do not bring any material into the examination room unless permission is given by the
invigilator.

4. Please check to make sure that this examination pack consists of:

) the Question Paper

) a one - page Appendix 1 (List of Formulae)
) a one - page Appendix 2 (Standard Normal Table)
iv) an Answer Booklet - provided by the Faculty
v) a graph paper - provided by the Faculty

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 9 printed pages
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL
CONFIDENTIAL 2 CS/APR 2006/QMT429/425/365/360/TPT420

PART A (25 marks)

Answer ALL questions.

QUESTION 1

State whether each of the following statements is TRUE or FALSE.

a) Decision making under uncertainty occurs when probability information regarding the
likelihood of the states of nature is unavailable.
b) The most important and often the most difficult step in the scientific method is
acquiring input data.
c) The optimal solution to a mathematical model is always the policy that should be
implemented.
(3 marks)

QUESTION 2

Perkasa Realty, a real estate development firm, is considering several alternative

development projects. The financial success of these projects depends on interest rate
movement in the next five years. The various development projects and their five-year
financial return (RM millions) given that interest rates will decline, remain stable, or increase
are shown in the following table.

Interest Rates
Project Decline Stable Increase
Office building 0.6 1.2 4.5
Mall 1.3 1.9 2.5
Condominiums 3.5 1.5 0.4
Warehouse 1.7 1.5 1.0

Determine the best investment using the following decision criteria.

a) Maximin
(2 marks)
b) Hurwicz (a = 0.4)
(3 marks)

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QUESTION 3

The management of Bank Nasional was concerned about potential loss that might occur in
the event of a physical catastrophe such as a power failure or a fire. The bank estimated
that the loss from one of these incidents could run into million of ringgit due to interrupted
service and customer relations. One project the bank is considering is the installation of an
emergency power generator at its operations headquarters. The cost of the emergency
generator is RM750.000, and if it is installed no losses from this type of incident will be
incurred. However, if the generator is not installed, there is a 10% chance that a power
outage will occur during the next year. If there is an outage, there is a 0.05 probability that
the losses will be very large, or approximately RM90 million in lost earnings. Alternatively, it
is estimated that there is a 0.95 probability of only slight losses of around RM1 million.

Use decision tree analysis to determine whether the bank should install the new power
generator.
(6 marks)

QUESTION 4

Solve the following linear programming problem by graphing.

Maximize Z = 3X1 + 7X2

Subject to
0.1 X, + 0.3X 2 ^240
X1 + 2X2 < 2000
Xt £ 800
Xi, X2 > 0
(6 marks)

QUESTION 5

A consultant firm has four consultants available to be assigned to four different projects.
Find the assignment of consultants to projects that will minimize the total time (in weeks) to
complete all projects.

Consultant Project
A B C D
Zul 12 10 9 7
Alia 11 10 9 10
Razif 13 9 12 7
Sarah 11 13 10 10
(5 marks)

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PART B (75 MARKS)

Answer ALL questions.

QUESTION 1

SML Food Industries produces its latest health food product at its three factories. It has
three major customers. The profit per unit (RM), estimated monthly demand and capacity of
each factory are given below.

Factory Customer
X Y Z
A 12 10 7
B 6 9 6
C 6 10 9

Factory Capacity (units)

A 1300
B 1000
C 1200

Customer Demand (units)

X 1100
Y 900
Z 1300

a) Use the transportation algorithm to determine the optimal allocation of the health food
product to the customers from the factories in order to maximize the total profit.
Calculate the maximum total profit.
(11 marks)

b) Is the optimal solution in part (a) unique? Explain. If not, obtain an alternative optimal
solution.
(4 marks)

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CONFIDENTIAL 5 CS/APR 2006/QMT429/425/365/360/TPT420

QUESTION 2

The Sungai Rasah Food Company was inspected by the Environmental and Protection
Agency (EPA) and found to be in violation of a number of safety regulations. The EPA
inspectors ordered the company to alter some existing machinery to make it safer, purchase
some new machinery to replace older, dangerous machinery; and install water pollution
control equipment. The agency gives the factory only 24 weeks to make the changes; if the
changes were not made by then, the company would be fined RM350,000. The company
determined the activities that would have to be completed and then estimated the activity
times, as summarized in the following table.

Time (weeks)
Immediate
Activity Optimistic Most Probable Pessimistic
Predecessors
(a) (m) (b)
A - 1 2 3
B - 2 5 8
C - 1 3 5
D A 4 5.5 10
E A 3 4.75 8
F B 5 5.5 9
G C 5 9 13
H D, E 4 5 6
1 D, E, F 1 4 7
J H,l 2 5 8
K G 6 6 6

a) Draw the project network.

(7 marks)

b) Find the critical path, the expected project duration, and the project standard
deviation.
(4 marks)

c) What is the probability that the company will be fined RM350,000?

(4 marks)

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CONFIDENTIAL 6 CS/APR 2006/QMT429/425/365/360/TPT420

QUESTION 3

The demand for a component at a manufacturing firm is assessed to be a constant 2,000

units per month. The firm pays RM25 for each component to the vendor. The annual
holding cost of the component is 15% of the unit cost. The administrative cost of placing an
order is RM40 and each order is assumed to arrive instantaneously.

Assume that no shortages are allowed and there are 20 working days in each month,
a) Determine the economic order quantity.
(3 marks)

b) Calculate the annual total inventory cost associated with the above order size.
(2 marks)

c) The manufacturing firm is considering two more options.

Option 2: Take advantage of a 5% discount on minimum orders of 4000 units per

order offered by the current vendor.

Option 3: Manufacture the component in-house at the cost of RM18 per unit. With
this option, there will be a setup cost of RM60 per production run. The
component will be produced at the rate of 150 units per day. Assume the
annual unit holding cost remains at 15% of the value of the component.

Should the firm order from the vendor using the optimal ordering policy, take
advantage of the quantity discount (Option 2), or manufacture the component in-
house (Option 3)?
(10 marks)

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CONFIDENTIAL 7 CS/APR 2006/QMT429/425/365/360/TPT420

QUESTION 4

a) C-Bizz Mart is a retail catalog store specializing in cosmetics. Phone orders are
taken each day by a large pool of computer operators, some of whom are permanent
and some temporary. A permanent operator can process an average of 75 orders per
day, whereas temporary operator can process an average of 52 orders per day. The
company receives an average of at least 600 orders per day. The store has 10
computer workstations. A permanent operator will process about 1.3 orders with
errors each day, whereas a temporary operator will average 4.2 orders with errors
daily. The store wants to limit errors to 24 per day. A permanent operator is paid
RM60 per day including benefits and temporary operator is paid RM40 per day. The
company wants to know the number of permanent and temporary operators to hire to
minimize costs.

Formulate a linear programming model for C-Bizz Mart problem.

(5 marks)

b) Consider the following linear programming problem.

Minimize Z = 2000X1 +700X2 + 1,600X3

subject to
5X, + 2X2 + 2X3 > 20

4X! + X2 + 2X3 > 30

X1, X2, X3 > 0

i) Write the dual for the above linear programming problem in variable Y.
(3 marks)
The following is an incomplete final simplex tableau for the dual.

Cj 20 30 0 0 0
Solution Y2 Si s2 S3 Quantity
Mix
30 Y2 1.25 1 0.25 0 0 500
0 s2 0.75 0 -0.25 1 0 200
0 S3 -0.5 0 -0.5 0 1 600
Zj
C;-Zi

ii) Complete the above simplex tableau.

(3 marks)
iii) State the optimal solution (including the objective function value) for the dual.
(2 marks)
iv) State the optimal solution (including the objective function value) for the primal.
(2 marks)
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CONFIDENTIAL 8 CS/APR 2006/QMT429/425/365/360/TPT420

QUESTION 5

a) TechRep Manufacturing Company is monitoring the breakdowns and repairs for one of
its machines. The elapsed time between breakdowns of this particular machine has the
following distribution.

Time Between Breakdowns Probability

(Days)
10 0.05
20 0.25
30 0.40
40 0.20
50 0.10

When the machine breaks down, it must be repaired; and it takes either one, two, or
three days for the repair to be completed. The probability distribution for machine repair
time is as shown below.

Machine Repair Time (Days) Probability

1 0.10
2 0.70
3 0.20

Every time the machine breaks down, the cost to the company is estimated at RM2000
per day in lost production until the machine is repaired.

Simulate the existing maintenance system for the machine to determine the cost due to
repair time for one year (365 days). Use as many of the following random numbers
needed to conduct the simulation.

Time Between Breakdowns: 45 90 84 17 74 94 07 90 04 32

29 95 73 28 64 27 00 53 90 14

Machine Repair Time 19 65 54 10 61 87 74 15 33 11

26 29 18 57 85 00 12 89 43 72

You may use the template shown below to conduct the simulation.

Breakdown Random Time Random Repair Cumulative

Number Between Number Time Time
Breakdowns (Days) (Days)
(Days)

What is the annual repair cost for the machine?

(8 marks)

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CONFIDENTIAL 9 CS/APR 2006/QMT429/425/365/360/TPT420

b) TechRep would like to know if it should implement a maintenance program at the cost
of RM15,000 per year that would reduce the frequency of breakdowns and thus the
time for repair. The maintenance program would result in the following distribution
for time between breakdowns.

Time Between Breakdowns Probability

(Days)
10 0.05
20 0.10
30 0.15
40 0.30
50 0.25
60 0.15

The repair time resulting from the maintenance program has the following
distribution.

Machine Repair Time (Days) Probability

1 0.40
2 0.50
3 0.10

Simulate the breakdown and repair system with the maintenance program using the
random numbers in part (a). Determine the annual repair cost and make a
recommendation to TechRep on whether the maintenance program should be
implemented.
(7 marks)

END OF QUESTION PAPER

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

CONFIDENTIAL APPENDIX 1 CS/APR 2006/QMT429/425/365/360/TPT420

LIST OF FORMULAE

J2C D
1. The Economic Order Quantity, EOQ =
Ch

, 2C D
2. The Economic Batch Quantity, EBQ =
c*0--)
P

3. Total Inventory Cost (EOQ), TC = Ch 0. + C0 — + DC.

4. Total Inventory Cost (EBQ), TC = Ch(l--)^- + C0 — + DC.

P 2 Q
5. Reorder point, ROP = d x L.

6. MODI Cost Values, C(/ =R,+Kr

7. MODI Improvement Index, I9 = Cv -R,-Kr

P(B | A).P(A)
8. Bayes' Theorem, P(A \ B) =
P(B\A).P(A) + P(B\A).P(A)

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

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