HW 5

1. Memory Associates has just developed a new supercomputer. However, the supercomputer
business has become extremely competitive, and Memory Associates wants to introduce its new
product at a price that will undercut the competition. The first unit produced required $1 million for
materials and 200,000 hours of direct labor at $15 per hour. If Memory Associates prices its new
supercomputer at $2 million per unit, how many units must be produced and sold before the selling
price will cover the direct labor and material costs if an 80 percent learning curve, which applies
only to the direct labor hours, is in effect?

2. Boeing Aircraft collected the following cost data on the first 8 units of their new business jet.
UNIT NUMBER COST ($ MILLIONS) UNIT NUMBER COST ($ MILLIONS)
1 $100 5 60
2 83 6 57
3 73 7 53
4 62 8 51
a. Estimate the learning curve rate for the new business jet.
b. Estimate the average cost for the first 30 units of the jet.
c. Estimate the cost to produce the 30th jet.

3. Consider a process consisting of five resources that are operated eight hours per day. The process
works on three different products, A, B, and C:
Resource Number of Activity Time Activity Time Activity Time
workers for A (min/unit) for B (min/unit) for C (min/unit)
1 2 5 5 5
2 2 3 4 5
3 1 15 0 0
4 1 0 3 3
5 2 6 6 6

Demand for the three different products is as follows: product A, 40 units per day; product B, 50
units per day; and product C, 60 units per day.
a. What is the implied utilization of each resource (if the calculated implied utilization ratio for a
resource is greater than 100%, it means all of the demand cannot be met)? Where in the process is
the bottleneck?
b. What is the achieved output rate for each product assuming that demand must be served in the
mix described above (that is, for every four units of A, there are five units of B and six units of C)?
4. The Arctic Oil Company has recently drilled two new wells in a remote area of Alaska. The
company is planning to install a pipeline to carry the oil from the two new wells to a transportation
and refining (T&R) center. The locations of the oil wells and the T&R center are summarized in the
following table. Assume a unit change in either coordinate represents one mile.
_ X-Coordinate Y-Coordinate
Oil well 1 50 150
Oil well 2 30 40
T&R center 230 70
Installing the pipeline is a very expensive undertaking, and the company wants to minimize the
amount of pipeline required. Because the shortest distance between two points is a straight line, one
of the analysts assigned to the project believes that a separate pipe should be run from each well to
the T&R center. Another alternative is to run separate pipes from each well to some intermediate
substation where the two lines are joined into a single pipeline that continues on to the T&R center.
Arctic Oil’s management wants to determine which alternative is best. Furthermore, if using the
intermediate substation is best, management wants to determine where this station should be located.

a. Create a spreadsheet model to determine how many miles of pipeline Arctic Oil must install if
they run separate pipelines from each oil well to the T&R center. How much pipe will be needed?

b. If Arctic Oil wants to build a substation, where should it be built? How much pipe is needed in
this solution?

c. Which alternative is best?

d. Suppose the substation cannot be built within a ten-mile radius of the coordinates X = 80, Y = 95.
(Assume that the pipeline can run through this area but the substation cannot be built in the area.)
What is the optimal location of the substation now, and how much pipe will be needed?

5. Platinum Chemical Company has a problem with its flow process. Analyze the following diagram
and table:

A B D

Department Capacity (Gallons

Per Hour)
A 100
B 70
C 50
D 120
The ratio for mixing the outputs from departments B and C is two to one. This means that getting
three gallons of input to department D requires mixing two gallons of B’s output and one gallon of
C’s output.
a. Determine the bottleneck department(s) and the system capacity.
b. How much slack (unused capacity) is available in the other departments?
c. How much can the system capacity be increased by adding capacity to the bottleneck
department(s)?
d. How much capacity must be added to the bottleneck department(s) to achieve this increase in
system capacity?
e. Which department(s) is the new bottleneck department(s)?