Mgmt 120
Management of Operations
Problem Review for Unit 1 - Fundamentals
This section contains study problems for the following topics.
• Time, Rate, and Productivity
• Inventory Measures
Answers for all the problems are found in the back of this section.
Review problems for Fundamentals
Review Problems for Fundamentals
1. A 3 person crew of telemarketing employees made 200 phone calls in a 4 hour time
block. What was their individual average productivity in calls per hour? What was the
crew productivity?
2. In an assembly operation at a furniture factory, six employees assembled an average
of 450 standard dining chairs per 5-day week. What is the labor productivity of this
operation?
3. The weekly output of a fabrication process is shown below together with data for
labor and material inputs. Standard selling price is $125 per unit. Overhead is charged at
a rate of $1500 plus .5 times direct labor cost. Assume a 40 hour work week and an
hourly wage of $16 per hour. Material cost is $10 per linear foot. What is the multifactor
productivity?
Output (units)
392
Number of workers
5
Material (ft)
2720
4. A company has introduced a process improvement that reduces processing time for
each unit so that output is increased by 25% with less material but one additional worker
required. Under the old process, five workers could produce 60 units per hour. Labor
costs are $12/hour and material input was previously $16/unit. For the new process,
material is now $10/unit. Overhead is charged at 1.6 times direct labor cost. Finished
units sell for $31 each. What increase in productivity is associated with the process
improvement? (Use a per-hour cost basis)
Time, Rate, and Productivity - 1
Review Problems for Exam 1
5. Compute time and rate for each of the following.
a. 10 customers are served in 2 hours
b. a machine can process 296 parts per hour
c. it takes 37 minutes to process a loan application
d. Three employees each spent 4 hours and altogether they cleaned 8 apartments.
Time, Rate, and Productivity - 2
Review Problems for Fundamentals
6. Joan Pontius, the materials manager at Money Enterprises, is beginning to look for
ways to reduce inventory. A recent accounting statement shows inventories at the
following levels.
Raw materials:
$2,345,000
Work-in-progress: $5,670,000
Finished Goods:
$2,161,000
This year's cost of goods sold should be about $29.4 million. Assuming 52 business
weeks per year, express total inventory as:
a. weeks of supply
b. inventory turns
7. One product line is experiencing 7 turns per year, and its annual sales volume (at
cost) is $750,200. How much inventory is being held, on the average?
8. MINC, Inc. keeps 4 items in stock, three machines and a repair kit. The current
inventory level and last years demand are shown below along with the value of the items.
(Assume 52 weeks per year.)
Last year's Currently
Value
demand
on hand
of item
Model 1
17,000
2500
$200
Model 2
15,000
1500
$300
Model 3
8,500
2000
$150
Repair kits
450
100
$24.00
a. How many weeks of supply do they currently have on hand?
b. If the current inventory level is characteristic, how many turns per year does MINC
Inc. have?
Answers - 3
Review Problems for Exam 1
Answers:
1. individual:
200 calls
200
3 workers x 4 hours = 12
200 calls
crew: 1 crew x 4 hours
= 16.7 calls/hr
= 50 calls/hr
450 chairs
450
2. 6 employees x 5 days = 30 = 15 chairs/day
3. Labor cost = 40 x 16 x 5 = 3200
quantity produced x standard price
multifactor productivity = labor cost + material cost + overhead
392 x 125
49000
= 3200 + (2720)(10) + 1500 + 3200(.5) = 33500 = 1.46
4. Use a per hour cost basis.
Old method:
labor cost = $12/ worker x 5 workers = $60/hr
60 units x $31 /unit
1860
prod. = 60 + (60)(16) + (60)(1.6) = 1116 = 1.667
New method:
labor cost = $12/worker x 6 workers = $72 / hr
75 units x $31 / unit
2325
prod. = 72 + (75)(10) + (72)(1.6) = 937.2
Improvement in productivity =
= 2.48
(2.48 - 1.667)
= 48.8%
1.667
5. a. time = 12 minutes per customer or .2 hours/customer
rate = 5 customers/hr or .08333 customer/s per minute
b. time = .0034 hrs per part or .203 minutes per part
rate = 296 parts/hr or 4.933 parts per minute
c. time = 37 minutes per application or .617 hrs/app
rate = 1.62 apps/hr or .027 apps/min.
d. time = 1.5 hrs/apt or 90 min/apt
rate = .667 apts/hr or .011 apts/min
6. average aggregate inventory value = $10,176,000
29.4 million
weekly sales = 52 weeks per year = .565 mill/week
10.176 million
weeks of supply = .565million/week = 17.99 ≈ 18 weeks of supply
29.4 million
inventory turns = 10.176 million = 2.89 ≈ 2.9 turns per year
Answers - 4
Review Problems for Fundamentals
annual sales
7. turns = ave. aggr. inventory value
750200
7 = ave. aggr. inventory value
Thus ave. aggr. inventory value =
750200
= 107,171 ≈ 107,000
7
8.
Model 1
Model 2
Model 3
Repair
kits
Last year's
demand
Currently
on hand
Value
of item
Value on
hand
17,000
15,000
8,500
2500
1500
2000
$200
$300
$150
$500,000
$450,000
$300,000
450
100
$24.00
$2400
Yearly
value in
sales
$3.4 mill
$4.5 mill
$1.275
mill
$.0108
mill
Ave. aggr. inventory value = $1.2524 mill.
Annual sales = $9.185 mill.
9.185
weekly sales = 52 = $.176650 mill
1.2524
weeks of supply = .176650 = 7.09 ≈ 7 weeks of supply
9.1858
turns = 1.2524 = 7.33 turns per year
Answers - 5