OPERATIONS RESEARCH I

MATH 341

FALL 2016-17

Instructor: Kamran Rashid

ASSIGNMENT
Due Date:

Max Marks = 50

Wednesday, 05 October 2016 (8:00 AM)

Extension will not be allowed for this assignment.

Submission Method:
Hard Copy to be submitted in class on 05 October, at 8:00 AM
____________________________________________________________________________
Answer all the five questions (Attached), each question carries 10 marks. Make sure to
clearly define the variables, and label each constraint.
INSTRUCTIONS:
1. You may work on this assignment individually, or in teams of maximum of two students
each. A team needs to make only one submission which should be the joint effort of both
team members.
2. The Assignment can be submitted in either Typed form or Handwritten.
3. Hard copy of the assignment report has to be submitted in class on Wednesday, 05 October.
No other form of submission will be accepted without prior approval from instructor.
4. You are not allowed to share/discuss any portion of your assignment with anyone else other
than your team member, TA, and the instructor.
5. You are not allowed to use the web (or similar) resources related to the specific solutions of
the given problems.

6. The submitted assignment should be your own original work. You also need to provide this
testimony along with your signature(s) on the title page of your submission.

Your assignment will not be graded without this signed testimony.

Q. 1 As part of the settlement for a class action lawsuit, Hoxworth Corporation must provide
sufficient cash to make the following annual payments (in thousands of dollars).
Year
Payment

175

215

240

285

315

460

The annual payments must be made at the beginning of each year. The judge will approve an
amount that, along with earnings on its investment, will cover the annual payments. Investment of
the funds will be limited to savings (at 4% annually) and government securities, at prices and rates
currently quoted in The Wall Street Journal. Hoxworth wants to develop a plan for making the
annual payments by investing in the following securities (par value = $1000). Funds not invested in
these securities will be placed in savings.
Security

Current Price

Rate (%)

Years to Maturity

$1055

6.750

$1000

5.125

Assume that interest is paid annually. The plan will be submitted to the judge and, if approved,
Hoxworth will be required to pay a trustee the amount that will be required to fund the plan.
Formulate a Linear program to minimize the cash settlement necessary to fund the annual payments.
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Q. 2 Hilltop Coffee manufactures a coffee product by blending three types of coffee beans. The
cost per pound and the available pounds of each bean are as follows:
Bean
1
2
3

Cost per Pound

$0.50
$0.70
$0.45

Available Pounds
500
600
400

Consumer tests with coffee products were used to provide ratings on a scale of 0100, with higher
ratings indicating higher quality. Product quality standards for the blended coffee require a
consumer rating for aroma to be at least 75 and a consumer rating for taste to be at least 80. The
individual ratings of the aroma and taste for coffee made from 100% of each bean are as follows:
Bean
1
2
3

Aroma Rating
75
85
60

Taste Rating
86
88
75

Assume that the aroma and taste attributes of the coffee blend will be a weighted average of the
attributes of the beans used in the blend. Formulate the above problem as a Linear program that will
determine the optimal blend to provide1000 pounds of the blended coffee product.
2

Q. 3 The Silver Star Bicycle Company will be manufacturing both mens and womens models
for its Easy-Pedal 10-speed bicycles during the next two months. Management wants to develop a
production schedule indicating how many bicycles of each model should be produced in each
month. Current demand forecasts call for 150 mens and 125 womens models to be shipped during
the first month and 200 mens and 150 womens models to be shipped during the second month.
Additional data are shown:

Model
Mens
Womens

Production
Costs
$ 120
$ 90

Labor Requirements (hours)

Manufacturing
Assembly
2.0
1.6

1.5
1.0

Current
Inventory
20
30

Last month the company used a total of 1000 hours of labor. The companys labor relations policy
will not allow the combined total hours of labor (manufacturing plus assembly) to increase or
decrease by more than 100 hours from month to month. In addition, the company charges monthly
inventory at the rate of 2% of the production cost based on the inventory levels at the end of the
month. The company would like to have at least 25 units of each model in inventory at the end of
the two months. Formulate a Linear program to develop the optimal production schedule.
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Q. 4 Romans Food Market, located in Saratoga, New York, carries a variety of specialty foods
from around the world. Two of the stores leading products use the Romans Food Market name:
Romans Regular Coffee and Romans DeCaf Coffee. These coffees are blends of Brazilian Natural
and Colombian Mild coffee beans, which are purchased from a distributor located in New York
City. Because Romans purchases large quantities, the coffee beans may be purchased on an asneeded basis for a price 10% higher than the market price the distributor pays for the beans. The
current market price is $0.47 per pound for Brazilian Natural and $0.62 per pound for Colombian
Mild. The compositions of each coffee blend are as follows:
Blend
Bean
Brazilian Natural
Colombian Mild

Regular
75%
25%

DeCaf
40%
60%

Romans sells the Regular blend for $3.60 per pound and the DeCaf blend for $4.40 per pound.
Romans would like to place an order for the Brazilian and Colombian coffee beans that will enable
the production of 1000 pounds of Romans Regular coffee and 500 pounds of Romans DeCaf coffee.
The production cost is $0.80 per pound for the Regular blend. Because of the extra steps required to
produce DeCaf, the production cost for the DeCaf blend is $1.05 per pound. Packaging costs for
both products are $0.25 per pound. Formulate a linear programming model that can be used to
determine the pounds of Brazilian Natural and Colombian Mild that will maximize the total
contribution to profit.
3

Q. 5 An investment advisor at Shore Financial Services wants to develop a model that can be
used to allocate investment funds among four alternatives: stocks, bonds, mutual funds, and cash.
For the coming investment period, the company developed estimates of the annual rate of return and
the associated risk for each alternative. Risk is measured using an index between 0 and 1, with
higher risk values denoting more volatility and thus more uncertainty.
Investment
Stocks
Bonds
Mutual funds
Cash

Annual Rate of Return (%)

10
3
4
1

Risk
0.8
0.2
0.3
0.0

Because cash is held in a money market fund, the annual return is lower, but it carries essentially no
risk. The objective is to determine the portion of funds allocated to each investment alternative in
order to maximize the total annual return for the portfolio subject to the risk level the client is
willing to tolerate.
Total risk is the sum of the risk for all investment alternatives. For instance, if 40% of a clients
funds are invested in stocks, 30% in bonds, 20% in mutual funds, and 10% in cash, the total risk for
the portfolio would be 0.40(0.8) + 0.30(0.2) + 0.20(0.3) + 0.10(0.0) = 0.44. An investment advisor
will meet with each client to discuss the clients investment objectives and to determine a maximum
total risk value for the client. A maximum total risk value of less than 0.3 would be assigned to a
conservative investor; a maximum total risk value of between 0.3 and 0.5 would be assigned to a
moderate tolerance to risk; and a maximum total risk value greater than 0.5 would be assigned to a
more aggressive investor.
Shore Financial Services specified additional guidelines that must be applied to all clients. The
guidelines are as follows:
a) No more than 75% of the total investment may be in stocks.
b) The amount invested in mutual funds must be at least as much as invested in bonds.
c) The amount of cash must be at least 10%, but no more than 30% of the total investment funds.
Suppose the maximum risk value for a particular client is 0.4, formulate a Linear Program to
determine the optimal allocation of investment funds among stocks, bonds, mutual funds, and cash.