HW 1

1. Susan Williams runs a small Flagstaff job shop where garments are made. The job shop
employs eight workers. Each worker is paid $10 per hour. During the first week of March,
each worker worked 45 hours. Together, they produced a batch of 132 garments. Of these
garments, 52 were “seconds” (meaning that they were flawed). The seconds were sold for $90
each at a factory outlet store. The remaining 80 garments were sold to retail outlets at a price
of $198 per garment. What was the labor productivity, in dollars per labor-hour, at this job
shop during the first week of March?

2. A fast-food restaurant serves hamburgers, cheeseburgers, and chicken sandwiches. The

restaurant counts a cheeseburger as equivalent to 1.25 hamburgers and chicken sandwiches as
0.8 hamburger. Current employment is five full-time employees (who work a 40-hour week).
If the restaurant sold 700 hamburgers, 900 cheeseburgers, and 500 chicken sandwiches in one
week, what is its productivity? What would its productivity have been if it had sold the same
number of sandwiches (2,100) but the mix was 700 of each type?

3. NorSal Trondheim operates a salmon processing facility where fish are purchased from local
sources along the North Sea, processed at the facility, and sold to customers for distribution.
The plant manager, Inger Hansen, is contemplating a plant modernization to upgrade the
technology in the plant. While the plant performs well enough now, modernizing equipment
would allow the plant to increase capacity per hour, which is particularly advantageous because
the factory has enough demand to cover the additional capacity. Currently, the plant operates
five days a week, two shifts of 30 workers per shift. The workers are paid $10 per hour. Adding
a third shift is not possible because the plant is cleaned during the third shift.

The firm is contemplating a plant modernization to upgrade existing equipment, which should
increase the plant’s output while lowering energy costs. Using the current equipment, around
1,500 pounds of salmon can be processed each hour, while the new plant would be able to
processed each hour, while the new plant would be able to process 2,000 pounds per hour. The
updated equipment is made by the same manufacturer as the existing equipment, and the new
equipment quickly. For this reason, costs to train personnel are assumed to be negligible. The
production manager, Bjorn Pedersen, is skeptical about undergoing the plant modernization.
The older equipment, he argues, is already paid for, and new equipment would cost $10,000 per
week. This cost is comprised of both principal and interest, and includes manufacturer
installation of the equipment. The controller, Maret Karlsen, cautions that all decisions related
to costs should be included in the analysis and that because the energy consumption would be
different, this must also be accounted for in the decision. Energy costs are presently $10 per
unit, and the existing plant uses 1,000 units of energy per week. With the modernized plant, the
consumption of energy would fail by 50%.

a. What is the productivity of the processing facility, with the equipment currently in use?
b. What would the productivity of the plant become if the new system were purchased and
implemented?
c. What would be the amount of additional expense on equipment that would make
productivity of the two systems equal?
4. Data collected on the yearly registrations for a Six Sigma seminar at the Quality College are
shown in the following table:

YEAR 1 2 3 4 5 6 7 8 9 10 11
REGISTRATIONS (000) 4 6 4 5 10 8 7 9 12 14 15

a. Develop a 3-year moving average to forecast registrations from year 4 to year 12.
b. Estimate demand again for years 4 to 12 with a 3-year weighted moving average in which
registrations in the most recent year are given a weight of 2, and registrations in the other 2
years are each given a weight of 1.
c. Graph the original data and the two forecasts. Which of the two forecasting methods seems
better?

5. Consider the following actual (At) and forecast (Ft) demand levels for a commercial
multiline telephone at Office Max:

Time Period, t Actual Demand, At Forecast Demand, Ft

1 50 50
2 42 50
3 56 48
4 46 50
5

The first forecast, F1, was derived by observing A1 and setting F1 equal to A1. Subsequent
forecast averages were derived by exponential smoothing. Using the exponential smoothing
method, find the forecast for time period 5.