The Jubail Bicycle Shop operates 7 days per week, closing 5 days each for Eid-ul-Fitr and Eid- Ul -Adah (this gives 355 working days in a year). The shop pays SAR 600 for a particular bicycle purchased from the manufacturer. The annual holding cost per bicycle is estimated to be 25% of the SAR value of inventory. The shop sells an average of 25 bikes per week. Frequently, the dealer does not have a bike in stock when a customer purchases it, and the bike is back ordered. The dealer estimates his shortage cost per unit back-ordered, on an annual basis, to be SAR 400 due to lost future sales (and profits) and the lead time is 2 weeks. The ordering cost for each order is SAR 300. Determine the following a. [1 Mark] Optimal order quantity b. [1 Mark] Shortage level (Maximum number of back orders) c. [1 Mark] Total minimum cost. d. [1 Mark] Optimal ordering policy e. [1 Mark] How long will there be stock out?
RoyalCommission for Jubail and Yanbu
Jubail University College
Department of Business Administration
Cover Page
FX-ACA-002
Issue 0 Rev. 1
January 2, 2014
i
Exam Type: Take Home Assessment 2 (Theory) Semester: 402
Course Code BUS 242 Course Title Operations Research
Exam Date 21-Apr-20 03.00 PM Exam Due date 21-Apr-20 09.00 PM
Exam Session – Version A
Students are requested to comply with all JUC examination rules and regulations strictly.
PART I TO BE FILLED BY THE STUDENT
STUDENT’S
NAME
ID. No.
Course Section
FB
MB 101
TO BE FILLED BY THE CONCERNED DEPARTMENT
PART II 1st Marker 2nd Marker
Question
No.
Max
Marks
Actual
Marks
Comments/Remarks
Actual
Marks
Comments/Remarks
1 5
2 5
3 10
Total 20
Name: Ms. Sabitha Niketh Name:
Signature: Signature:
Name: Dr. B. Wardono Name:
Signature: Signature:
Take Home Assessment 2, BUS 242, Sem 402, JUC-Male Branch & Female Branch Page 2 of 2
INSTRUCTION:
Upload the scan copy of the answer to BlackBoard in one single file,
before the specified due date.
Take Home Assessment 2, BUS 242, Sem 402, JUC-Male Branch & Female Branch Page 1 of 4
QUESTION 1
The Jubail Bicycle Shop operates 7 days per week, closing 5 days each for Eid-ul-Fitr and Eid- Ul
-Adah (this gives 355 working days in a year). The shop pays SAR 600 for a particular bicycle
purchased from the manufacturer. The annual holding cost per bicycle is estimated to be 25% of
the SAR value of inventory. The shop sells an average of 25 bikes per week. Frequently, the dealer
does not have a bike in stock when a customer purchases it, and the bike is back ordered. The
dealer estimates his shortage cost per unit back-ordered, on an annual basis, to be SAR 400 due to
lost future sales (and profits) and the lead time is 2 weeks. The ordering cost for each order is SAR
300. Determine the following
a. [1 Mark] Optimal order quantity
b. [1 Mark] Shortage level (Maximum number of back orders)
c. [1 Mark] Total minimum cost.
d. [1 Mark] Optimal ordering policy
e. [1 Mark] How long will there be stock out?
ANSWER:
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QUESTION 2
Our college purchases sweatshirts from a vendor emblazoned with the college name and logo. The
vendor sells the sweatshirts to the college for 45 SAR a piece. The cost to the college for placing
an order is 175 SAR and the carrying cost is 20% of the average annual inventory value. The
college administration estimates that 2,000 sweatshirts will be sold during the year. The vendor
has offered the college the following volume discount schedule:
Quantity Discount (%)
1 – 299 0%
300 – 499 5%
500 – 799 8%
800+ 12%
[5 Marks] The college admin staff wants to determine the optimal order quantity, given the
foregoing quantity discount information.
ANSWER:
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QUESTION 3
A. ArmaCo must determine whether or not to drill for oil at the Northern part of Jubail. It costs
$100,000 to drill, and if oil is found, the value is estimated to be $600,000. At present, ArmaCo
believes there is a 45% chance that the field contains oil with the profit payoffs give in the
table below.
Alternatives
State of Nature
Oil Dry
Drill 500 –100
No Drill 0 0
a. [0.5 Mark] Show the decision tree for the situation.
b. Which alternative should the Armaco choose using:
i. [1 Mark] the optimistic approach
ii. [1 Mark] the conservative approach
iii. [1 Mark] the minimax regret approach.
c. [1 Mark] Determine which alternative should be chosen based on expected value.
d. [1 Mark] Determine the expected value with perfect information.
e. [1 Mark] Determine the expected value of the perfect information.
B. Before drilling, ArmaCo can hire (for $10,000) a geologist to obtain more information about
the likelihood that the field will contain oil. There is a 50% chance that the geologist will issue
a favorable report and a 50% chance of an unfavorable report. Given a favorable report, there
is an 80% chance that the field contains oil. Given an unfavorable report, there is a 10% chance
that the field contains oil.
f. [1 Mark] Show the decision tree for the situation.
g. [1 Mark] Determine ArmaCo’s optimal course of action.
h. [0.5 Mark] How much is the expected profit?
i. [1 Mark] Determine the Expected Value of Sample Information.
ANSWER
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– END OF EXAM PAPER –