4) Chapter 13, problem 33 (page 598)

Given the following list of items

a) classify the items as A, B, or C

b) Determine the economic order quantity for each item (round to the nerest whole unit)

Brutus Auto is a thriving, independently owned and operated firm located in Westerville. It was founded in 1986 by “Brutus” Cooper. Brutus was born and raised in Westerville, OH. Brutus is well-known and trusted by the residents of the town. As a teenager, he was a star football player for the high school team. In his spare time, he enjoyed working on cars and had a special talent when it came to cars. After college, this hobby led Brutus to start his own business – Brutus Auto Tire and Lube.

Brutus does a wide variety of work on vehicles of all makes and models. The shop also offers a variety of parts and supplies at retail. Brutus spends a great deal of time conversing with customers, most of whom he has known his whole life. His reputation for honest and reliable work has earned him many repeat customers, with the positive word of mouth helping him to expand his business.

His wife, Diane, runs the office, and takes special care to acknowledge customers on their birthdays with hand-written cards that include coupons for discounted services. Customers often reflect that Brutus offers the kind of service you can only find from a small-town mechanic. While Brutus is slightly more expensive than the chain establishments that have recently moved into town, customers testify that the friendly environment and quality service are worth the price.

Operational details

Brutus’s shop has grown steadily over the years. Originally, Brutus maintained a modest three automobile bays at his shop, and he and his long-time buddy, Fred, conducted most of the work except oil changes which were handled by a part-time apprentice. Currently, Brutus shop has six bays (the layout of the shop is shown in Figure 1) and seven mechanics (as not all of the service activities require a bay). Each of the bays is identical so that any employee can work at any station.

Four of the employees (including Brutus and Fred) are full-time (work at least 40 hours per week), and three are interns who work part-time (work fewer than 40 hours per week). Brutus and Fred are the only two mechanics permitted to do work beyond the basics, and so more involved car services can take some time getting through the shop. Most mechanics at Brutus Auto were trained at the area vocational school, and those with particular skill are taken on as apprentices who work under Fred and Brutus on the more involved projects. Cooper provides all the tooling necessary, and is respected as a fair and caring boss. In return, Brutus’ employees are loyal and hard-workers; seldom is absenteeism a problem, and turnover is rare.

The employee schedule for a typical week is shown in Table 1. The numbers shown in Table 1 are all devoted to working on vehicles. The shop closes for one week in the winter.

Inventory

Although the shop is primarily a service provider, all of the services require materials in addition to labor, and so there are inventory considerations that Brutus must manage.

A variety of other parts and supplies (for example, oil filters and oil) must be kept available due to the regularity of use; it would be difficult to meet the high expectations of customers if these items are not available. This has become a particularly high priority ever since national service chains moved into town, as the speed of their services such as oil changes is already far superior to that of Brutus. As a result of these competitive pressures, Brutus sets a 98% target service level.

Brutus is dedicated to using a high-quality brand of parts and supplies, most of which are available from a single supplier. Note that these parts and supplies are not only used to support services but also sold as retail transactions to customers who wish to perform their own repair work.

Currently, a continuous review policy is used for all car parts and supplies, but Brutus believes this system may require too much time to maintain for all inventory items. A sample of some of the items offered, the volumes used in services and sold at retail, and the associated costs are shown in Table 2. Brutus has determined that to call the supplier, pay for transportation, and put a shipment away costs approximately $50. The stockroom is relatively small and does not require special equipment or personnel. There is virtually no theft of product, so the annual holding costs are approximately 25% of unit cost. Delivery of orders takes about one week from the local supplier.

Adding Tire Service

The owners believe that adding tire replacement would increase revenues with a negligible increase to fixed (facility) costs other than tire inventory. However, in order to be competitive with the discount chains, Brutus must target a maximum of 30 minutes total time for each customer visit specific to tires since pricing was already competitive. They estimate that the time between arrivals for cars needing such replacement would be ten minutes. A dedicated and secure parking lot with a limit of 6 spots is available specifically for cars awaiting tire service. While service requirements vary, they estimate that a dedicated technician should finish up 3 tire service jobs each hour.

1. - Identify and describe TWO recommendations you would make to

                           Brutus Cooper to improve Operations and/or to lower costs.

(a) One day, Mary went to a boutique and tried on a dress displayed on the shelf of the
shop. Then, she felt that the dress was not very comfortable and put it back on the
shelf. However, the salesperson insisted Mary needed to pay for the dress because
she already had a contract with the shop.
Peter is the shopkeeper of a pet shop. Last week, Peter lost one of his Persian cats
when taking it for bathing at his shop. He immediately put up a notice on the wall
of his pet shop stating a reward of $1,000 for return of his cat. Recently, when Mary
walked along the street, she found Peter’s lost cat accidentally. Luckily, the cat
wore a necklace with details of Peter’s name and shop address. After Mary returned
the cat to Peter, she discovered the notice on the wall and demanded the reward of
$1,000.
Required:
(i) Advise Mary whether she is legally bound to buy the dress in the boutique. You
are required to cite a relevant case in your explanation.
(ii) Advise Peter whether he is legally bound to pay the reward to Mary. You are
required to cite a relevant case in your explanation.
(b) Ada contracted with Brian to repair her car for $5,000 and to complete the work
within one week. Later, Brian told her that the repair work was very sophisticated
and Ada promised to pay him an extra amount of $500.
Required:
Advise Brian whether Ada is legally bound to pay him the extra amount of $500.
You are required to cite relevant case(s) in your explanation.

Today, one needs to pay 130 US dollars for 100 euros. The continuously compounded US interest rate is 1% and the continuously compounded euro interest rate is 2%.

(1) What is the 9-month forward price for 100 Euros?

(2) Suppose you will receive 2 mln US dollars and 1 mln. euros in six months. The current forward price of a forward contract that matures in six months is F0,6mth = 1.2935 USD per 1 euro. Suppose you short eight forward contracts today (the contract size is 125,000 Euro). How many USD and euros will you have in six months?

One state lottery has 1,000 prizes of $1; 130 prizes of $10; 20 prizes of $55; 5 prizes of $300; 2 prizes of $1,010; and 1 prize of $2,500. Assume that 31,000 lottery tickets are issued and sold $1

What is the lottery's expected profit per ticket?

What is the lottery's standard deviation of profit per ticket?

A large corporation is interested in predicting a measure of job satisfaction among it employees. They have collected data on 15 employees who each supplied information on job satisfaction, level of responsibility, number of people supervised, rating of working environment and year of service.

Please write out the regression equation of using all predictors and explain the equation.

Which predictor(s) is(are) very important predictor(s) to predict job satisfaction? Why do you select it (them)?

Use the important predictors to form a regression equation and compare this equation with the previous calculated one.

Report all relevant results.

The following data refers to the number of logging operations working in a stretch of tropical rainforest. Excluding externalities, the private cost of a logging operation is $25 thousand per week. Logs sell for $1 a piece. Fill in the chart below.                    

1. What is the number of logging operations in the forest that maximizes total profits in the industry (ignoring externalities)? How much total resource rent is generated at this level of harvest?

2. With open access to the forest, how many folks will wind up logging? With open access, will there be any resource rent earned by the loggers?

3. Which of the following are externalities associated with logging?

___ Loss of genetic material for medical or agricultural applications

___ Low wages for forestry workers

___ Release of carbon-dioxide stored in the “carbon sink” of the forest

___ Building of roads by the companies to access timber

4. Suppose the total externalities associated with deforestation could be valued at $10,000 per operation. What is the efficient (socially optimal) number of operators? What is the open access number of operators?

5. Suppose access to the forest is controlled by a (perfectly enforced) fee system. What (weekly) fee would have to be charged to insure an efficient harvest level?

SMU Corp. has future receivables of 4,000,000 New Zealand dollars (NZ$) in one year. It must decide whether to use options or a money market hedge to hedge this position. Use any of the following information to make the decision. Verify your answer by determining the estimate (or probability distribution) of dollar revenue to be received in one year for each type of hedge.

      Spot rate of NZ$ = $.54

      One‑year call option: Exercise price = $.50; premium = $.07

      One‑year put option: Exercise price = $.52; premium = $.03

                                                                                    U.S.     New Zealand

            One‑year deposit rate                                        9%           6%

            One‑year borrowing rate                                    11             8

                                                                                    Rate    Probability

            Forecasted spot rate of NZ$ $.50           20%

                                                                                       .51           50

                                                                                       .53 30