1. Kristen cookies.

a. Mix & Spoon: Capacity = 60/8 = 7.5 trays/hr; Cycle Time = 8

min/tray
Bake: Capacity = 60/10 = 6 trays/hr; Cycle Time = 10 min/tray
Cool: Capacity = 60/5 = 12 trays/hr; Cycle Time = 5 min/tray
Pack: Capacity = 60/2 = 30 trays/hr; Cycle Time = 2 min/tray
Pay: Capacity = 60/1 = 60 trays/hr; Cycle Time = 1 min/tray
BottleneckCC is Bake
CapacityCC = 60/10 = 6 trays/hr = 120 trays/wk
Cycle TimeCC = 10 min/tray
b. Mix & Spoon: Capacity = 60/5 = 12 trays/hr; Cycle Time = 5
min/tray
Bake: Capacity = 60/15 = 4 trays/hr; Cycle Time = 15 min/tray
Cool: Capacity = 60/2 = 30 trays/hr; Cycle Time = 2 min/tray
Pack: Capacity = 60/2 = 30 trays/hr; Cycle Time = 2 min/tray
Pay: Capacity = 60/1 = 60 trays/hr; Cycle Time = 1 min/tray
BottleneckOR is Bake
CapacityOR = 60/15 = 4 trays/hr = 80 trays/wk
Cycle TimeOR = 15 min/tray
c. ProfitCC = ($5 - $2.50) x CapacityCC = $2.5 * 6 = $15/hr
ProfitOR = ($5.50 - $2.40) x CapacityOR = $3.1 * 4 = $12.40/hr
Kristen should maximize profit by fulfilling as close to 100 dozen
CC demand as possible and use excess capacity to make OR.
Therefore, we presented the spreadsheet below to identify the
product mix between CC and OR which had the maximized profit
for the week.

As shown above, Kristen should make 99 dozen CC and 12 dozen

OR.
2. Manufacturing Facility
1. a) The flow time of machine B is 2 hours for batch sizes of both 1
and 2.
Flow time = 2 * 1 = 2 units/hourhours
b) i. Capacity = 2 units/hour
ii. Earnings = Capacity * Time * Margin
= 2 units/hour * 1000 hours * $2/unit
= $4000
c) i. Capacity is 1 unit/hour, Flow time = 2 hours (machine A) + 2
hours (machine B) = 4 hours
ii. Machine B is the bottleneck since its capacity is lower than that
of machine A.
iii. If machine A uses batch size of 2 units, machine A and machine
B both have the same capacity of 2 units/hours, so there is no
bottleneck in the process. At the steady state, machine A is idle 0%
of the time.
Machine A
Machine B
Time (hrs)

iv. If machine A uses batch size of 4 units, machine A would make 4

units every 2 hours while machine B would produce 4 units every 4
hours. At the steady state, machine A would be idle 50% of the time
in order to wait for machine B to finish its production process.
Machine A
Machine B
Time (hrs)
10

v. Earnings = Capacity * Time * Margin

= 1 unit/hour * (1000-2) hours * $3/unit
= $2994
d) Since product 2 earns more margin than product 1, the
production strategy that maximizes revenue would need to
2

maximize the production of product 2. From the previous section

we know that for production system of product 2 to run at capacity,
machine B would run at capacity while machine A would be idle
50% of the time. Machine A should then use this idle time to
produce product 1. This way, both machines would be running at
capacity, and the amount revenue generated would be at a
maximum. Under this strategy, the system would produce $2000 in
product 1 and $2994 in product 2 for a total margin revenue of
$4994.
3. Airline call center.
a. Methodology: with a single queue, the arrival rates of B and L
customers were summed to 80 calls/hr. H Service Rate = 60/10 = 6
call/hr. Since L customers arrived at 3x the rate of B customers, we
assumed that the ratio of L customers to B customers waiting in the
queue was 3:1. Using the M/M/s model, we proportioned the costs
of waiting (B: $50/hr; L: $5/hr) and then added the cost of hiring H
servers to find the total cost/hr. (Total cost = # of servers * hiring
cost per operator + Lq * cost of waiting per customer).
Calculation:

Conclusion: this method indicated the optimal number of H

servers to hire was 16.
b. Methodology: we laid out the calculation for the two-queue setting
with 3 major buckets (B calls served by H operators; L calls served
by H operators; L calls served by A operators). The goal was to seek
for the optimal combination of H and A operators with the least
operating costs. A Service Rate = 60/15 = 4 call/hr. Using the
M/M/s model, we calculated the costs of waiting (B: $50/hr; L:
$5/hr) and then added the cost of hiring to find the total cost/hr.
(Total cost = # of servers * hiring cost per operator + Lq * cost of
waiting per customer).
Calculation:

Conclusion: the manager should use A operators to service L

customers.
c. Wed like to recommend the manger choose Configuration I with 16
H operators, resulting in the lowest per hour cost derived from both
employee and customer factors.
4. European Call Option
a)

b) If x > 98, then gain = x 98 price of the option (p)

Note: depending on the size of p, this may be a loss
If x <= 98, the loss is the price of the option

c) From Exhibit 1, the expect gain from this option is $2.27,

assuming that the price of the option is zero.
d) Potential buys will be willing to pay for this option as long as it is
priced below $2.27
Gain = x 98 p, x = 100.27
Since gain needs to be greater than 0, p < 100.27 98
Price of the option (p) < 2.27

Simulati
on
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51

Value
99
93
96
101
97
99
101
97
101
98
97
99
107
103
101
104
100
102
98
96
94
100
98
103
104
102
107
100
106
102
101
96
98
101
95
102
108
97
90
98
104
101
97
99
99
102
102
100
101
100
106

Exhibit 1: 100 Repetitions of the

Simulation