FIRST PRACTICE PROBLEMS SET: MGT 510, IBA KARACHI: FALL 2021

The purpose of this assignment is to prepare you for the upcoming Midterm Exam and also to
help you master all the course content we have covered so far. This is a graded assignment
and the its worth 4% of your course grade. Q1 and Q3 carries 1.5 points each and Q2 is worth
1 point. So each part of each question is worth 0.25 points. You are all allowed to discuss
amongst yourselves the solution methods and strategies, but the solution each of you
submits must be your own. Any two submissions found to be a replica of each other, wholly
or partially, will both get a zero.

Q1)- (Shah Alam Palm Oil Company): Palm oil is harvested from the fruit of oil palm
trees and is widely used as a cooking oil throughout Africa, Southeast Asia, and parts of
Brazil.  It is becoming widely used throughout the world as it is a lower cost alternative to
other vegetable oils and has other attractive properties.  
You are working for the Shah Alam Palm Oil Company (SAPOC) that harvests, processes, and
sells palm oil throughout the region.  You are asked to review the sales volume (in pounds) of
your premium palm oil by one of your customers, a local grocery store in the region.
The spreadsheet with the monthly sales volume of palm oil is attached. Analyze the data and
answer the following questions:
(a)- Take a look at the data and chart or plot the demand (vertical axis) against the months
(horizontal axis). Do you detect any type of trend over the last three years? Which of the
following is correct? Please include your plot in the solution and also write a one line answer
justifying your selected option.
A-Yes, there appears to be a POSITIVE trend
B-No, the demand appears to STATIONARY with no trend
C-Yes, there appears to be a NEGATIVE trend
D-It cannot be deciphered with this data
(b)- Does there appear to be any seasonality in the demand pattern? Please write a one line
answer justifying your selected option.
A-No, there does not appear to be any seasonality
B-There is not enough data to infer any seasonality
C-Yes, there appears to be some sort of seasonality
(c)- What is the forecast for demand in January 2015 . . . using a naive model? …. using a
cumulative model? …. and using a 12 Period Moving Average model? Please solve using MS
Excel and include the spreadsheet in your solution.
(d)- What is the root mean square error (RMSE) for a forecast for these three years of demand
. . . using a cumulative model? …. and using a 12 Period Moving Average model? Please solve
using MS Excel and include the spreadsheet in your solution.
(e)- Which of the three models, if any, do you think is most appropriate for forecasting the
demand in January 2015? Select the best option & write a one line answer justifying your
selected option.
A- The Naive Model
B- The Cumulative Model
C- The 12 Period Moving Average Model
D- None of these models are appropriate

Q2)- (Partial Foods): You are responsible for managing the inventory for the trendy
upscale specialty food store, Partial Foods.  You are trying to set the inventory policy for one
of your most popular cheeses, Mad Cow Cheddar, which comes in 1 pound wheels.   It is a
stable selling cheese with an average weekly demand of 14 wheels/week.
Your fixed cost of placing an order from the farm that produces Mad Cow Cheddar is
$90/order and the cheese itself costs you $12.50 per wheel.   Assume that there are 52 weeks
in a year and that the annual inventory holding charge is 20%. 
(a)- What should your economic order quantity be, in wheels? Round to the nearest integer
value. Show all your working steps.
(b)- Under this ordering policy, how many weeks on average will the Mad Cow Cheddar be on
your shelf? Round to the nearest integer value. Show all your working steps.
(c)- Your manager tells you that you cannot simply use all of the shelf space you want for
free. There is an opportunity cost for shelf space at Partial Foods of $10/sqft/week and each
wheel of Mad Cow Cheddar occupies 0.15 sqft of space. What should your economic order
quantity, in wheels, be now? Round to the nearest integer value. Show all your working
steps.
(d)- Your manager still thinks you order too much cheese and has limited your shelf space to a
maximum of 3 square feet. There is no back room, so all of your Mad Cow Cheese wheels
need to fit within that space. What should your economic order quantity, in wheels, be now?
Round to the nearest integer value. Show all your working steps.

Q3)- (Better Brain Pills): Your uncle owns a pharmacy sells an over-the-counter drug,
BetterBrain. Every 10 days, the vendor comes by to check the inventory levels and order more
of the drug. It takes about 3 more days to get the new order in. Demand per day is about
20 bottles, but can vary. The standard deviation is around 5 units/day.  The pharmacy
currently keeps an average stock of about 200 bottles on hand to protect against stockouts,
just in case demand levels or lead times are greater than expected, as well as to cover the
normal weekly demand until the replenishment occurs. 

You like and respect your uncle, but you do not think he is managing things correctly.  You
decide to look at his inventory management and see how he compares to what you calculate. 
(a)- For a cycle service level of 95%, what is the average cycle stock for this periodic review
policy? Round to the nearest integer
(b)- What is the safety stock for this periodic review policy? Round to the nearest integer
(c)- Based on your analysis, which statements do you agree with? You may select more than
one.
A. Your uncle has too little inventory
B. Your uncle has too much inventory
C. Your uncle will probably has a cycle service level below 95%
D. Your uncle will probably has a cycle service level above 95%
E. You cannot tell your uncle anything
Give a one line justification for your choice. Note: Make sure you select all of the correct
options—there may be more than one!

(d)- Your uncle is adamant about keeping his current inventory stock of 200 bottles. What is
the implied CSL for his current inventory policy? Enter your answer to 4 decimal places.
(e)- You conclude that your uncle is crazy, but you want to see the impact of this periodic
review policy on the inventory on hand if the review is done more frequently. Hence, you
decide to check the inventory every 5 days instead of every 10 days. Lead time remains equal
to 3 days. For a cycle service level of 95%, what is the cycle stock for this periodic review
policy? Round to the nearest integer. What is the safety stock for this periodic review policy?
Round to the nearest integer

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