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Assignment 1 Answers

The document describes four assignments related to decision analysis and probability. Assignment 1 involves building a cost model for a delivery service and using it to calculate costs. Assignment 2 develops total cost and profit functions for a new product. Assignment 3 develops a probability tree and joint probability table to calculate the probability a defective radio came from a specific company. Assignment 4 develops linear trend line and regression models to forecast printer sales based on historical computer and printer sale data.

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Izwan Yusof
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© © All Rights Reserved
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554 views

Assignment 1 Answers

The document describes four assignments related to decision analysis and probability. Assignment 1 involves building a cost model for a delivery service and using it to calculate costs. Assignment 2 develops total cost and profit functions for a new product. Assignment 3 develops a probability tree and joint probability table to calculate the probability a defective radio came from a specific company. Assignment 4 develops linear trend line and regression models to forecast printer sales based on historical computer and printer sale data.

Uploaded by

Izwan Yusof
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Assignment 1

SQQP5023 DECISION ANALYSIS



1. James Morey is the operation manager for a parcel delivery service. He assumes that the
cost of running a delivery van has 3 parts.
Cost per km to run the van
Cost per hour for the driver.
Fixed cost for overhead.

a. Build a model to describe the cost.

Say:-
x = Cost per km to run the van
y = Cost per hour for the driver
z = Fixed cost for overhead.
D = Distance (in km)
T = Time (in hour)

Hence,
Total cost = Total Fixed Cost + Total Variable Cost
= z + x(D) + y(T)

b. Supposed the fixed cost is $40, the van costs $1 a km and the driver costs $20/hour.
How much would it cost to do a 60-km journey at average speed of 40km/hour?

From the above model,
z = $40
x = $1 per km
y = $20/hr

For a 60km(D) journey at average speed of 40km/hr,

Time(T) = Distance / Speed
= 60 km / 40km/hr
= 1.5 hr
Total Cost = z + x(D) + y(T)
= $40 + $1(60) + $20(1.5)
= $130

2. Mega Company plans to market a new product for RM 18.50 per unit. The variable cost
is RM 14 per unit and the fixed cost is RM 2200.
a. Find total cost function and profit function

Total Cost = Total Fixed Cost + Total Variable Cost
= 2200 + 14y
Total Profit = Total Revenue Total Cost
= 18.50y (2200 + 14y)
= 18.50y 14y -2200
= 4.5y -2200

Determine whether the company will gain profit or loss if 500 units are sold.

From the abovementioned equation, putting y=500:-
Total Profit = 4.5y -2200
= 4.5(500) 2200
= 50

A profit of $50 will be obtained by the company if 500 units were sold.

3. A retail outlet receives radios from three electrical appliance companies. The outlet
receives 20% of its radios from A, 40% from B, and 40% from C. The probability of
receiving a defective radio from A is 0.1; from B, 0.02; and from C, 0.08.
a. Develop a probability tree showing all marginal, conditional, and joint probabilities.

Retail
Outlet
Outlet A
Outlet B
Outlet C
Defective
Not Defective
RO
0.2
0.4
0.4
A
0.1
0.9
Defective
Not Defective
B
0.02
0.98
Defective
Not Defective
C
0.08
0.92
Marginal
Probability
Conditional
Probability
Joint Probability


b. Develop a joint probability table.
Say
A = Sales from Outlet A
B = Sales from Outlet B
C = Sales from Outlet C
D = Defective
ND = Not Defective

Sales
Branch Sales Probability P(D) P(ND) Joint Probability
A 0.2
0.1 0.02
0.9 0.18
B 0.4
0.02 0.008
0.98 0.392
C 0.4
0.08 0.032
0.92 0.368

Calculation:
P(AD) = P(A) x P(D)
= 0.2 x 0.1
= 0.02
P(AND) = P(A) x P(ND)
= 0.2 x 0.9
= 0.18
P(BD) = P(B) x P(D)
= 0.4 x 0.02
= 0.008
P(BND) = P(B) x P(ND)
= 0.4 x 0.98
= 0.392
P(CD) = P(C) x P(D)
= 0.4 x 0.08
= 0.032
P(CND) = P(C) x P(ND)
= 0.4 x 0.92
= 0.368

c. What is the probability that a defective radio returned to the retail store came from
company B?
Referring to the calculation made in Question 3(c), the defective radio returned to the retail
store came from Company B is 0.008

4. The Hub is a large computer discount store that sells computers and ancillary equipment
and software in the town where State University is located. The Hub has collected
historical data on computer sales and printer sales for the past 10 years, as follows:
Year Personal computer sold Printer sold
1 1045 326
2 1610 510
3 860 296
4 1211 478
5 975 305
6 1117 506
7 1066 612
8 1310 560
9 1517 590
10 1246 676

a) Develop a linear trend line forecast to forecast printer demand in year 11.

Using the linear trend function in Microsoft Excel, a linear trend line is plotted


Resulting in equation y = 0.3438x + 74.769 developed

b) Develop a linear regression model relating printer sales to computer sales in order to
forecast printer demand in year 11 if 1300 computers are sold.

y = 0.3438x + 74.769
R = 0.3594
200
250
300
350
400
450
500
550
600
650
700
600 800 1,000 1,200 1,400 1,600 1,800
Printer sold (y)
Printer sold (y)
Linear (Printer sold (y))


2
2
y = a+b*x
y = predicted(independent variable)
x = predictor (independent) variable
b = slope of the data line
a = value of y when x is equal to zero
n xy - x y
b =
n x - x
y- b x
a =
n
where
where




Year Personal computer sold
(x)
Printer sold (y) x*y x
2

1 1,045 326
340,670 1,092,025
2 1,610 510
821,100 2,592,100
3 860 296
254,560 739,600
4 1,211 478
578,858 1,466,521
5 975 305
297,375 950,625
6 1,117 506
565,202 1,247,689
7 1,066 612
652,392 1,136,356
8 1,310 560
733,600 1,716,100
9 1,517 590
895,030 2,301,289
10 1,246 676
842,296 1,552,516
Total 11,957 4,859 5,981,083 14,794,821
Substituting into the equation


2
2
2
n xy - x y
b =
n x - x
11(5, 981, 083) (11, 957)(4, 859)
11(14, 794, 821) (11.957)
7, 692, 850
19, 773,182
0.3891
y- b x
a =
n
4, 859 0.3891(11, 957)
11
18.7756
b
b
b
a
a






Hence, the regression line is
y
x
= 18.7756 + 0.3891x

for 1,300 computers sold,
y
1300
= 18.7756 + 0.3891(1300)
= 536

c) Compare the forecast developed in (a) and (b) and indicate which one appears to be more
accurate.

From question 4(a),
y = 0.3438x + 74.769
Running this equation into the regression function in Microsoft Excel resulted on the
followings

Regression Statistics

Multiple R 1

R Square 1
Adjusted R
Square 1

Standard Error
4.03225E-
14

Observations 11


ANOVA

Df SS MS F
Significance
F

Regression 1 60012.37817
60012.3781
7
3.69101E+3
1
4.5156E-
139

Residual 9 1.46332E-26
1.62591E-
27

Total 10 60012.37817


Coefficients
Standard
Error t Stat P-value Lower 95%
Upper
95%
Lower
95.0%
Upper
95.0%
Intercept 74.769 6.92754E-14 1.0793E+15 2.562E-132 74.769 74.769 74.769 74.769
X 0.3438 5.65892E-17
6.07537E+1
5
4.5156E-
139 0.3438 0.3438 0.3438 0.3438

With Standard Error = 4.03225E-14
From question 4(b)
y = 18.7756 + 0.3891x

Running this equation into the regression function in Microsoft Excel resulted on the
followings
Regression Statistics

Multiple R 1

R Square 1
Adjusted R
Square 1

Standard Error
2.62671E-
14

Observations 11


ANOVA

Df SS MS F
Significance
F

Regression 1 76869.05715
76869.0571
5
1.11411E+3
2
3.1311E-
141

Residual 9 6.20966E-27
6.89962E-
28

Total 10 76869.05715


Coefficients
Standard
Error t Stat P-value Lower 95%
Upper
95%
Lower
95.0%
Upper
95.0%
Intercept 18.7756 4.51278E-14
4.16054E+1
4
1.3631E-
128 18.7756 18.7756 18.7756 18.7756
x 0.3891 3.68636E-17
1.05551E+1
6
3.1311E-
141 0.3891 0.3891 0.3891 0.3891

With Standard Error = 2.62671E-14
The forecast in (b) is much accurate the Standard Error is smaller compared to (a)

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