Operations

THE UNIVERSITY OF TEXAS AT DALLAS

School of Management

OPRE6302 OPERATIONS MANAGEMENT

Assignment #2

Q2.2 (Airline) Consider the baggage check-in of a small airline. Check-in data indicate that from 9 a.m. to 10 a.m., 225 passengers checked in. Moreover, based on counting the number of passengers waiting in line, airport management found that the average number of passengers waiting for check-in was 35. How long did the average passenger have to wait in line?

I = 35 min, R = 255 passengers / 60 minutes = 3.75 passengers / min

T = 35 min / 3.75 passengers per min = 9.33 minutes average wait time

Q2.4 (Apparel Retailing) A large catalog retailer of fashion apparel reported $100,000,000 in revenues over the last year. On average, over the same year, the company had $5,000,000 worth of inventory in their warehouses. Assume that units in inventory are valued based on cost of goods sold (COGS) and that the retailer has a 100 percent markup on all products.

a. How many times each year does the retailer turn its inventory?

b. The company uses a 40% per year cost of inventory. That is, for the hypothetical case that one item of $100 COGS would sit exactly one year in inventory, the company charges itself a $40 inventory cost. What is the inventory cost for $30 (COGS) item? You may assume that inventory turns are independent of the price.

a. Inventory turnover = COGS / inventory = $50 / $5 = 10 times

b. COGS / turnover x cost of inventory = $30 / 10 times x 40% = $1.20 cost

Q2.9 (Major U.S. Retailers) The following table shows financial data (year 2004) for Costco Wholesale and Walmart, two major U.S. retailers.

Costco Walmart

($ Millions) ($ Millions)

Inventories $ 3, 643 $ 29,447

Sales (net) $ 48, 106 $ 286, 103

COGS $ 41, 651 $ 215, 493

Source: Compustat, WRDS.

Assume that both companies have an average annual holding cost rate of 30 percent (i.e., it costs both retailers $3 to hold an item that they for $10 for one entire year).

a....