Operation Management Assignment #2

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?

Flow rate = 255 passengers/hr

Inventory (WIP) = 35

Inventory = Flow Rate * Time

35 = 255 * T or T = 35/255

T = 0.1372 * 60 mins 8.235 mins

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?

Inventory Turnover = COGS / Inventory

A 100% mark up on cost means for sales of $100 million, COGS was $50 million

COGS = $50 mil; Inventory =$5 mil

$50 mil / $5 mil = 10x Times

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.

COGS / Turnover * Cost of Inventory = Inventory Cost

$30 / 10 times * 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,...