Question 1
In the context of the Wriston Manufacturing case, explain why shutting Detroit will increase Wriston’s overall cost even though the network has excess capacity and Detroit is the most expensive plant to manufacture in.

Shutting Detroit will increase Wriston’s overall cost because

Question 2
Two companies A and B have invested in expensive flexible manufacturing systems that allow the changeover time between products to be reduced to seconds. The annual reports of the two companies contain the following information:

Firm A Firm B
Number of products sold 2 2,000
Average sales volume per product 170,000 170
Number of new products introduced in past year 1 200

Circle the statement you most agree with:

• As sales volume increases it is better for a firm to invest in processes that have a lower variable cost per unit even if the fixed cost is higher

• As sales volume increases it is better for a firm to invest in processes that have a lower fixed cost even if the variable cost per unit is higher

• The volume sold has no impact on the type of process that is most appropriate for a firm

Explain:

Question 3
A consulting firm has four ranks – associates, managers, partners and directors. Each year, the firm hires 400 associates. On average, there are 2,000 associates in the firm. When evaluated for promotion, 25% of the associates are promoted to managers. The remaining 75% depart the firm. The firm also hires 100 managers each year from outside. The average tenure for managers is 4 years (whether they were promoted internally or hired from outside) before they come up for promotion. 15% are promoted to partners with the remaining 85% departing the firm. Each year, the firm hires 10 new partners from outside the firm. Partners spend an average of 12 years at the firm before they are considered for promotion to director. 25% are promoted to director with the remaining 75% departing the firm. The firm has an average of 100 directors. Directors retire at a certain age. The flow of personnel is as shown below:

3 a) On average, how many people work at the consulting firm (across all ranks)?

Answer: Number of people at consulting firm = ___________.

4 b) On average, how long do people spend at the consulting firm?

Answer: Average time people are at the firm = __ _______.

Question 4
Testing a new drug starts with Toxicology tests followed by three stages of clinical trials. At each stage of testing 50% of the drugs fail. The ones that pass a certain stage then proceed to the next stage for testing.

Each year, a pharmaceutical company starts 100 drugs for toxicology testing. On average, toxicology testing takes a year after which 50% of the drugs fail. The rest move on to stage I clinical trials. The company purchases from external companies 30 drugs each year that have passed toxicology tests. These along with drugs that have passed toxicology tests are then sent for Stage I clinical trials. On average, there are 200 drugs undergoing Stage I clinical trials. 50% of the drugs that undergo Stage I clinical trials fail Stage I trials. Besides its own drugs that have passed Stage I trials, the company also purchases 20 drugs a year from external companies for Stage II trials. On average Stage II trials take 3 years. 50% of the drugs that undergo Stage II clinical trials fail Stage II trials. Besides its own drugs that have passed Stage II trials, the company also purchases 10 drugs a year from external companies for Stage III trials. On average, Stage 3 trials take 4 years after which 50% of the drugs fail. Details are shown in the figure below:

4 a) On average, how long do drugs spend in Stage I Clinical trials?

Answer: Average time spent in Stage I Clinical trials = _________ years.
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4 b) On average, how much time do drugs spend (across all stages) in testing and clinical trials?

Answer: Average time spent in testing / clinical trials = _________.
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Question 5
Custom Tailors (CT) has a manufacturing facility in southern Wisconsin where they make custom suits. The facility has six areas as shown below. The raw material warehouse receives an average of $4,000 of fabric per week. On average, the fabric inventory in the raw material warehouse is $16,000. Each week, $1,500 worth of fabric is drawn from the raw material warehouse for cutting into jackets. On average, $1,500 is spent each week (labor and other costs) in the jacket cutting department. The average time spent by a dollar in the jacket cutting department is 3 weeks. In the jacket sewing department the jackets are then made. On average $4,000 is spent each week in the jacket sewing area (labor and other costs). Average inventory in jacket sewing is $35,000.

The pants cutting area draws an average of $2,500 of fabric raw material per week from fabric inventory. The pants cutting area cuts the fabric for pants. On average, $1,500 is spent each week (labor and other costs) to convert fabric into cut pants. The average inventory in the pants cutting area is $12,000. In the pants sewing area the pants are sewn. On average $6,000 is spent each week in the pants sewing area (labor and other costs). On average a dollar spends 4 weeks in pants sewing.

The jackets and pants are then sent to the finished goods warehouse where they spend an average of 2 weeks before being sent to the customer.