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QM 670 Exam I – Fall 2017 This exam is worth 80 points. The first three items have four parts. Each part is worth six points. The final two items are worth three points each. (Two points are free.) 1. The management of Wheeler Company has decided to develop cost formulas for its major overhead activities. Wheeler uses a highly automated manufacturing process, and power costs are a significant manufacturing cost. They have debated whether the power cost should be treated as fixed, variable, or both. Using the following data you are charged to settle this issue and determine the best cost formula for Wheeler. Quarter Machine Hrs. Power Cost 1 20000 26000 2 25000 38000 3 30000 42500 4 22000 37000 5 21000 34000 6 18000 29000 7 24000 36000 8 28000 40000 a. Find the estimated fixed cost associated with the machine hours. b. Find the estimated variable cost associated with the machine hours. c. Discuss your confidence in the use of these estimates. d. Would you recommend using this cost function? Explain. 2. You are asked to predict orders for the next two periods. You have information available for the overtime hours used for each month. Month 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Orders 53 56 61 63 67 74 73 77 84 87 88 94 92 99 Overtime 22 23 25 31 21 22 20 29 23 12 22 26 16 17 a. Find the best method to predict orders. b. Discuss the model fit. c. Predict the orders for the next two periods. d. Would you recommend using this model? Explain. 3. The data below are weekly figures from Herbert Hooley’s Happy House (except for the quarterly error figures). They sell radios, TVs, and VCRs in their electronics department. He needs you to help him with a few things, which he will indicate to you. Profit 6318.96 4721.57 5049.16 5249.44 5290.08 5924.41 5251.97 4805.72 5278.60 5301.77 6121.98 5416.63 6552.89 6352.93 6693.01 5761.97 5419.50 5474.64 4650.87 4781.91 Revenue 8395.91 6300.28 6747.55 7028.56 7116.41 7951.00 7031.09 6462.88 7162.42 7136.35 8249.84 7244.79 8718.21 8494.02 8881.75 7669.10 7265.38 7302.97 6335.89 6438.23 Radios 36 26 33 29 32 41 36 31 46 43 45 29 43 46 55 48 33 35 41 48 TVs VCRs 65 48 51 53 52 58 52 47 49 51 59 55 67 63 68 58 54 55 42 45 48 39 40 45 49 52 44 44 51 46 56 46 48 51 43 39 47 44 49 39 Quarter Errors 2000 - 3 4 2001 - 1 2 3 4 2002 - 1 2 3 4 2003 - 1 2 3 4 2004 -1 2 32 46 19 23 34 49 22 20 31 51 16 26 37 48 22 24 a. “Doug, I could surely use some help. I would like to find a useful profit formula for my department. Please let me know if it is a good model, and if there are any potential issues I should consider.” Note that the numbers of radios, TVs, and VCRs represent the number held on hand for the week. Please find the best model for Herb. b. Discuss the model. c. Are there other issues to consider here? Explain. d. What is your recommendation regarding use of this model? Explain. 4. What is the best answer given this information? Model 1 Model 2 X-variables 6 4 2 R .9344 .9277 2 Adjusted R .9058 .9133 MSE 5867.53 5746.09 a. b. c. d. e. Model 3 3 .8761 .8497 5844.78 Model 1 performs the best in all areas. Model 3 performs better than Model 2. We would most likely prefer Model 1. We would most likely prefer Model 2. We would most likely prefer Model 3. 5. The table below features three forecasting models used on the same set of data. Type MSE Model 1 Exponential Smoothing 8755.3 Model 2 Regression Model 3 Seasonal & Trend 4876.2 5945.8 Based solely on the information in this output, which of the following si the best answer? a. b. c. d. e. The data set contains no trend or seasonality. The data set contains trend but no seasonality. The data set contains seasonality but no trend. The data set probably contains cyclicality. The data set contains both trend and seasonality.
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