MENG 5245

Productions Systems Design

Assignment 1

Forecasting:Problem 1:-

year
1
2
3
4
5
6
7
8
9
10
11
12

demand
50.7
55.4
59.6
61
58
60.5
66
70.5
77.8
87.6
94.8
100.7

Demand
120
100
80
60
40
20
0
0

10

12

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MENG 5245

Productions Systems Design

Assignment 1

Linear regression model

120
100

80
60
40
20
0
0

10

12

14

X Variable 1
Y

Intercept
X Variable 1

Coefficients
42.31666667
4.292307692

Predicted Y

Using the equation: Y=a+bX

Where (a) is Intercept & (b) is the Slope

year

Demand

13

98.11666667

14

102.4089744

15

106.7012821

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MENG 5245

Productions Systems Design

Assignment 1

Comparing answers from (a) and (b) we can find that

Year

Regr. Data

Graph.
Data

Error

13

98.1166667

108

14

102.408974

15

106.701282

Sq. Error

Abs. %
Error

-9.88333

9.8833333 97.680278

10.07%

111

-8.59103

8.5910256 73.805722

8.39%

120

-13.2987

13.298718

176.8559

12.46%

-10.591

10.591026 116.11397

10.31%

BIAS

Abs.
Error

MAD

MSE

MAPE

C)
Correlation Coefficient:
Can be calculated manually using the equation:

Or can be obtained from EXCEL table:

Regression Statistics
Multiple R
0.944574488
R Square
0.892220962
Adjusted R
Square
0.881443059
Standard Error
5.641437805
Observations
12
R=0.94457
As the correlation coefficient is close to 1. We can assume that there is positive strong relation
between both. Which means that every coming year the demand will increase.

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Productions Systems Design

MENG 5245

Assignment 1

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Productions Systems Design

MENG 5245

Assignment 1

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Productions Systems Design

MENG 5245

Assignment 1

Problem 4:-

Assume that X is the number of miles driven per year.

So the cost of make Decision per year will be = 0.23X

&

The cost of buy decision per year will be = (8000/3) +1500+0.08X

So to determine whether to make or buy we need to make Break-Even Analysis to
determine the point which has the same cost for both decisions.
0.23X = 4166.66 + 0.08X
So, X = 27777.78 Miles. Which means that if the number of miles driven per year
exceeded 27777.78 the purchase decision will be the least cost alternative.

Example:
If X = 30000
Make Decision Cost = 0.23*30000 = $ 6900
Buy Decision Cost = 4166.66 + 0.08*30000 = $ 6566.66

Least Cost Alternative

If X =25000
Make Decision Cost = 0.23*25000 = $ 5750

Least Cost Alternative

Buy Decision Cost = 4166.66 + 0.08*25000 = 6166.66

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MENG 5245

Productions Systems Design

Assignment 1

Problem 5:-

The cash flow diagram:-

Now we calculate the equivalent uniform annual cost (EUAC) :EUAC = 35000(A/P,n=8,i=20%) + 2000 4000(A/F,n=8,i=20%)
From Tables shown in next page we can find that A/P = 0.26061 & A/F = 0.06061
So, EUAC = 10878.91 LE

Cost to make 5000 units per year :

5000 * (4.98+5.60) + 10879 = 63779 LE
Cost of one unit = 63779/5000 = 12.76 LE

Cost to purchase one unit is = 14.5 LE

So the parts should be manufactured in-house since it is the least cost.

Lets assume that X is the raw materials cost & Y is the cost of making 5000 units

Cost of one Unit = Y/5000 = 14.5

So, Y = 72500 LE

72500 = 5000(X+5.60) + 10879

So, X = 6.724 LE

So the Decision will not be affected as long as the raw materials cost is less than 6.72 LE

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MENG 5245

Productions Systems Design

Assignment 1

Problem 6:-

Lets assume that X represents the number of doughnuts per year.

A) For the Semi-automatic machine :
Make Cost

Buy Cost

7000 + 0.05 X

0.1 X

So, X = 140000 Doughnuts (must be sold annually so that both costs are equal)
For the Automatic machine:
Make Cost
13000 + 0.035 X

Buy Cost
=

0.1 X

So, X = 200000 Doughnuts (must be sold annually so that both costs are equal)
B) If X = 500000 Doughnuts the most profitable alternative is :
1- Semi-automatic Cost = 7000+(0.05*500000)=32000 LE
2- Automatic Cost = 13000+(0.035*500000)=305000 LE
3- Purchase Cost = 0.1*500000=50000 LE
Obviously the most profitable alternative is to make with the automatic machine.
C) To know the number of doughnuts required to produce the same net income for
both of the machines :7000 + 0.05 X = 13000 + 0.035 X
So, X= 400000 Doughnuts
For Semi-automatic the net income = 7000 + 0.05 (400000) = 27000 LE
For the automatic the net income = 13000 + 0.035(400000) = 27000 LE

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Productions Systems Design

MENG 5245

Assignment 1

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