10 May WHICH IMPROVEMENT OPTION IS MORE ATTRACTIVE FOR CUSTOMERS?
MGMT 3106-02Management Science and Operations ManagementAssignment 2 Answer all questions. 1) a) Define value and list three ways for organizations to increase value. [10 points] b) PBJ currently sells a product for $100. Market research suggests that the customers who buy the product perceive the value of the product as $150. PBJ considers three improvement options to the product. Market research suggests the perceived benefit for each option as follows: [15points] Improvement option (i): Perceived benefit = $185 and selling price $125 Improvement option (ii): Perceived benefit = $200 and selling price $130 Improvement option (iii): Perceived benefit = $225 and selling price $140 Which improvement option is more attractive for customers? Explain why. 2) A city is considering options for recycling waste. Currently the city pays $65 per ton to a recycling company to collects recyclable waste. However due to a Green Initiative most citizens are separating the recyclable waste and the amount of recyclable waste has increased recently. The city is considering to build their own recycling facility. The fixed cost of running the recycling facility will be $200 000 per year. However the city can earn a profit after selling the recycled material. It is estimated that the city can earn $15 per ton of collected recyclable waste. (In other words variable cost is – $15). a) What is the break-even point? Show your calculations. [10 points] b) If the forecasted amount of recyclable waste is 3 000 tons per year what should the city do? Briefly explain your choice. [5 points] c) The current recycling company has offered another option: Instead of charging $65 per ton they would charge $30 per ton if the city agrees to pay a fixed price (whether any recyclable waste is collected or not) of $50 000 per year. What should the city do? Keep the current option ($65 per ton) build a new facility or choose new outsourcing option? Provide reasoning for your choice. [10 points] 3) A hamburger factory produces 60 000 hamburgers each week. The equipment used costs $10 000 and will remain productive for 4 years. The labor cost per year is $13 500. a. What is the productivity measure of “units of output per dollar of input” averaged over the four-year period? [10 points] b. The company has the option of purchasing equipment for $13 000 with an operating life of 5 years. It would reduce labor costs to $11 000 per year. Should the company consider purchasing this equipment (using productivity arguments alone)? [10 points] 4) Customers call a call center to make room reservations for a small chain of 42 motels located throughout the southwestern part of the United States. Business analytics is used to determine how and if the following performance metrics are related: time by quarter average time on hold (seconds) before a customer reaches a company customer service representative percent of time the customer inquiry is solved the first time (called first pass quality) and customer satisfaction with the overall call center experience. Quarter Average Hold Time (s) Percent Solved First Time Overall Customer Satisfaction Q1 22 82% 96% Q2 34 80% 92% Q3 44 88% 82% Q5 67 85% 84% Q6 38 85% 90% Q7 70 76% 80% Q8 86 73% 81% a) Develop a graphical interlinking model by constructing scatter charts showing the relationships between each pair of variables. (i.e. Average hold time vs. Percent solved first time Average hold time vs. Overall customer satisfaction Percent solved first time vs. Overall customer satisfaction). [10 points] b) Can you identify any relationships from the scatter charts? (hint: add a trendline) Briefly explain the relationships (if any) between the variables. [10 points] 5) What is the average value of a loyal customer (VLC) in a target market segment if the average purchase price is $75 per visit the frequency of repurchase is six times per year the contribution margin is 10 percent and the average customer defection rate is 25 percent? [10 points]
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