August 1997
QT211: QUANTITATIVE ANALYSIS FOR MANAGEMENT

QUESTION 5

Total Marks: 20 Marks

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5. (a) A construction project consists of the activities given in the table above:
(i) Construct the complete network diagram for this project. [8]
(ii) Using the network diagram, or otherwise, determine the critical path for this project. [2]
Activity Immedeciate Predecessor(s) Duration (in months)
A NONE 8
B NONE 4
C A 4
D A 2
E C, D 3
F B 2
G NONE 1
H E, F 2
I H, G 3
J I 4
K J 3
L K 4
(b) High Spirits is a distributor of low-cost wines. They have recently introduced into the market a wine called 'Cheap thrill' to improve sales. This wine sells at $5 per bottle. High Spirits' inventory carrying cost is estimated to be 10% per annum, and there is a $20 transportation charge levied when customers place orders.
(i) If the demand is for this new wine is expected to be constant at a rate of 9600 bottles per year, determine the EOQ (economic order quantity) for the wine. [4]
(ii) Based on the EOQ, how many times will High Spirits replenish its stock every year? [2]
(iii) What is the estimated annual total cost associated with 'Cheap Thrill'? [4]
(Include purchasing costs in your calculation).