Dave Fletcher, the general manager of North Carolina Engineering Corporation (NCEC), thinks that his firm’s engineering services contracted to highway construction firms are directly related to the volume of highway construction business contracted with companies in his geographic area. He wonders if this is really so, and if it is, can this information help him plan his operations better by forecasting the quantity of his engineering services required by construction firms in each quarter of the year? The following table presents the sales of his services and total amounts of contracts for highway construction over the past eight quarters:

a) Using this data, develop a regression equation for predicting the level of demand of NCEC’s services.

b) Determine the coefficient of correlation and the standard error of the estimate.

Use the data in Solved Problem 5.1 to examine what happens to the decision if Sarah King can increase all of Design B yields from 59,000 to 64,000 by applying an expensive phosphorus to the screen at an added manufacturing cost of $250,000. Prepare the modified decision tree. What are the payoffs, and which branch has the greatest EMV?

Problem 5.1

Prepare a product-by-value analysis for the following products, and given the position in its life cycle, identify the issues likely to confront the operations manager and his or her possible actions. Product Alpha has annual sales of 1,000 units and a contribution of $2,500; it is in the introductory stage. Product Bravo has annual sales of 1,500 units and a contribution of $3,000; it is in the growth stage. Product Charlie has annual sales of 3,500 units and a contribution of $1,750; it is in the decline stage.