Question 1

A manufacturer of gear hobbers has a 30 percent customer retention rate. Their accounting department estimates the incremental contribution to profit and overhead as 20 percent. Customers purchase the workstations every two years at an average cost of $3,500. Determine the average value of a loyal customer.

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Question 2

Explain the concepts underlying the Service-Profit Chain model.

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Question 3

Jeff Camm, the president of Biometrics, Inc. has received the following data from his accountant:
 $\begin{array}{|l|c|c|c|c|}
\hline & \text { Year 1 } & \text { Year 2 } & \underline{\text { Year 3 }} & \text { Year 4 } \
\hline \text { Sales } & \$ 26,000 & \$ 15,000 & \$ 17,000 & \$ 20,000 \
\hline \text { Material } & \$ 8,000 & \$ 5,000 & \$ 6,000 & \$ 6,000 \
\hline \text { Labor } & \$ 10,000 & \$ 7,500 & \$ 8,000 & \$ 8,000 \
\hline \text { Overhead } & \$ 4,000 & \$ 2,000 & \$ 2,500 & \$ 4,000 \
\hline
\end{array}$ How is the productivity changing in Jeff's firm?

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Question 4

Provide some examples of criteria that can be used to help select and delete performance measures from an organization's information system.

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Question 5

Explain the difference between design flexibility and volume flexibility.

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Question 6

Discuss the seven categories of the Malcolm Baldrige National Quality Award.

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Question 7

A guest at Raphael's Italian Restaurant generally spends $250 on a meal. Most of Raphael's customers are locals and eat at the restaurant twice a month. If the restaurant's margin is 50 percent, and a loyal customer is estimated to be worth $4000, determine the average defection rate.

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Question 8

Consider the following information. $\begin{array}{|l|c|c|}
\hline & \text { First Quarter } & \text { Second Quarter } \
\hline \text { Unit Selling Price } & \$ 15.00 & \$ 17.00 \
\hline \text { Total Units Sold } & 12,000 & 11,500 \\hline\\hline \text { Labor Hours } & 10,000 & 9,500 \
\hline \text { Labor Cost/Hour } & \$ 9.00 & \$ 10.00 \
\hline\\hline \text { Material Usage (Ibs.) } & 5,000 & 7,500 \
\hline \text { Material Cost/lb. } & \$ 12.00 & \$ 10.50 \
\hline\\hline \text { Other Costs } & & \$ 25,000 \
\hline
\end{array}$

a.Which quarter, first or second, had the higher labor productivity (output quantity per labor dollar input)?
b.Which quarter, first or second, had the higher material productivity (output quantity per material dollar input)?
c.Which quarter, first or second, had the higher total productivity (dollar output per total dollar input)?

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\hline & \text...

Question 9

A retail store sells a popular cosmetic called Anya, and the store manager is given $100,000 by the corporate office to improve store performance any way she thinks best. The "base case" information is a price of $50 per bottle, a contribution margin of 0.50, a customer defection rate of 25%, and a repurchase frequency of 3 times a year. If these improvement funds could be used to either increase the contribution margin to 0.58 or reduce the customer defection rate to 15% or increase the repurchase frequency to 4 times per year, what is the best way to spend these funds? (Assume all other variables remain at the base case level for each improvement option.)
You may want to use the table below to help organize your computations and answer. $\begin{array}{|c|c|c|c|c|c|}\hline&&\text { Contribution }&\text { Repurchase }\
\text { Option } & \underline{\text { Price }}&\text { Margin }&\text { Frequency }& \text { Defection Rate } &\underline{\text { VLC in } \$}\
\hline \begin{array}{l}
\text { Base } \
\text { case }
\end{array} & \$ 50 & 0.50 & 3 & 25 \% \
\hline \text { (a) } & \$ 50 & 0.58 & 3 & 25 \% & \
\hline \text { (b) } & \$ 50 & 0.50 & 3 & 15 \% & \
\hline \text { (c) } & \$ 50 & 0.50 & 4 & 25 \% & \
\hline
\end{array}$ Note: BLC is 1/0.25 = 4 years and 1/0.15 = 6.67 years.

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Question 10

Patrick rents car from a local car rental company. On an average, he spends $100 a month. The company's contribution margin is 35 percent and the average customer defection is 50 percent. Determine the value of a loyal customer.

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Question 11

Briefly discuss the four performance perspectives of the Balanced Scorecard Model.

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Question 12

Explain the concept of interlinking and its significance.

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Question 13

A retail store sells a popular cosmetic called Krypton, and the store manager is given $300,000 by the corporate office to improve store performance any way she thinks best. The "base case" information is a price of $30 per bottle, a contribution margin of 0.50, a customer defection rate of 20%, and a repurchase frequency of 4 times a year. If these improvement funds could be used to either (a) increase the contribution margin to 0.60 or (b) reduce the customer defection rate to 15% or (c) increase the repurchase frequency to 5 times per year, please answer the questions listed below. (Assume all other variables remain at the base case level for each of the three improvement options.)
a.What is the value of a loyal customer (VLC) for improvement option (a)?
b.What is the best way to use the $300,000 in improvement funds?

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Question 14

A manufacturer of paint has two factories located in France and Spain and due to economic conditions must close one of them. The factory productivity data is as follows:
 $$\begin{array} { | l | c | c | } 
\hline & \text { Gallons of Paint } & \text { Resource Cost } \
\hline \text { Factory (France) } & \text { Produced (in 1,000s) } & \text { per Gallon } \
\hline \text { Factory (Spain) } & 4,600 & \$ 4.25 \
\hline
\end{array}$$

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Question 15

Using the information below, determine the productivity (measured as output per dollar input) for each quarter and calculate the percentage change in productivity. $\begin{array}{|l|l|l|}
\hline & \text { First Quarter } & \text { Second Quarter } \
\hline \text { Total Units Sold } & 12,000 & 11,500 \\hline & & \
\hline \text { Labor Hours } & 10,000 & 9,500 \
\hline \text { Labor Cost/Hour } & \$ 8.00 & \$ 8.00 \
\hline & & \\hline \text { Material Usage (lbs.) } & 6,000 & 5,500 \
\hline \text { Material Cost/lb. } & \$ 12.00 & \$ 11.50 \
\hline & & \
\hline \text { Other Costs } & \$ 25,000 & \$ 23,000\
\hline
\end{array}$

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Question 16

A Pelton turbine manufacturer currently has a 20 percent customer defection rate. Their accounting department estimates the incremental contribution to profit and overhead as 40 percent. Customers purchase computers every four years at an average cost of $2,000. In an effort to reduce the defection rate, the company is improving both the quality of its computers and its post-sale service. Determine the increase in the average value of a loyal customer if the defection rate drops to 10 percent.

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Question 17

A coffee shop's average transaction price is $3, the contribution margin is 60 percent, a typical customer makes a purchase once a week or 52 weeks per year, and the management estimates the value of a loyal customer over the buying life cycle as $520. What is the customer defection rate?

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Question 18

Using the information provided in the table below, determine the percentage change in productivity from 2009 to 2010. $\begin{array}{|l|l|l|l|}\hline & & \underline{2009} & \underline{2010} \
\hline \text { OUTPUTS } & & & \
\hline & \text { Units } & 110,000 & 150,000 \
\hline \text { INPUTS } & & & \
\hline & \text { Direct Labor Costs } & \$ 250,000 & \$ 310,000 \
\hline & \text { Energy Cost } & \$ 6,000 & \$ 5,800 \
\hline & \text { Raw Material Cost } & \$ 40,000 & \$ 42,000\\hline 
\end{array}$

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Quiz 3: Measuring Performance in Operations