1. Each day, a FedEx competitor processes approximately 60,000 shipments. Suppose that

1.

Each day, a FedEx competitor processes approximately 60,000 shipments. Suppose that they use the same Service Quality Index as FedEx and identified the following numbers of errors during a 5-day week (see the “FedEx: Measuring Service Performance” box). These values are hypothetical and do not reflect any real company’s actual performance.

Description

Weight

Number of Errors

Complaints reopened

3

105

Damaged packages

10

20

International

1

106

Invoice adjustments

1

276

Late pickup stops

3

208

Lost packages

10

2

Missed proof of delivery

1

22

Right date late

1

750

Traces

3

113

Wrong day late

5

17

Compute the Service Quality Indicator by finding the weighted sum of errors as a percentage of total shipments. Do not round intermediate calculations. Round your answer to three decimal places.

Service Quality Indicator (SQI):   %

2.

A hamburger factory produces 75,000 hamburgers each week. The equipment used costs $8,000 and will remain productive for three years. The labor cost per year is $13,500.

What is the productivity measure of “units of output per dollar of input” averaged over the three-year period? Assume that there are 52 weeks per year. Round your answer to one decimal place.

Productivity:   hamburgers/dollar

We have the option of $10,000 equipment, with an operating life of four years. It would reduce labor costs to $11,000 per year. Should we consider purchasing this equipment (using productivity arguments alone)? Assume that there are 52 weeks per year. Round your answer for productivity to one decimal place.

For the expensive machine, productivity   hamburgers/dollar input. Because the productivity of the expensive machine is (higher or lower)   , it would be a (good or bad) investment based on this single criterion.

3.

Estimate the value of a loyal customer of a loyal Volvo automobile owner. Assume the contribution margin is 0.25, the purchase price is $66,000, the repurchase frequency is every four years, and the customer defection rate is 29 percent. Do not round intermediate calculations. Round your answer to the nearest dollar.

$  

4.

What is the average value of a loyal customer (VLC) in a target market segment if the average purchase price is $65 per visit, the frequency of repurchase is every month, the contribution margin is 29%, and the average customer defection rate is 26%? If a continuous improvement goal is set of a 23% defection rate next year and 18% two years from now, what are the revised VLCs over their average buying life? Do not round intermediate calculations. Round your answers to the nearest dollar.

For defection rate = 26%, VLC = $  

For defection rate = 23%, VLC = $  

For defection rate = 18%, VLC = $  

5.

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A key hospital outcome measure of clinical performance is length of stay (LOS), that is, the number of days a patient is hospitalized. For patients at one hospital with acute myocardial infarction (heart attack), the length of stay over the past four years has consistently decreased. The hospital also has data for various treatment options such as the percentage of patients who received aspirin upon arrival and cardiac medication for Left Ventricular Systolic Dysfunction (LVSD). The data are as follows:

Year

Average LOS

Aspirin on arrival

LVSD medication

2007

4.21 days

95%

90%

2008

4.34 days

98%

95%

2009

4.31 days

98%

97%

2010

4.12 days

100%

98%

Calculate descriptive statistics for the data. Do not round intermediate calculations. Round your answers to four decimal places, when needed.

Descriptive Statistics: LOS, Aspirin, LVSD

Standard

Standard

Variable

Mean

Error

Deviation

Minimum

Median

Maximum

LOS (days)

Aspirin (%)

LVSD (%)

Calculate correlations for the data. Do not round intermediate calculations. Use a minus sign for negative values, if any. Round your answers to three decimal places.

Correlations: LOS, Aspirin, LVSD

LOS

Aspirin

Aspirin

LVSD

Choose the correct graph showing the LOS as a function of the Aspirin on arrival.

The correct graph is  .

A

B

C

D

Choose the correct graph showing the LOS as a function of the LVSD.

The correct graph is  .

A

B

C

D

6.

Use the Excel template VLC to find 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 five times per year, the contribution margin is 5 percent, and the average customer defection rate is 20 percent? Round your answer to the nearest dollar.

$    

7.

A retail store sells a popular cosmetic called Devine and the store manager was given $140,000 by the corporate office to improve store performance any way she thinks best. The “base case” information is a price of $26 per bottle, a contribution margin of 0.35, a customer defection rate of 12 percent, and a repurchase frequency of two times a year. If these improvement funds could be used to (a) increase the contribution margin to 0.39 or (b) reduce the customer defection rate to 11 percent or (c) increase the repurchase frequency to five times per year. Assume all other variables remain at the base case level for each of the three improvement options.

Use the Excel template VLC to calculate the VLC for each option and summarize your answers using the table below. Round your answers to the nearest cent.

 

Contribution

Repurchase

Defection

 

Price

Margin

Frequency

Rate

VLC in $

$26

0.35

2

12%

$  

(a)

$26

0.39

2

12%

$  

(b)

$26

0.35

2

11%

$  

(c)

$26

0.35

5

12%

$  

What is the best way to use $140,000 in improvement funds?

The best way to use the $140,000 in improvement funds is  .