MULTIPLE CHOICE (2 points each)

1. A company has estimated its economic order quantity for Part A at 2,400 units for the coming
year. If ordering costs are $200 and carrying costs are $0.50 per unit per year, what is the
estimated total annual usage?
a. 6,000 units
b. 28,800 units
c. 7,200 units
d. 2,400 units
2. One of the products that Nature Way Health Products sells is a magnetic back support. The
ordering cost related to this product is P12.50 per order. The cost of carrying one item of
inventory for one year is P16.00. The business sells 40,000 of this type of product evenly
throughout the year. How much is the total ordering costs per year and the total carrying
costs per year at the economic order quantity?
a.
b.
c.
d.
Ordering costs
P1,562.50
P1,562.50
P2,000.00
P4,000.00
Carrying costs
P1,562.50
P2,560.00
P2,000.00
P4,000.00
3. R Corp.'s order quantity for Material T is 5,000 lbs. If the company maintains a safety stock of
T at 500 lbs., and its order point is 1,500 lbs., what would be the total annual carrying costs
assuming the carrying cost per unit is $0.20?
a. $1,000
b. $600
c. $100
d. $1,100
4. Information regarding the usage of material Y which shall be required evenly throughout the
year by GAC Company
Annual usage in units

30,000

Working days per year

250

Safety stock in units

1,200

Normal lead time in working days

25

The re-order point is

a. 6,250

b. 5,700

c. 4,200

d. 3,000

5. R Corp.'s order quantity for Material T is 5,000 lbs. If the company maintains a safety stock of
T at 500 lbs., and its order point is 1,500 lbs., what is the lead time assuming daily usage is 50
lbs.?
a. 30 days
b.100 days
c. 10 days
d. 20 days
6. M&L Co. has the following information on inventory:
Sales
20,000 units per year
Order quantity
4,000 units
Safety stock
2,600 units
Lead time
20 days
What is the re-order point? (For calculation purposes, use 250 days)
a. 4,200 units.
b.5,600 units.
c. 2,600 units.
d. 1,600 units
7. The China Tee Store sells 100,000 tea bags a year. Additional data are presented below:
Selling price per bag
P2.50
Purchase cost per bag
P1.50
Ordering cost per order
P5.40
Carrying cost
20% of unit cost
Number of days the company operates in a year
250
Average lead time on purchases
6 days
What is the reorder point if the company will keep a 10-day safety stock of inventory?
a.2,400 bags
b. 5,400 bags
c. 6,400 bags
d. 8,800 bags
8. If Ferry Company has a safety stock of 160 units and the average daily demand is 20 units,
how many days can be covered if the shipment from the supplier is delayed by 12 days?
a. 12.0 days
b. 10.0 days
c. 8.0 days
d. 6.7 days

9. A company annually consumes 10,000 units of Part C. The carrying cost of this part is $2 per
year and the ordering costs are $100. The company uses an order quantity of 500 units. By
how much could the company reduce its total costs if it purchased the economic order
quantity instead of 500 units?
a. $500
b. $2,000
c. $2,500
d. $0
10. The Sigma Company wants more information on the demand for its products. The following
data are relevant
Units demanded
Probability of unit demand Total cost of units demanded
0
0.10
P0.00
1
0.15
1.00
2
0.20
2.00
3
0.40
3.00
4
0.10
4.00
5
0.05
5.00
What is the total expected value of the total cost of units demanded?
a. P2.40
b. P9.15
c. P9.00
d. P7.40
11. Sampaguita Company is planning to market a new product. The marketing research staff
prepared the following payoff probability distribution giving the relative likelihood of monthly
sales volume levels and the corresponding income (loss) for the new product;
Monthly sales volume
Probability
2,500
0.10
5,000
0.20
10,000
0.50
15,000
0.10
25,000
0.10
The expected value of the monthly income from the new product:
a. P18,750
b. P22,500
c. P30,250

Income(loss)
P(25,000)
7,500
37,500
50,000
75,000
d. P32,750

Questions 12-13 are based on the following information:

A company has the following probabilities of profit (or loss) from an investment opportunity:
Profit Outlook
Profit (Loss) Amount
Probability
Optimistic
$10,000
.30
Most likely
6,000
.55
Pessimistic
(1,000)
.15
12. What is the expected profit?
A. $6,000
B. $6,150

C. $6,300

D. $6,450

13. How much would the company be willing to pay before investing in the project to learn in
advance which of the three scenarios (optimistic, pessimistic, or most likely) would actually
occur?
A. $0
B. $150
C. $300
D. $550
14. Phil-Fuji Co. manufactures two types of electronic components, both of which must pass
through the Assembly and Finishing Departments. The following constraints apply:
Unit
Contribution
Hrs Required per unit
Product
Selling Price
Margin per Unit
Assembly
Finishing
Component 818
P120
P30
3
4
Component 810
P180
P45
4
6
Demand for Component 818 far exceeds the companys capacity, but the company can only
sell 60 units of component 810 each week. Workers in the Assembly department work a total
of 200 hours per week, and workers in the Finishing department work a total of 250 hours per
week. The company wants to know how many units of each component to produce to

maximize profit. If X represents the number of units of Component 818 and Y represents the
number of units of Component 810, the objective function would be
a. Maximize 120X + 180Y
c. Minimize 90X + 135Y
b. Maximize 30X + 45Y
d. Minimize 30X + 45Y
15. Hennepin Co. used 30 hours to produce the first batch of units. The second batch took an
additional 18 hours. How many total hours will the first four batches require?
a. 76.8 hours.
b. 96.2 hours.
c. 120.0 hours.
d. 61.44 hours.
16. Lake Corporation manufactures specialty components for the electronics industry in a highly
labor intensive environment. Are Electronics has asked Lake to bid on a component that Lake
made for Arc last month. The previous order was for 80 units and required 120 hours of direct
labor to manufacture. Arc would now like 240 additional components. Lake experiences an
80% learning curve on all of its jobs. The number of direct labor hours needed for Lake to
complete the 240 additional components is
a. 360.0

b. 187.2

c. 307.2

d. 256.0

17. CBA Company expects a 90% learning curve. The first batch of a new product required 100
hours. The second batch should take
a. 100 hours.
b. 90 hours.
c. 80 hours.
d. 95 hours
Questions 18 through 22 are based on the following information.
The College Honor Society sells hot pretzels at the home football games. The pretzels are sold
for $1.00 each, and the cost per pretzel is $0.30. Any unsold pretzels are discarded because they
will be stale before the next home game.
The frequency distribution of the demand for pretzels per game is presented below.
Unit Sales Volume
Probability
2,000 pretzels
.10
3,000 pretzels
.15
4,000 pretzels
.20
5,000 pretzels
.35
6,000 pretzels
.20
18. The estimated demand for pretzels at the next home football game using an expected value
approach is
a. 4,000 pretzels.
b. 4,400 pretzels.
c. 5,000 pretzels.
d. 6,000 pretzels.
19. The estimated demand for pretzels at the next home football game using a determinate
approach based on the most likely outcome is
a. 4,000 pretzels.
b. 4,400 pretzels.
c. 5,000 pretzels.
d. 6,000 pretzels.
20. The conditional profit per game of having 4,000 pretzels available but only selling 3,000
pretzels is
a. $1,800
b. $2,100
c. $2,800
d. $3,500
21. The conditional profit per game of having 4,000 pretzels available and selling all 4,000
pretzels is
a. $1,200
b. $2,100
c. $2,800
d. $800
22. The conditional profit (loss) per game of having 4,000 pretzels available but being able to
sell 5,000 pretzels if they had been available is
A. $2,800.
B. $(1,225).
C. $4,025.
D. $3,500.
23. Tofte has a target total labor cost of $1,500 for the first four batches of a product. Labor is
paid $10 an hour. If Tofte expects an 80% learning rate, how many hours should the first
batch take?
a. 150 hours.
b. 58.6 hours.
c. 96.0 hours.
d. 73.2 hours.

24. A mathematical technique that can be used to find the best possible combination of the
companys limited resources is called linear programming. Star Electronics manufactures two
types of calculators, Star 1 and Star 2. Each calculator is processed in two departments,
departments 1 and 2. Daily labor requirements are as follows:
Hours Required per Calculator

Total Hours

Department

Star 1

Star 2

Available

15

450

18

720

The marginal contributions are P15 on Star 1 and P0.10 on Star 2. From the items listed
below what are the labor constraints? (Assume X represents the number of units of Star 1, Y
represents the number of units of Star 2, P represents profit).
a.X > 0 ; Y > 0

c. 15X + 5Y < 450; 18X + 9Y < 720

b.P = 15X + 10Y; P = 15X + 5Y

d. combination of (b) and (c)

25. The ordering costs associated with inventory management include

a. Insurance costs, purchasing costs, shipping costs, and obsolescence.
b. Obsolescence, set up costs, quantity discounts lost, and storage costs.
c. Quantity discounts lost, storage costs, handling costs, and interest on capital invested.
d. Purchasing costs, shipping costs, set-up costs, and quantity discounts lost.
26. The carrying costs pertaining to inventory include
a. Insurance costs, incoming freight costs and storage costs.
b. Insurance costs, incoming freight costs and setup costs.
c. Setup costs and opportunity cost of capital invested in inventory.
d. Storage costs and opportunity cost of capital invested in inventory.
27. A quantitative technique used for selecting the combination of resources that maximize
profits or minimize costs is
a.Curvilenear analysis

c. Dynamic programming

b.Queuing theory

d. Linear programming

28. A management consultant is scheduling a long-term research and development project. The
time table is very tight due to the advent of the rainy season and to inadequate research and
development staff complement. As the requirements are extensive and complex, what is the
most appropriate approach for planning and controlling the government highway project?
a.
b.
c.
d.

Time-series or trend regression analysis.

Cost-volume-profit analysis.
Queuing theory analysis.
Program evaluation review technique (PERT)

29. When using the PERT method for network analysis, the critical path through the network is
a. The longest path through the network. c.
The path with the most slack.
b. The shortest path through the network. d. The least cost path.
30. In a Program Evaluation and Review Technique (PERT) system, activities along the critical
path:
A. intersect at a corner point described by the feasible area
B. may be delayed without affecting completion time
C. follow the line of best fit
D. have a slack of zero

PROBLEM
I. The construction firm schedule of activities and related expectation
completion
time are as follows: (15 Points)
Activities

Description

A-B

Obtain on site work

permits
Repair damages by
vandals
Inspect const. materials
Order & receive materials
Apply for waiver
Obtain waiver
Perform electric work
Complete interior
partitions

B-E
B-C
C-E
C-D
D-E
E-F
F-G

Estimated Time (in

weeks)
2
8
1
2
3
1
5
4

Required:
a. Prepare the PERT Network for the project
b. Identify the critical path and its expected time
c. Identify the shortest path and its slack time in weeks
II.

A firm produces two products A and B. Product A requires 2 hours of

grinding and 4 hours of polishing while Product B requires five hours of
grinding and 2 hours of polishing. There are 120 hours of grinding
capacity and 80 hours of polishing capacity in a year. The contribution
margin per unit is 3 and 4 for Product A and Product B, respectively.
(25 points)

Required:
a. What is the objective function?
b. Identify the constraints in the problem.
c. Prepare and plot all the constraints in a graph.
d. Identify the MELD point.
e. How many units of Product A and Product B should the firm produce to
have the highest contribution margin?