CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

MANAGEMENT ADVISORY SERVICES QUANTITATIVE METHODS THEORY 1. Order-filling costs, as opposed to order-getting costs, include all but which of the following items? a. Credit check of new customers. c. Collection of payments for sales orders. b. Packing ad shipping of sales orders. d. Mailing catalogs to current customers. . !hich condition "ustifies accepting a low in#entory turno#er ratio? a. $igh carrying costs. c. %hort in#entory order lead times. b. $igh stock-out costs. d. &ow in#entory order costs. '. !hich of the following in#entory items would be the most fre(uently re#iewed in an )*C in#entory control system? a. +,pensi#e, fre(uently used, high stock-out cost items with short lead times. b. +,pensi#e, fre(uently used, low stock-out cost items with long lead times. c. -ne,pensi#e, fre(uently used, high stock-out cost items with long lead time. d. +,pensi#e, fre(uently used, high stock-out cost items with long lead time. .. -n an )*C in#entory analysis, the items that are most lik l! to be controlled with a red-line system are the a. ) items. c. C items. b. * items. d. items on a perpetual in#entory. /. 0he materials control method that is based on physical obser#ation that an order point has been reached is the1 ). cycle re#iew method C. two-bin method *. min-ma, method 2. )*C plan 3. 0he underlying philosophy of 4"ust-in-time5 in#entory system is that a. 0he status of (uantities on hand must be periodically re#iewed where high-#alue items or critical items are e,amined more fre(uently than low-cost or non-critical items. b. -t is a (uest toward continuous impro#ement in the en#ironmental conditions that necessitates in#entories. c. 0he (uantities of most stock items are sub"ect to definable limits. d. -t is impractical to gi#e e(ual attention to all stock items, hence the need to classify and rank them according to their cost significance. 6. Companies that adopt "ust-in-time purchasing systems often e,perience a. )n increase in carrying costs. b. ) reduction in the number of suppliers. c. 7ewer deli#eries from suppliers. d. ) greater need for inspection of goods as the goods arri#e. 8. )n in#entory control system which employs mathematical models as an aid in making in#entory decision is known as a. Order cycling system c. %tatistical in#entory control system. b. 0wo-bin system d. Mini-ma, system 9. !hich of the following is used in determining the economic order (uantity :+O;<? a. =egression analysis. c. Marko# process.

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b. Calculus.

d. ;ueuing theory.

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1>. -n in#entory management, the problem of a#oiding e,cessi#e in#estment in in#entories and at the same time a#oiding in#entory shortages can be sol#ed by applying a (uantitati#e techni(ue known as a. Payback analysis c. +conomic order (uantity b. Probability analysis d. $igh-low point method 11. ) characteristic of the basic economic order (uantity :+O;< model is that it a. -s relati#ely insensiti#e to error. b. %hould not be used when carrying costs are large in relation to procurement costs. c. -s used when product demand, lead-time, and ordering costs are uncertain. d. %hould not be used in con"unction with computeri?ed perpetual in#entory systems. 1 . -n the +conomic Order ;uantity :+O;< model, some of the underlying assumptions are a. @nlimited production capacity, declining demand, decreasing ordering cost, decreasing carrying cost, and unlimited in#entory capacity. b. Constant demand, constant ordering cost, constant carrying cost, unlimited production and in#entory capacity. c. &imited production capacity, declining demand, constant ordering cost, constant carrying cost, and unlimited in#entory capacity. d. -ncreasing demand, limited production capacity, increasing ordering cost, increasing carrying cost, and limited in#entory capacity. 1'. 0he economic order (uantity formula can be used to determine the optimum si?e of a. b. c. d. Production run Aes Aes Bo Bo Purchase order Bo Aes Bo Aes 1.. 0he simple economic production lot si?e model will only apply to situations in which the production a. =ate e(uals the demand rate. b. =ate is less than the demand rate. c. =ate is greater than the demand rate. d. 7or the period co#ered e(uals the pro"ected sales for the period. 1/. !hich one of the following items is not directly reflected in the basic economic order (uantity :+O;< model? ). -nterest on in#ested capital. *. -n#entory obsolescence. C. Public warehouse rental charges. 2. ;uantity discounts lost on in#entory purchases. 13. 0he CCCCCCCCCCCCCC would not affect the economic order (uantity. a. companyDs weighted a#erage cost of capital b. cost of purchase re(uisition forms c. cost of insuring in#entory d. cost of a stockout 16. 0he economic order (uantity is not affected by the a. estimate of the annual material consumption. b. cost of insuring a unit of in#entory for a year. c. cost of purchase-order forms. d. safety stock le#el 18. Earious tools are employed to control large scale pro"ects. 0hey include all of the following e,cept1 ). P+=0. C. %tatistical process control. *. CPM. 2. Fantt charts.

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19. 0he ordering costs associated with in#entory management include a. -nsurance costs, purchasing costs, shipping costs, and obsolescence. b. Obsolescence, set up costs, (uantity discounts lost, and storage costs. c. ;uantity discounts lost, storage costs, handling costs, and interest on capital in#ested. d. Purchasing costs, shipping costs, set-up costs, and (uantity discounts lost. >. -f one optimi?es the in#entory turno#er ratio, which costs will not increase? a. 0otal reorder costs c. @nit reorder costs b. %tock-out cost d. Carrying costs 1. 0he carrying costs pertaining to in#entory include a. -nsurance costs, incoming freight costs and storage costs. b. -nsurance costs, incoming freight costs and setup costs. c. %etup costs and opportunity cost of capital in#ested in in#entory. d. %torage costs and opportunity cost of capital in#ested in in#entory. . 0he optimal le#el of in#entory is affected by all of the following e,cept the ). @sage rate of in#entory per time period. *. Cost per unit of in#entory. C. Current le#el of in#entory. 2. Cost of placing an order for merchandise. '. 0he optimal safety stock le#el is the (uantity of safety stock that minimi?es the a. sum of the annual rele#ant stockout costs and carrying costs. b. sum of the annual rele#ant ordering costs and carrying costs. c. sum of the annual rele#ant ordering costs and stockout costs. d. sum of the annual rele#ant ordering costs and purchasing costs. .. !hen a specific le#el of safety stock is carried for an item in in#entory, the a#erage in#entory le#el for that item a. -s not affected by the safety stock. b. -ncreases by the amount of the safety stock. c. -ncreases by one-half the amount of the safety stock. d. 2ecreases by the amount of the safety stock. /. 7or in#entory management, ignoring safety stocks, which of the following is a #alid computation of the reorder point? a. 0he economic order (uantity. b. 0he economic order (uantity times the anticipated demand during the lead time. c. 0he anticipated demand per day during lead time times lead time in days. d. 0he s(uare root of the anticipated demand during the lead time. 3. 0he cost of stock-out do not include a. 2epreciation and obsolescence. b. &oss of customer goodwill. c. &oss of sales. d. 2isruption of production schedules.

6. ) change from the 7-7O :first-in, first-out< in#entory #aluation method to the &-7O :last-in, first-out< method would ). -ncrease the +O; in times of rising prices. *. 2ecrease the +O; in times of rising prices. C. -ncrease the +O; in times of falling prices. 2. Bot affect the +O;. 8. 0he process of adding resources to shorten selected acti#ity times on the critical path in pro"ect scheduling is called ). Crashing. C. Material-re(uirements planning. *. 0he 2elphi techni(ue. 2. ) branch-and-bound solution.

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9. 0he selling price of the product is relati#ely high and the purchase cost of the product is relati#ely low. -n this situation a. Management must increase the price to co#er the cost of carrying higher in#entory. b. 0he +O; model will indicate fre(uent large orders. c. 0he +O; of the product is affected by the selling price. d. 0he selling price has nothing to do with the +O; of the product. '>. Clear Eiew Co. manufactures #arious glass products including a car window. 0he setup cost to produce the car window is G1, >>. 0he cost to carry a window in in#entory is G' per year. )nnual demand for the car window is 1 ,>>> units. -f the annual demand for the car window was to increase to 1/,>>> units, a. the number of setups would decrease. b. the total carrying costs would increase. c. the economic order (uantity would decline. d. all of the abo#e would occur. '1. 0he economic order (uantity :+O;< will rise following a. ) decrease in annual unit sales. b. )n increase in carrying costs. c. )n increase in the per unit purchase price of in#entory. d. )n increase in the #ariable costs of placing and recei#ing an order. ' . Missile Company has correctly computed its economic order (uantity as />> units. $owe#er, management feels it would rather order (uantities of 3>> units. $ow should MissileHs total annual purchase-order costs and total annual carrying cost for an order (uantity of 3>> units compare to the respecti#e amounts for an order (uantity of />> units? a. $igher purchase-order cost and lower carrying cost. b. $igher purchase-order cost and higher carrying cost. c. &ower purchase-order cost and higher carrying cost. d. &ower purchase-order cost and lower carrying cost. ''. ) decrease in in#entory order costs will a. -ncrease the reorder point. b. 2ecrease the economic order (uantity. c. $a#e no effect on the economic order (uantity. d. 2ecrease the holding cost percentage. '.. )n increase in in#entory holding costs will a. 2ecrease the economic order (uantity. b. $a#e no effect on the economic order (uantity. c. -ncrease the economic order (uantity. d. 2ecrease the number of orders issued per year. '/. 7or its economic order (uantity model, a company has a G1> cost of placing an order and a G annual cost of carrying one unit in stock. -f the cost of placing an order increases by >I, the annual cost of carrying one unit in stock increases by /I, and all other considerations remain constant, the economic order (uantity will1 ). decrease *. increase C. remain unchanged 2. either increase or decrease, depending on the reorder point +. either increase or decrease, depending on the safety stock '3. ) (uantitati#e techni(ue used for selecting the combination of resources that ma,imi?e profits or minimi?e costs is a. Cur#ilenear analysis c. 2ynamic programming b. ;ueuing theory d. &inear programming

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'6. 7or a '>>-day work year Julasa Corp. consumes . >,>>> units of an in#entory item. 0he usual lead-time for the in#entory item is si, :3< daysK howe#er, at times, the lead-time has gone as high as eight :8< days. Julasa now desires to ad"ust its safety stock policy. 0he likely effect on stockout costs and carrying costs, respecti#ely, would be a. -ncrease and decrease. c. -ncrease and increase. b. 2ecrease and decrease. d. 2ecrease and increase. '8. !hich of the following terms is not used in pro"ect management? a. 2ummy acti#ity. c. Optimistic time. b. &atest finish. d. &umpy demand. '9. ) management consultant is scheduling a long-term research and de#elopment pro"ect. 0he time table is #ery tight due to the ad#ent of the rainy season and to inade(uate research and de#elopment staff complement. )s the re(uirements are e,tensi#e and comple,, what is the most appropriate approach for planning and controlling the go#ernment highway pro"ect? a. 0ime-series or trend regression analysis. b. Cost-#olume-profit analysis. c. ;ueuing theory analysis. d. Program e#aluation re#iew techni(ue :P+=0< .>. !hich of the following statements is the least pertinent to the Pro"ect +#aluation =e#iew 0echni(ue :P+=0< a. -t is a system, which uses network analysis and critical path methods. b. -t is more useful for analy?ing the interrelationships of time and acti#ities to disco#er potential bottlenecks. c. -t in#ol#es measuring progress in relation to schedule, e#aluating changes to schedule, forecasting future progress and predicting and controlling costs. d. 0ime is a primary consideration and this techni(ue is particularly suite for problems, which in#ol#e the combination of resources that ma,imi?e profits or minimi?e costs. .1. !hich one of the following statements best describes a difference between basic P+=0 and the Critical Path Method :CPM< of network analysis? a. P+=0 uses probability distribution on the acti#ity times while CPM uses point estimates for the acti#ity times. b. P+=0 does not allow for slack times on the acti#ities while CPM does. c. P+=0 considers only acti#ity cost while CPM considers only acti#ity time. d. P+=0 determines the least-cost path through a network while CPM determines the leasttime path through a network. . . !hen using the P+=0 method for network analysis, the critical path through the network is a. 0he longest path through the network. c. 0he path with the most slack. b. 0he shortest path through the network. d. 0he least cost path. .'. -n a Program +#aluation and =e#iew 0echni(ue :P+=0< system, acti#ities along the critical path1 ). intersect at a corner point described by the feasible area *. may be delayed without affecting completion time C. follow the line of best fit 2. ha#e a slack of ?ero ... Of these statements, which is the least pertinent to the concept of 4slack5 in relation to the Pro"ect +#aluation and =e#iew 0echni(ue :P+=0<? a. 0he less the amount of slack time, the more critical an acti#ity or path. b. %lack time information is useful for planning and continuous monitoring. c. -t is computed by subtracting the earliest e,pected time from the earliest allowable time. d. -f not e,ceeded, non-critical acti#ities can be delayed without delaying the pro"ectHs completion time.

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./. !hich formula describes the learning cur#e? a. y L a,b c. y L a,-b b b. y L a , d. , L ayb .3. 0he calculation of reasonable probabilities about the future, based on the analysis of all the latest rele#ant information by tested and logically sound statistical and economic techni(ues, and applied in terms of an e,ecuti#eHs personal "udgement and knowledge of his business is a. *usiness forecasting c. Pro"ect feasibility studies b. *udgeting d. Planning and control .6. &inear programming is used most commonly to determine the a. 7astest timing. b. *est use of scarce resources. c. Most ad#antageous prices. d. Mi, of #ariables that will result in the largest (uantity. .8. )* !oods Co. is planning to e,pand its production facilities, which is at present, a constraint. Aou are asked to re#iew the linear programming model. )mong the items in the model, which will not be found? a. Constraints. c. -ndependent and dependent #ariables. b. %lack #ariables. d. Betworks. .9. -n a linear programming ma,imi?ation problem for business problem sol#ing, the coefficient of the ob"ecti#e function usually are a. @sage rates for scarce resources. b. Profit based on allocations of o#erhead and all indirect costs. c. Eariable costs. d. Marginal contributions per unit. />. &inear programming models are mathematical techni(ues in which an ob"ecti#e function is ma,imi?ed or minimi?ed sub"ect to constraints. 0hese constraints must be fully specified before a linear programming problem can be sol#ed, and generally described1 a. Costs. c. -nefficiencies. b. =esources. d. 2ependent #ariables. ;uestions /1 through /' are based on the following information. =eMetal, -nc. uses the following model to determine blends of new :n< metal and scrap :s< metal. Ma, M L G'>B N G6>% sub"ect to1 'B N % O 1/ B N .% O 18 /1. 0hese mathematical functions are an e,ample of a:n< ). Parametric model. C. +conomic order (uantity model. *. Present #alue model. 2. &inear programming model. / . 0he two ine(uality functions are ). Constraints. *. Ob"ecti#es. C. Conditions. 2. %hadow prices.

/'. 0he point where B L and % L ' would ). *e the optimal solution point. C. &ie in a corner. *. *e a feasible point. 2. Minimi?e cost. /.. ) transportation model is a special case of a. 2ynamic programming model. c. &inear programming model. b. P+=0PCPM. d. +conomic order (uantity model.

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PRO%LEMS 1. )Q* Co.Hs financial plan for ne,t year shows sales of P6 million and cost of sales of P./ million. -t e,pects short term interest rates to a#erage 1>I for the coming year. -t aims to increase in#entory turno#er from the present le#el of 9 times to 1 times ne,t year. -f its plans and ob"ecti#es would be carried out, how much is the cost sa#ings for the coming year? a. P1 /,>>> b. P'>>,>>>c. P'6/,>>> d. P/>>,>>> . 0he following information are gi#en1 Optimal production run in units ,>>> )#erage in#entory in units 1,>>> Bumber of production runs / Cost per unit produced P6/ 2esired annual return on in#entory in#estment 18I %et-up costs per production run P/,>>> -f the units will be re(uired e#enly throughout the year, the total annual rele#ant costs using the economic-order-(uantity approach is a. P/,>>> b. P6/,>>> c. P'8,/>> d. P1/>,>>> '. ) company has estimated its economic order (uantity for Part ) at ,.>> units for the coming year. -f ordering costs are G >> and carrying costs are G>./> per unit per year, what is the estimated total annual usage? a. 3,>>> units b. 8,8>> units c. 6, >> units d. ,.>> units .. 0he following data refer to #arious annual costs relating to the in#entory of a single-product company1 @nit transportation-in on purchases G>. > %torage per unit >.1 -nsurance per unit >.1> )nnual interest foregone from alternate in#estment of funds G8>> )nnual number of units re(uired 1>,>>> !hat is the annual carrying cost per unit? ). G>.'> *. G>.. C. G>./> 2. G>.' /. Phonic Foods is a distributor of #ideotapes. 0ape-2isk Mart is a local retail outlet which sells blank and recorded #ideos. 0ape-2isk Mart purchases tapes from Phonic Foods at G'.>> per tapeK tapes are shipped in packages of >. Phonic Foods pays all incoming freight, and 0ape-2isk Mart does not inspect the tapes due to Phonic FoodsD reputation for high (uality. )nnual demand is 1>.,>>> tapes at a rate of .,>>> tapes per week. 0ape-2isk Mart earns >I on its cash in#estments. 0he purchase-order lead time is two weeks. 0he following cost data are a#ailable1 =ele#ant ordering costs per purchase order G9>./> Carrying costs per package per year1 =ele#ant insurance, materials handling, breakage, etc., per year G ../> !hat is the re(uired annual return on in#estment per package? a. G3>.>> b. G ./> c. G1 .>> d. G>.3> 3. One of the products that Bature !ay $ealth Products sells is a magnetic back support. 0he ordering cost related to this product is P1 ./> per order. 0he cost of carrying one item of in#entory for one year is P13.>>. 0he business sells .>,>>> of this type of product e#enly throughout the year. $ow much is the total ordering costs per year and the total carrying costs per year at the economic order (uantity? a. b. c. d. Ordering costs P1,/3 ./> P1,/3 ./> P ,>>>.>> P.,>>>.>> Carrying costs P1,/3 ./> P ,/3>.>> P ,>>>.>> P.,>>>.>>

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6. 7or =aw Material *, a company maintains a safety stock of /,>>> pounds. -ts a#erage in#entory :taking into account the safety stock< is 8,>>> pounds. !hat is the apparent order (uantity? a. 13,>>> lbs. b. 3,>>> lbs. c. 1>,>>> lbs. d. 1,>>> lbs 8. )n organi?ation has an in#entory order (uantity of 1>,>>> units and a safety stock of ,>>> units. 0he cost per unit of in#entory is G/, and the carrying cost is 1>I of the a#erage #alue of in#entory. 0he annual in#entory carrying cost for the organi?ation is ). G',>>> *. G',/>> C. G/,>>> 2. G3,>>> 9. = Corp.Ds order (uantity for Material 0 is /,>>> lbs. -f the company maintains a safety stock of 0 at />> lbs., and its order point is 1,/>> lbs., what would be the total annual carrying costs assuming the carrying cost per unit is G>. >? a. G1,>>> b. G3>> c. G1>> d. G1,1>> 1>. 27 0ires @nlimited is a business enterprise located in the city of Cagayan de Oro. 0he market price per unit is P',>>>. %ince Cagayan de Oro is a #ery progressi#e rural place, the business sells an a#erage of '3,>>> tires annually. *ased on a company study co#ering the last fi#e years of its operation, it was found out that annual carrying cost per tire is P/.>> and the ordering cost is P1>> per order. 0he store is open 6 days a week :which includes %undays and holidays<. 0he deli#ery time per order :tires are ordered from Manila< is / days. %ince it normally takes time before an order is placed, filled up and deli#ered, the manager has decided to keep a safety stock of ',>>> tires which is e(ui#alent to a monthHs sales. 0he a#erage in#entory is a. ',.9' tires b. ',3>> tires c. 1, >> tires d. ',>>> tires 11. = Corp.Ds order (uantity for Material 0 is /,>>> lbs. -f the company maintains a safety stock of 0 at />> lbs., and its order point is 1,/>> lbs., what is the lead time assuming daily usage is /> lbs.? a. '> days b. 1>> days c. 1> days d. > days 1 . -nformation regarding the usage of material A which shall be re(uired e#enly throughout the year by F)C Company )nnual usage in units '>,>>> !orking days per year /> %afety stock in units 1, >> Bormal lead time in working days / 0he re-order point is a. 3, /> b. /,6>> c. ., >> d. ',>>> 1'. MQ& Co. has the following information on in#entory1 %ales >,>>> units per year Order (uantity .,>>> units %afety stock ,3>> units &ead time . weeks !hat is the re-order point? :7or calculation purposes, use />-week year< a. ., >> units. b. /,3>> units. c. ,3>> units. d. 1,3>> units 1.. 0he China 0ee %tore sells 1>>,>>> tea bags a year. )dditional data are presented below1 %elling price per bag P ./> Purchase cost per bag P1./> Ordering cost per order P/..> Carrying cost >I of unit cost Bumber of days the company operates in a year /> )#erage lead time on purchases 3 days !hat is the reorder point if the company will keep a 1>-day safety stock of in#entory? a. ,.>> bags b. /,.>> bags c. 3,.>> bags d. 8,8>> bags

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1/. R)%M-B Products, -nc. gathered the following information related to one of its materials1 Order (uantity 1,/>> units Bormal use per day />> units Ma,imum use per day 3>> units Minimum use per day 1>> units -f the lead time is fi#e days, the order point is a. />> units b. 1,/>> units c. ,/>> units d. ',>>> units 13. -n#entory data for a certain raw material is as follows1 )nnual usage in units /,>>> !orking days per year /> Bormal lead time in working days '> Ma,imum lead time in working days /> )ssuming that this raw material will be re(uired e#enly throughout the year, the order point will be a. ',>>> b. .,>>> c. /,>>> d. 8,>>> 16. ) softdrinks distributor which buys in a pre-sell basis, is discussing with the route salesmen on the proper cases to be ordered and the fre(uency of call. 7rom the route book and other records, the following are a#ailable1 prior yearHs purchases, />,>>> casesK carrying cost per case of in#entory, P1. >K distributorHs discount, 1 case for e#ery 1> cases boughtK cost of placing an order, P'.>>K weekly demand is appro,imately 93 cases. %afety stock re(uired is 1.> cases. Bo change in demand is e,pected this year. :@se a '3/-day, / -week year<. 2etermine the economic order (uantity :+O;<, and the reorder point assuming a two-day lead-time. a. b. c. d. +O; .81 cases />> cases 93 cases /> cases =eorder point />> cases .1. cases 6/ cases 8> cases 18. +ach stockout of Product )S sold by ),iom -nc. costs P86,/>> per occurrence. 0he carrying cost per unit of in#entory is P /> per year, and the company orders 1,/>> units of product . times a year at a cost of P/,>>> per order. 0he probability of stockout at #arious le#els of safety stock is @nits of %afety %tock Probability of a stockout > >./> 1>> >.'> >> >.1. '>> >.>/ .>> >.>1 0he optimal safety stock le#el for the company is a. > units. c. .>> units. b. 1>> units. d. '>> units. 19. Eera Cru? Corporation seeks to determine the (uantity of safety stock for product %0 that they should maintain that will result in the lowest cost to the company. +ach stockout will cost P3>> and the carrying cost of each unit of safety stock will be P8. Product %0 will be ordered fi#e times a year. !hich of the following will produce the lowest cost? a. ) safety stock of 1/ units which is associated with a '/I probability of running out of stock during an order period. b. ) safety stock of / units which is associated with a /I probability of running out of stock during an order period. c. ) safety stock of '/ units which is associated with a 1>I probability of running out of stock during an order period. d. ) safety stock of 6/ units associated with a /I probability of running out of stock during an order period.

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>. -f 7erry Company has a safety stock of 13> units and the a#erage daily demand is > units, how many days can be co#ered if the shipment from the supplier is delayed by 1 days? a. 1 .> days b. 1>.> days c. 8.> days d. 3.6 days 1. 2Q= Corp. consumes '>>,>>> units of spare part E per year. 0he a#erage purchase lead time is > working days while the ma,imum is 6 working days. 0he companyHs annual operations co#er .> days allowing for shutdowns for plant maintenance, holidays and %undays. 0he company would like to keep safety stock or e,tra stock to guard against stockouts. $ow much is the safety stock? a. /,>>> units. b. 1, /> units. c. '',6/> units. d. 8,6/> units. . )rnold +nterprises uses the +O; model for in#entory control. 0he company has an annual demand of />,>>> units for part number 1>1 and has computed an optimal lot si?e of 3, /> units. Per-unit carrying costs and stockout costs are G1' and G', respecti#ely. 0he following data ha#e been gathered in an attempt to determine an appropriate safety stock le#el1 @nits %hort *ecause of +,cess Bumber of 0imes %hort 2emand during the &ead 0ime Period in the last .> =eorder Cycles >> 3 '>> 1 .>> 3 0he annual cost of establishing a >>-unit safety stock is e,pected to be a. G ,3>> b. G.,>.> c. G., 3> d. G/, >> '. Penguin Company manufactures winter "ackets. %etup costs are G .>>. Penguin manufactures .,>>> "ackets e#enly throughout the year. @sing the economic order (uantity approach, the optimal production run would be >> when the cost of carrying one "acket in in#entory for one year is1 ). G>.1> *. G>. > C. G>..> 2. G>.>/ .. Marita works for a local ceramics company. %he "ust completed her accountancy degree and learned the +O; model in one of her sub"ects. %he suggested to her employer to adopt it. 0he company sells >,>>> pieces of specialty ceramic items each year. 0raditionally, they ha#e produced these items four times a year, making /,>>> pieces at a time. 0hey carry no safety stock as customers do not mind waiting for orders. 0he a#erage piece of ceramic items costs P.>> to make and costs the company P > to carry in in#entory for a year. 0he set up costs for each production run total P8>. 0he company should a. )dopt +O; due to sa#ings of P'/,36/. b. Continue the e,isting system due to P'8,9/> ad#antage. c. )dopt +O; due to sa#ings of P. ,' >. d. Continue the e,isting system due to P.1,8 > ad#antage. /. =O2+B%0OCJ, -BC. currently places orders for a particular stock item at (uarterly inter#als. -nformation concerning this item is as follows1 Cost of placing an order P1> )nnual demand >,>>> units Purchasing price per unit P>./> 0he cost of holding the stock items amounts to >I of the stock #alue per annum. !hat annual cost sa#ing would result if =O2+B%0OCJ used the economic order (uantity for order si?es instead of their current policy? a. P 8> b. P 9> c. P1/> d. P .> 3. ) company annually consumes 1>,>>> units of Part C. 0he carrying cost of this part is G per year and the ordering costs are G1>>. 0he company uses an order (uantity of />> units. *y how much could the company reduce its total costs if it purchased the economic order (uantity instead of />> units? a. G/>> b. G ,>>> c. G ,/>> d. G>

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6. 0he economic order (uantity is the si?e of the order that minimi?es total in#entory costs, including ordering and carrying costs. -f the annual demand decreases by '3I, the optimal order si?e will ). 2ecrease by >I. *. -ncrease by >I. C. -ncrease by 3I. 2. 2ecrease by 3I. 8. )s a conse(uence of finding a more dependable supplier, 2ee Co. reduced its safety stock of raw materials by 8>I. !hat is the effect of this safety stock reduction on 2eeHs economic order (uantity. a. 8>I decrease. b. 3.I decrease. c. >I increase. d. Bo effect. 9. %cholas Co. uses 8.>,>>> units of component =. in manufacturing =... o#er a '>>-day work year. 0he usual lead time for the part is si, days. $owe#er, at times, the lead time has gone as high as eight days. %cholas now desires to ad"ust its safety stock policy. 0he increase in safety stock si?e is a. 13,8>> units. b. ,8>> units. c. 6, >> units. d. /,3>> units. '>. =usty, the night manager at a local fast food restaurant, has had problems with his employees not arri#ing on time. )fter doing some research, he disco#ered that, if his employees were on time the night before, the probability that they would arri#e on time again is .6. On the other hand, if they were late the night before, the probability that they would arri#e on time the following day is ... !hat is the probability that an employee will arri#e on time the fourth day if they arri#ed on time the first day? ). ./6/ *. ./8' C. .31 2. .6 '1. 0he %igma Company wants more information on the demand for its products. 0he following data are rele#ant @nits demanded Probability of unit demand 0otal cost of units demanded > >.1> P>.>> 1 >.1/ 1.>> >. > .>> ' >..> '.>> . >.1> ..>> / >.>/ /.>> !hat is the total e,pected #alue of the total cost of units demanded? a. P ..> b. P9.1/ c. P9.>> d. P6..> ' . %ampaguita Company is planning to market a new product. 0he marketing research staff prepared the following payoff probability distribution gi#ing the relati#e likelihood of monthly sales #olume le#els and the corresponding income :loss< for the new productK Monthly sales #olume Probability -ncome:loss< ,/>> >.1> P: /,>>>< /,>>> >. > 6,/>> 1>,>>> >./> '6,/>> 1/,>>> >.1> />,>>> /,>>> >.1> 6/,>>> 0he e,pected #alue of the monthly income from the new product1 a. P18,6/> b. P ,/>> c. P'>, /> d. P' ,6/>

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''. 2ough 2istributors has decided to increase its daily muffin purchases by 1>> bo,es. ) bo, of muffins costs G and sells for G' through regular stores. )ny bo,es not sold through regular stores are sold through 2oughHs thrift store for G1. 2ough assigns the following probabilities to selling additional bo,es1 )dditional sales Probability 3> >.3 1>> >.. !hat is the e,pected #alue of 2oughHs decision to buy 1>> additional bo,es of muffins? a. G 8 b. G.> c. G/ d. G38 '.. 0he auditor is attempting to e#aluate the potential dollar effect of a control breakdown in the sales cycle. 0wo controls are in#ol#ed. 0he probability that control ) will fail is 1>I, and the probability that control * will fail is /I. 0he controls are independent such that the failure of one does not affect the failure of the other. -n e#aluating the potential e,posure to the organi?ation, the auditor determines that the cost of control )Ds failure is G1>,>>>, the cost of control *Ds failure is G /,>>>, and the cost of failure of both control procedures at the same time is an additional G >>,>>>. -f the control procedures are not made more effecti#e, the e,pected cost to the organi?ation is ). G1,>>> *. G' , /> C. G , /> 2. G', /> '/. -n actual business, it is difficult to ascertain the #alue of information about a future e#ent. $owe#er, it is possible to compute the ma,imum e,pected #alue of additional information by computing the e,pected #alue under conditions of certainty and comparing it with the e,pected #alue of the best strategy under uncertainty. )ssuming1 +,pected #alue under certainty conditions P1 ,>>> +,pected #alue using best strategy under uncertainty 1>,9>> +,pected #alue of perfect information 1,1>> 0his means a. Management is uncertain it will incur P1>,9>>. b. Management is certain it will reali?e P1 ,>>> c. Management can afford to spendP1,1>> for perfect information. d. Management can afford to incur P1>,9>> since it will earn a net income of P1,1>>. '3. @nder fa#orable weather conditions, the management of 7lesher 7arms e,pects its raspberry crop to ha#e a G1 >,>>> market #alue. )n unprotected crop sub"ect to frost has an e,pected market #alue of G8>,>>>. -f 7lesher protects the raspberries against frost, the market #alue of the crop is still e,pected to be G1 >,>>> under frost-free conditions and G18>,>>> if a frost occurs. !hat must be the probability of a frost for 7lesher to be indifferent to spending G >,>>> for tents to pro#ide frost protection? a. >.136 b. >. >> c. >. /> d. >.''' '6. =on *agley is contemplating whether to in#estigate a labor efficiency #ariance in the )ssembly 2epartment. -t will cost G3,>>> to undertake the in#estigation and another G18,>>> to correct operations if the department is found to be operating improperly. -f the department is operating improperly and *agley fails to in#estigate, operating costs from the #arious inefficiencies are e,pected to amount to G'',>>>. *agley will be indifferent between in#estigating and not in#estigating the #ariance if the probability of improper operation is a. >. 9 b. >..> c. >.3> d. >.61

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;uestions '8 and '9 are based on the following information. ) company has the following probabilities of profit :or loss< from an in#estment opportunity1 Profit Outlook Profit :&oss< )mount Probability Optimistic G1>,>>> .'> Most likely 3,>>> .// Pessimistic :1,>>>< .1/ '8. !hat is the e,pected profit? ). G3,>>> *. G3,1/> C. G3,'>> 2. G3,./>

'9. $ow much would the company be willing to pay before in#esting in the pro"ect to learn in ad#ance which of the three scenarios :optimistic, pessimistic, or most likely< would actually occur? ). G> *. G1/> C. G'>> 2. G//> ;uestions .> and .1 are based on the following information1 %uperior Craft is e#aluating the launching of a new product. -f the product becomes successful, the present #alue of future cash flows :e,cluding in#estment< is estimated at P ,>>>,>>>. -f the product is not successful, the present #alue of this flow is estimated at P.>>,>>>. 0he re(uired in#estment is P1,>>>,>>>.
.>. !hat are the probabilities that would ha#e to be assigned to the e#ents 4success5 and 4not success5 to make %uperior Craft indifferent between the two actions 4in#est5 and 4do not in#est5?

Probability of success Probability of not success

a. '6./I 3 ./I

b. .>I 3>I

c. ././I /../I

d. />I />I

. . -f %uperior Craft thinks the probability of 4success5 is 3>I, how much higher would be the e,pected #alue of the act 4in#est5 o#er the e,pected #alue of the act 4do not in#est5? a. P'3>,>>> b. P.>>,>>> c. P3>>,>>> d. P1,>>>,>>> .'. Colfa, Creations produces three products1 ), *, and C. 7our machines are used to produce the products. 0he sales demands and time on each machine :in minutes< is as follows1 2emand 0ime on M1 0ime on M 0ime on M' 0ime on M. ) 1>> 1> 1/ 1> / * 8> 1> / 1> / C 3> / / 1/ 1/ 0here are ,.>> minutes a#ailable on each machine during the week. !hich machine is the bottleneck? a. M1 b. M c. M' d. M. ... Phil-7u"i Co. manufactures two types of electronic components, both of which must pass through the )ssembly and 7inishing 2epartments. 0he following constraints apply1 @nit Contribution $rs =e(uired per unit Product %elling Price Margin per @nit )ssembly 7inishing Component 818 P1 > P'> ' . Component 81> P18> P./ . 3 2emand for Component 818 far e,ceeds the companyHs capacity, but the company can only sell 3> units of component 81> each week. !orkers in the )ssembly department work a total of >> hours per week, and workers in the 7inishing department work a total of /> hours per week. 0he company wants to know how many units of each component to produce to ma,imi?e profit. -f S represents the number of units of Component 818 and A represents the number of units of Component 81>, the ob"ecti#e function would be a. Ma,imi?e 1 >S N 18>A c. Minimi?e 9>S N 1'/A b. Ma,imi?e '>S N ./A d. Minimi?e '>S N ./A =PCP) >/9/ ./. ) mathematical techni(ue that can be used to find the best possible combination of the companyHs limited resources is called linear programming. %tar +lectronics manufactures

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two types of calculators, %tar 1 and %tar . +ach calculator is processed in two departments, departments 1 and . 2aily labor re(uirements are as follows1 $ours =e(uired per Calculator 0otal $ours 2epartment )#ailable %tar 1 %tar 1 1/ / ./> 18 9 6 > 0he marginal contributions are P1/ on %tar 1 and P>.1> on %tar . 7rom the items listed below what are the labor constraints? :)ssume S represents the number of units of %tar 1, A represents the number of units of %tar , P represents profit<. a. S T > K A T > c. 1/S N /A O ./>K 18S N 9A O 6 > b. P L 1/S N 1>AK P L 1/S N /A d. combination of :b< and :c< .3. Consider the following linear programming problem and assume that non-negati#ity constraints apply to the independent #ariables1 Ma, CM L G1.S N G 'A %ub"ect to Constraint 11 .S N /A O ', >> Constraint 1 S N 3A O ,.>> !hich of the following are feasible solutions to the linear programming problem? a. S L 3>>, A L .> c. S L >, A L .>> b. S L 8>>, A L 3.> d. S L 1, >>, A L > .6. 0he Jatangalan Company makes toys A and M each of which needs two processes, cutting and sanding. 0he contribution margin is P'.>> for product A and P..>> for product M. 0he table below shows the ma,imum number of units :constraints< of each product that may be processed in the two departments. Ma,imum Capacities :in Product @nits< Product Cutting %anding A '> .> M '> > Considering the constraint on processing, which combination of product A and M ma,imi?es the total contribution margin? ). *. C. 2. Product A > units '> units .> units > units Product M 1> units > units > units > units ;uestions .8 and .9 are based on the following information. 2 Company has a#ailable production capacity of 18>,>>> hours. 0his can be used to produce ' products in any combination. 0otal fi,ed cost is P18>,>>>, other facts are1 P=O2@C0% S A M %elling price P 8 P ' P / Eariable cost 6 1 Bo. of hours per 1 hr. 1> hrs. hrs. unit Market limits /,>>> />,>>> .8. 0he best possible combination of product is1 a. b. Product S '>,>>> .,>>> Product A /,>>> .,>>> Product M />,>>> />,>>> c. '>,>>> ',>>> />,>>> d. 8>,>>> > />,>>>

.9. 0he net profit associated with the best combination of products is1 a. P//,>>> b. P/.,>>> c. P/>,>>>

d. P'',>>>

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;uestions /> through / are based on the following information. -n the two following constraint e(uations, S and A represent two products :in units< produced by the Feneric Co. Constraint 11 'S N /A O ., >> Constraint 1 /S N A T ',>>> />. !hat is the ma,imum number of units of Product S that can be produced? a. ., >> b. ',>>> c. 3>> d. 1,.>> /1. !hat is the feasible range for the production of A? a. 8.> to 1,/>> units b. > to 8.> units c. > to 3'1 units d. > to 1/>> units

/ . ) solution of S L />> and A L 3>> would #iolate a. Constraint 1. b. Constraint . c. both constraints. d. neither constraint. /'. -f plant capacity for cutting time and shaping time is 8> hours and 1>> hours, respecti#ely, and it takes four hours to cut and two hours to shape a standard model and two hours to cut and fi#e hours to shape a delu,e model, the ma,imum number of standard and delu,e models that can be produced are1 ). /> standard and .> delu,e 2. > standard and > delu,e *. > standard and .> delu,e +. > standard and /> delu,e C. .> standard and > delu,e /.. 0he following information applies to a pro"ect1 )cti#ity 0ime :days< -mmediate Predecessor ) / Bone * ' Bone C . ) 2 * + 3 C, 2 0he earliest completion time for the pro"ect is ). 11 days. *. 1. days. C. 1/ days. 2.

> days.

//. $ennepin Co. used '> hours to produce the first batch of units. 0he second batch took an additional 18 hours. $ow many total hours will the first four batches re(uire? a. 63.8 hours. b. 93. hours. c. 1 >.> hours. d. 31... hours. /3. &ake Corporation manufactures specialty components for the electronics industry in a highly labor intensi#e en#ironment. )re +lectronics has asked &ake to bid on a component that &ake made for )rc last month. 0he pre#ious order was for 8> units and re(uired 1 > hours of direct labor to manufacture. )rc would now like .> additional components. &ake e,periences an 8>I learning cur#e on all of its "obs. 0he number of direct labor hours needed for &ake to complete the .> additional components is a. '3>.> b. 186. c. '>6. d. /3.> /6. 0ofte has a target total labor cost of G1,/>> for the first four batches of a product. &abor is paid G1> an hour. -f 0ofte e,pects an 8>I learning rate, how many hours should the first batch take? a. 1/> hours. b. /8.3 hours. c. 93.> hours. d. 6'. hours. /8. C*) Company e,pects a 9>I learning cur#e. 0he first batch of a new product re(uired 1>> hours. 0he second batch should take a. 1>> hours. b. 9> hours. c. 8> hours. d. 9/ hours ;uestions /9 through 3' are based on the following information. 0he College $onor %ociety sells hot pret?els at the home football games. 0he pret?els are sold for G1.>> each, and the cost per pret?el is G>.'>. )ny unsold pret?els are discarded because they

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will be stale before the ne,t home game. 0he fre(uency distribution of the demand for pret?els per game is presented below. @nit %ales Eolume Probability ,>>> pret?els .1> ',>>> pret?els .1/ .,>>> pret?els . > /,>>> pret?els .'/ 3,>>> pret?els . > /9. 0he estimated demand for pret?els at the ne,t home football game using an e,pected #alue approach is a. .,>>> pret?els. b. 4,400 pretzels. c. /,>>> pret?els. d. 6,000 pretzels. 3>. 0he estimated demand for pret?els at the ne,t home football game using a determinate approach based on the most likely outcome is a. .,>>> pret?els. b. .,.>> pret?els. c. /,>>> pret?els. d. 3,>>> pret?els. 31. 0he conditional profit per game of ha#ing .,>>> pret?els a#ailable but only selling ',>>> pret?els is a. G1,8>> b. G ,1>> c. G ,8>> d. G',/>> 3 . 0he conditional profit per game of ha#ing .,>>> pret?els a#ailable and selling all .,>>> pret?els is a. G1, >> b. G ,1>> c. G ,8>> d. G8>> 3'. 0he conditional profit :loss< per game of ha#ing .,>>> pret?els a#ailable but being able to sell /,>>> pret?els if they had been a#ailable is ). G ,8>>. *. G:1, /<. C. G.,> /. 2. G',/>>. ;uestions 3. through 38 are based on the following information. Fleason Co. has two products, a fro?en dessert and ready-to-bake breakfast rolls, ready for introduction. $owe#er, plant capacity is limited, and only one product can be introduced at present. 0herefore, Fleason has conducted a market study, at a cost of G 3,>>>, to determine which product will be more profitable. 0he results of the study follow. %ales of 2esserts at G1.8>Punit %ales of =olls at G1. >Punit Eolume Probability Eolume Probability />,>>> .'> >>,>>> . > '>>,>>> ..> />,>>> ./> '/>,>>> . > '>>,>>> . > .>>,>>> .1> '/>,>>> .1> 0he costs associated with the two products ha#e been estimated by FleasonDs cost accounting department and are shown as follows. 2essert =olls -ngredients per unit G..> G. / 2irect labor per unit .'/ .'> Eariable o#erhead per ..> . > unit Production toolingU .8,>>> /,>>> )d#ertising '>,>>> >,>>> UFleason treats production tooling as a current operating e,pense rather than capitali?ing it as a fi,ed asset. 3.. )ccording to FleasonDs market study, the e,pected #alue of the sales #olume of the breakfast rolls is ). 1 /,>>> units. C. 6/,>>> units. *. 3>,>>> units. 2. %ome amount other than those gi#en. 3/. )pplying a deterministic approach, FleasonDs re#enue from sales of fro?en desserts would be ). G/.9,>>>. C. G 13,>>>. *. G/.>,>>>. 2. %ome amount other than those gi#en.

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33. 0he e,pected #alue of FleasonDs operating profit directly traceable to the sale of fro?en desserts is ). G198, />. C. G1 >, />. *. G1/>, />. 2. %ome amount other than those gi#en. 36. -n order to reco#er the costs of production tooling and ad#ertising for the breakfast rolls, FleasonDs sales of the breakfast rolls would ha#e to be ). '6,/>> units. C. 3>,>>> units. *. 1>>,>>> units. 2. %ome amount other than those gi#en. 38. 0he ad#ertising e,pense estimated by Fleason for the introduction of the new products is an e,ample of a:n< ). Con#ersion cost. C. Committed cost. *. 2iscretionary cost. 2. Opportunity cost.

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ANSWER &EY T' o(! 1. 2 11. . * 1 . '. 2 1'. .. C 1.. /. C 1/. 3. * 13. 6. * 16. 8. C 18. 9. * 19. 1>. C >. P(o)l ms 1. ) . C '. C .. ) /. C 3. C 6. * 8. * 9. * 1>. * 11. 1 . 1'. 1.. 1/. 13. 16. 18. 19. >. 2 C ) C 2 C * C C C

) * * C 2 2 2 C 2 2 1. . '. .. /. 3. 6. 8. 9. '>.

1. . '. .. /. 3. 6. 8. 9. '>. 2 * C C * ) ) 2 2 *

2 C ) * C ) 2 ) 2 * '1. ' . ''. '.. '/. '3. '6. '8. '9. .>. ) C C 2 C * * * * )

'1. ' . ''. '.. '/. '3. '6. '8. '9. .>.

2 C * ) ) 2 2 2 2 C .1. . . .'. ... ./. .3. .6. .8. .9. />. ) ) C * C C ) ) ) 2

.1. . . .'. ... ./. .3. .6. .8. .9. />.

) ) 2 C ) ) * 2 ) * /1. / . /'. /.. //. /3. /6. /8. /9. 3>. * ) 2 C ) * * C * C

/1. / . /'. /..

2 ) * C

31. 3 . 3'. 3.. 3/. 33. 36. 38.

) C ) * * C * *

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