Theories

1. Which if the following is heavily weighted in calculation PERT’s expected time?

a. Idealistic time c. Optimistic time
b. Most likely time d. Pessimistic time

2. An 80% learning curve means that

a. The incremental time for each unit is 80% of the time of the unit before it
b. The cumulative average time is 80% of the cumulative average time at the previous unit
c. As production doubles, the incremental time for a unit is 80% of the time at the previous doubling point.
d. As production doubles, the cumulative average time is 80% of the time at the previous doubling point

3. The term ‘constraints’ in a linear programming model generally describes

a. Costs c. Scarce resources
b. Inefficiencies d. Dependent variables

4. A company is controlling a complex project by determining the activities that must take place and the relationship
among these activities. Attention then is focused on those activities that have the greatest influence on the project’s
estimated completion date. The quantitative technique most relevant to this is
a. Cost-volume-profit analysis c. Program evaluation review technique
b. Parametric programming d. Queuing analysis

5. Program evaluation and review technique (PERT) is a system that uses:

a. Linear square method c. Economic Order Quantity (EOQ) formula
b. Linear programming d. Network analysis

6. PERT and the critical path method (CPM) are used for
a. Determining the optimal product mix c. Determining product costs
b. Project scheduling and control d. Determining the number of servers needed in a fast-food restaurant

7. A project is defined as a
a. Temporary endeavor c. Expensive endeavor
b. Continuous endeavor d. Endless endeavor

8. When using PERT, the expected time for an activity when given an optimistic time (A), a pessimistic time (B), and
most likely time (m) is calculated by which one of the following formulas?
a. (b – a) ÷ 2 c. (a + 4m + b) ÷ 6
b. (a + b) ÷ 2 d. (4abm) ÷ 6

9. Critical Path Method (CPM) is a technique for analyzing, planning, and scheduling large, complex projects by
determining the critical path from a single time estimated for each event in a project. The critical path
a. Is the maximum amount of time an activity may be delayed without delaying the total project beyond its target time
b. Is the earliest starting time that an activity for a project can begin
c. Is the pessimistic time estimate for an activity of a project
d. Is the longest time path form the first event to the last event for a project

10. The primary difference between PERT and CPM is that

a. CPM uses probabilities on the activity times and PERT does not
b. PERT considers activity costs and CPM does not
c. PERT can assign probabilities to activity times and CPM does not
d. CPM considers activity costs and PERT does not

11. When doing a cost-time trade-off in PERT analysis, the first activity that should be crashed is the activity
a. With the largest amount of slack c. On the critical path with the maximum possible time reduction
b. With lowest unit crash cost d. On the critical path with the lowest unit crash cost

12. A decision maker is operating in an environment wherein all the facts surrounding a decision are known exactly, &
each alternative is associated only with one possible outcome. The environment is known as
a. Certainty c. Uncertainty
b. Risk d. Conflict

13. A quantitative technique useful in projecting a firm’s sales and profits is

a. Probability distribution theory c. Learning curves
b. Gantt charting d. Queuing theory
14. Expected value in decision analysis is
a. A standard deviation using the probabilities as weights
b. An arithmetic mean using the probabilities as weights
c. The standard deviation divided by the coefficient of variation
d. A measure of the difference between the best possible outcome and the outcome of the original decision

15. The term ‘expected value’ refers to the

a. Value which would be assigned to a variable if a problem were to be treated in a deterministic manner
b. Most likely single outcome selected from among a number of possible alternatives
c. Tails of a normal probability distribution
d. Mean value of a variable

16. The modeling technique used for situations involving a sequence of events with several possible outcomes associated
with each event is
a. Network analysis c. Queuing theory
b, Decision tree analysis d. Linear programming

17. Which of the following statements does not apply to decision tree analysis?
a. The sum of the probabilities of the events is less than one
b. All of the events are mutually exclusive
c. All of the events are included in the decision
d. The branches emanate from a node from left to right

18. The expected value of perfect information is the

a. Same as the expected profit under certainty
b. Sum of the conditional profit for the best event of each act times the probability of each event occurring
c. Difference between the expected profit under certainty and the expected opportunity loss
d. Difference between the expected profit under certainty and the expected monetary value of the best act under certainty

19. If a cost function behaves that the average costs per unit of output decline systematically as cumulative production
doubles, the cost function is referred to as a:
a. Parabolic curve c. Linear cost curve
b. Learning curve d. Growth curve

20. The cost factor least likely to be affected by the learning curve is
a. Materials c. Indirect labor
b. Direct labor d. Variable overhead

21. In which company is the learning effect probably most important?

a. A canner of orange juice c. A highly automated chemical manufacturer
b. A manufacturer of airplanes d. A manufacturer of nails

22. A technique used for selecting the combination of resources that maximizes profits or minimizes costs.
a. Curvilinear analysis c. Dynamic programming
b. Queuing theory d. Linear programming

23. The term ‘constraints’ in a linear programming model generally describes

a. Costs c. Scarce resources
b. Inefficiencies d. Dependent variables

24. One limitation of the linear programming technique is that it is effective only for
a. Two-product situations c. Straight-line relationship situations
b. Manufacturing resource constraint situations d. Income maximization situations

25. In linear programming, sensitivity analysis is used to

a. Develop coefficients for the objective function
b. Determine how the optimal solution will react to changes in parameters (e.g., objective and constraint functions) set in a
linear programming model
c. Develop the optimal solution to the problem
d. Identify the constraints

26. The graphic method as a means for solving linear programming problems
a. Can be used when there are more than two restrictions (constraints)
b. Is limited to situations in which there are two restrictions (constraints)
c. Is limited to situations in which there is one restriction (constraint) only
d. Cannot be used if there are any restrictions (constraints)
Problems

1. Orange Service Firm is considering a 3-phase research project. The time estimates for completion of phase 1 of the
project are:
Optimistic 2 months
Most likely 4 months
Pessimistic 9 months

Using PERT-CPM approach, what is the expected time for completion of phase 1?
a. 4 months b. 4.5 months c. 5 months d. 5.5 months

2. Apple Company presents the following PERT-CPM data for a certain project:
Activity Time in Weeks Preceding Activity
A 3 -
B 3 A
C 7 A
D 4 A
E 2 B
F 4 B
G 1 C, E
H 5 D

Determine the project’s (A) completion time of the critical path and (B) slack time of the shortest path.
a. (A) 12 weeks (B) 3 weeks c. (A) 11 weeks (B) 2 weeks
b. (A) 12 weeks (B) 2 weeks d. (A) 10 weeks (B) 1 week

3. Grapes Builders Corporation uses the critical path method to monitor construction jobs. The company is currently 2
weeks behind schedule on Job #32, which is subject to a P 10,500 per week completion penalty. Path A-B-C-F-G-H-I has
a normal completion time of 20 weeks. The following activities can be crashed:
Activities Cost to Crash 1 Week Cost to Crash 2 Weeks
BC P8,000 P15,000
DE 10,000 19,600
EF 8,800 19,500

Grapes Builders desires to reduce the normal completion time of Job #32 and, at the same time, report the highest possible
income for the year. What should Grapes Builders crash?
a. Activity EF (2 weeks) c. Activity BC (1 week) & activity DE (1 week)
b. Activity BC (1 week) & activity EF (1 week) d. Activity DE (1 week) & activity EF (1 week)

4. A computer store sells four computer models designated P100, A100, R100, and T100. The store manager has made
random number assignments to represent customer choices based on past sales data. The assignments are shown below:
Model Random Numbers
P100 0-1
A100 2-6
R100 7-8
T100 9

The probability that a customer will select model P100 is

a. 10% c. 50%
b. 20% d. Cannot be determined from given information

5. Banana Company’s outside marketing consultant prepared the following probability distribution describing the relative
likelihood of monthly sales volume levels and related income (loss):
Monthly sales volume Probability Income (loss)
6,000 10% (P 70,000)
12,000 20% 10,000
18,000 40% 60,000
4,000 20% 100,000
30,000 10% 140,000

If Banana decides to market the new product, what is the expected value of the added monthly income?
a. P 240,000 b. P 60,000 c. P 53,000 d. P 48,000
6. A group of kids sells macapuno candies at a basketball game. The candies are sold for P 1.00 each, and the cost per
candy is P 0.30. Any unsold candies are discarded because they will stale before the next basketball game. The frequency
distribution of the demand for candies per basketball game is:
Unit sales volume Probability
2,000 candies 0.10
3,000 candies 0.15
4,000 candies 0.20
5,000 candies 0.35
6,000 candies 0.20

What is the estimated demand for macapuno candies at the next basketball game using an expected value approach?
a. 4,000 candies b. 4,400 candies c. 5,000 candies d. 6,000 candies

7. The conditional profit per game of having 4,000 candies available but only selling 3,000 candies is
a. P 1,800 b. P 2,100 c. P 2,800 d. P 4,000

8. Raspberry Enterprises, distributor of compact disks (CDs), is developing its budgeted cost of goods sold for 2016.
Raspberry has developed the following range of sales estimates and associated probabilities:
Sales estimate Probability
P60,000 25%
85,000 40%
100,000 35%

Raspberry’s cost of goods sold averages 80% of sales. What is the expected value of Raspberry’s 2016 cost of goods sold?
a. P 67,200 b. P 68,000 c. P 84,000 d. P 85,000

9. The Pineapple Company produces its product in batches of 100 units. The units each batch are then tested. The results
from testing the most recent 200 batches are shown below:
Units Failed per Batch Number of Batches
0 50
1 40
2 40
3 30
4 40
5 or more 0
Total 200

What is the expected value of the number of failed units per batch?
a. 0 b. 1.85 c. 2.00 d. 13.33

10. The probabilities shown in the table represent the estimate of sales for a new product:
Sales (unit) Probability
0-200 15%
201-400 45%
401-600 25%
601-800 15%

What is the probability of selling between 201 and 600 units of the product?
a. 0% b. 11.25% c. 25% d. 70%

11. What is the best estimate of the expected sales of the new product? (Hint: compute average of range)
a. 380 b. 400 c. 480 d. 800

12. Cherry Distributors has decided to increase its daily muffin purchases of 100 boxes. A box of muffins costs P 2.00 and
sells for P 3.00 through regular stores. Any boxes not sold through regular store are sold through thrift store for P 1.00.
Cherry assigns the following probabilities to selling additional boxes.
Additional sales Probability
60 60%
100 40%

What is the expected value of Cherry’s decision to buy 100 additional boxes of muffins?
a. P 28 b. P 40 c. P 52 d. P 68
13. Mango Company uses two major inputs in its production. To prepare its manufacturing operations budget, the
company has to project the cost changes of these material inputs. The cost changes are independent of one another. The
purchasing department provides the following probabilities associated with projected cost changes:
Cost change Material 1 Material 2
3% increase 0.3 0.5
5% increase 0.5 0.4
10% increase 0.2 0.1

What is the probability of a 3% increase in the cost of both Material 1 and Material 2?
a. 15% b. 40% c. 80% d. 20%

14. Watermelon Company has three sales departments, each contributing the following percentages of total sales:
clothing, 50%; hardware, 30%; and grocery, 20%. Each department has had the following average annual damaged goods
rates: clothing, 2%; hardware, 10%; and grocery, 5%. A random corporate audit has found a weekly damaged goods rate
of sufficient magnitude to alarm Watermelon’s management. What is the probability that the damage occurred in the
clothing department?
a. 20% b. 25% c. 33.33% d. 60%

15. A wine maker must decide whether to harvest grapes now or in four weeks. Harvesting now will yield 100,000 bottles
of wine netting P 2 per bottle. If the wine maker waits and the weather turns cold (probability: 20%), the yield will be cut
in half but net P 3 per bottle. If the weather does not turn cold, the yield will depend on rain. With rain (probability: 50%),
a full yield netting P 4 per bottle will result. Without rain, there will still be a full 100,000 yield, but the net will be only P
3 per bottle. What is the optimal expected value?
a. P 200,000 b. P 310,000 c. P 350,000 d. P 400,000

16. A contractor has been invited to submit a bid on a large and complicated construction project. The preparation of the
bid proposal will cost about P 20,000. Management feels that if the company bids low, enough to result in a net profit of
P 50,000, there would be a 60% chance of getting the job. If the company bids high, enough to result in a P 100,000 net
profit, the chance of getting the contract would be only 20%. What should the company do?
a. Bid low, enough to allow for P 50,000 profit since the expected value of payoff is P 22,000.
b. Bid high, enough to allow for a P 100,000 profit since the expected value of payoff is P 4,000.
c. Bid high, enough to allow for a P 100,000 profit since the expected value of payoff is P 20,000.
d. Make no bid.

17. A beverage stand can sell either soft drinks or coffee on any given day. If the stand sells soft drinks and the weather is
hot, it will make P 2,500; if the weather is cold, the profit will be P 1,000. If the stand sells coffee and the weather is hot,
it will make P 1,900; if the weather is cold, the profit will be P 2,000. The probability of cold weather on a given day at
this time is 60%.

What is the expected payoff for selling coffee?

a. P 1,360 b. P 1,960 c. P 2,200 d. P 3,900

18. What is the expected payoff if the vendor has perfect information?
a. P 1,360 b. P 1,960 c. P 2,200 d. P 3,900

19. A particular manufacturing job is subject to an estimated 90% learning curve. The first unit required 50 labor hours to
complete. What is the cumulative average time per unit after four units are completed?
a. 50 hours b. 45 hours c. 40.5 hours d. 40 hours

20. The following information on the utilization of a new software package was collected:
Number of tasks Total time to perform all tasks Average time to perform each task
1 10 minutes 10 minutes
2 18 minutes 9 minutes
4 32.4 minutes 8.1 minutes

If the learning effect continues, what is the average time to perform each of the first eight (8) tasks?
a. 6.83 minutes c. 7.75 minutes
b. 7.29 minutes d. 8.10 minutes

21. Mango Company manufactured the first batch of product in 10 hours. The second batch took an additional 6 hours.
What percentage learning occurred?
a. 100% b. 90% c. 80% d. 60%

22. A company made the first batch of a new product in 100 hours. At an 80% learning rate, the total time for the first four
batches is
a. 400 hours b. 320 hours c. 256 hours d. 204.8 hours
23. Orange 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. 45 hours

24. The average labor cost per unit for the first batch produced by a new process is P 120. The cumulative average labor
cost after the second batch is P 72 per product. Using a batch size of 100 and assuming the learning curve continues, the
total labor cost of four batches will be
a. P 4,320 b. P 10,368 c. P 2,592 d. P 17,280

25. Kiwi Company used 30 hours to produce the first batch of units. The second batch took an additional 18 hours. How
many hours will the first four batches require?
a. 48 hours c. 96.2 hours
b. 76.8 hours d. 120.0 hours

26. Fruit Point Manufacturing recently completed and sold an order of 50 units that had the following costs:
Direct materials P1,500
Direct labor 8,500
Variable overhead 4,000*
Fixed overhead 1,400**
Total P15,400

*Applied on the basis of direct labor hours

**Applied at the rate of 10% of variable cost
The company has been requested to prepare a bid for 350 units of the same product

If an 80% learning curve is applied, what is the total cost on the bid-order for 350 units?
a. P 26,400 c. P 37,950
b. P 31,790 d. P 54,120

27. Guava Co. uses the following model to determine its product mix for metal (M) and scrap metal (S):
Max Z = P 30 M + P 70 S If: #M + 2S ≤ 15, 2M + 4S ≤ 18, M & S are non-negative values

The two inequality functions are

a. Contributions c. Conditions
b. Shadow prices d. Constraints

28. Strawberry Company manufactures two models, small and large. Each model is processed as follows:
Machining Polishing
Small (X) 2 hours 1 hour
Large (Y) 4 hours 3 hours

The available time for processing the two models is 100 hours a week in the Machining Department and 90 hours a week
in the Polishing Department. The contribution margin expected is P 5 for the small model and P 7 for the large model.

How would the objective function be expressed?

a. 5 X + 7 Y c. 5 X (3) + 7 Y (7) ≤ 190
b. 5 X + 7 Y ≤ 190 d. 12 X + 10 Y

29. How would the restriction (constraint) for the Machining Department be expressed?
a. 2 X + 4 Y c. 2 X + 4 Y ≤ 100
b. 2 (5 X) + 4 (7 Y) d. 5 X + 7 Y ≤ 100

30. Durian Manufacturing intends to produce two products, X and Y. Product X requires six hours of time on machine 1
and twelve hours of time on machine 2. Product Y requires four hours of time on machine 1 and no time on machine 2.
Both machines are available for twenty-four hours. Assuming that the objective function of the total contribution margin
is 2X + 1Y, what product mix will produce the maximum profit?
a. No units of product X and six units of product Y c. Two units of product X and three units of product Y
b. One unit of product X and four units of product Y d. Four units of product X and no units of product Y

31. Lemon Company makes only two products with the following two production constraints representing two machines
and their maximum availability: 2X + 3Y ≤ 18; 2X + Y ≤ 10.

If the profit equation is Z = 4 X + 2Y, then what is the maximum possible profit?
a. P 18 b. P 20 c. P 21 d. P 24