Model test paper
Problem1(a)
Explain Delphi Model .
Solution
The Delphi Method seeks to aggregate opinions from a diverse set of experts, and can be done
without having to bring everyone together for a physical meeting. Because the responses of the
participants are anonymous, individual panelists don't have to worry about repercussions for
their opinions. Consensus can be reached over time as opinions are swayed.
Problem 1(b)
Forecasts based on averages. Given the following data:
Prepare a forecast for period 6 using each of these approaches:
1.
2.
3.
4.
The appropriate naive approach.
A three-period moving average.
A weighted average using weights of .50 (most recent), .30, and .20.
Exponential smoothing with a smoothing constant of .40.
Solution
Step by Step
1. Study the data to see if there is a pattern. Variations around an average (i.e., no trend or
cycles). Therefore, the most recent value of the series becomes the next forecast: 64.
2. Use the latest values.
3. F = .20(55) + .30(58) + .50(64) = 60.4
4. Start with period 2. Use the data in period 1 as the forecast for period 2, and then use
exponential smoothing for successive forecasts.
Problem 1(c)
Define Productivity.
Solution
Productivity is the ratio of output to inputs in production; it is an average measure of the efficiency of
production. Efficiency of production means production’s capability to create incomes which is measured
by the formula real output value minus real input value.
Problem 1(d)
Difference between mass& batch Production ?
Solution
Mass Production - Production of a particular component or product in a production system that can
handle large volume of production but with very little to no variety in the design of the component or
product. For example, an automobile ancillary can produce the tie rod of a particular model of car of a
specific manufacturer but the volume would be as much as 500,000 per annum. Typically special
purpose machine tools with hard (mechanical non-programmable) automation are used.
Batch Production - Production of similar components or product (say the gear box of different medium
sized cars of different car manufacturer) in moderate volume but with moderate variety in the
component or product. All are gear boxes. but their exact dimensional design would be very different
depending on manufacturer. For example, an automobile ancillary can produce 15 different gear boxes
of mid-size cars but with a volume of only 30,000 per annum per gear box (but note that there are 15
different gear boxes). Typically CNC machine tools are used in flexible manufacturing systems for
production
Problem 1(e)
Define EOQ.
Solution
An inventory-related equation that determines the optimum order quantity that a company should
hold in its inventory given a set cost of production, demand rate and other variables. This is done
to minimize variable inventory costs. The full equation is as follows:
where :
S = Setup costs
D = Demand rate
P = Production cost
I = Interest rate (considered an opportunity cost, so the risk-free rate can be used)
Problem 1(f)
Explain Breakeven Analysis.
Solution
An analysis to determine the point at which revenue received equals the costs associated with receiving
the revenue. Break-even analysis calculates what is known as a margin of safety, the amount that
revenues exceed the break-even point. This is the amount that revenues can fall while still staying above
the break-even point.
Problem 1(g)
Explain Plant layout.
Solution
A plant layout study is an engineering study used to analyze different physical configurations for an
manufacturing plant.
Plant layout improvement, could be one of the tools to response to increasing industrial productivity.
Plant layout design has become a fundamental basis of today’s industrial plants which can influence
parts of work efficiency. It is needed to appropriately plan and position employees, materials, machines,
equipments, and other manufacturing supports and facilities to create the most effective plant layout.
Problem 1(h)
Difference between line &Staff organization.
Solution
Staff and line are names given to different types of functions in organizations. A "line function" is one
that directly advances an organization in its core work. This always includes production and sales, and
sometimes also marketing.[1] A "staff function" supports the organization with specialized advisory and
support functions. For example, human resources, accounting, public relations and the legal department
are generally considered to be staff functions.[2] Both terms originated in the military.
Problem 1(i)
Define prime cost & factory cost.
Solution
Prime cost is a subset of Factory cost. Prime cost consist of Direct material, Direct labour and Direct
expenses.
Factory cost = Prime cost + Production Overhead
Problem 1(j)
In which circumstances, does BEP change?
Solution


Increase/decrease in volume of sales
Increase/decrease in sale price


Increase/decrease in fixed cost
Increase/decrease in variable cost
Problem 2
Using seasonal relatives. Apple’s Citrus Fruit Farm ships boxed fruit anywhere in the world.
Using the following information, a manager wants to forecast shipments for the first four months
of next year.
The monthly forecast equation being used is: Ft = 402 + 3t where
1. t0 =January of last year
2. Ft =Forecast of shipments for month t
Solution 2
1. Determine trend amounts for the first four months of next year: January, t = 24;
February, t = 25; etc. Thus,
FJan = 402 + 3(24) = 474
FFeb = 402 + 3(25) = 477
FMar = 402 + 3(26) = 480
FApr = 402 + 3(27) = 483
2. Multiply each monthly trend by the corresponding seasonal relative for that month.
Problem 3
A)What is break-even analysis. Why is it significant?
b)How is break-even point determined.
C)In which circumstances, does BEP change?
Solution 3
Ans a)Break-even analysis deals with the determination of the output size that can be had with
zero profit.



It is an important tool for profit planning.
It helps in make/buy decisions.
It is useful in decisions regarding replacement of machine.
Ans b) It lies at a point where the sum of fixed and variable costs = revenue from sale or in other
words,
Q = FC/(P – VC)
Ans c)




Increase/decrease in volume of sales
Increase/decrease in sale price
Increase/decrease in fixed cost
Increase/decrease in variable cost
Problem4 :
Find the BEP of production in terms of unit and in terms of value if the price of the
product is Rs 250 per unit; variable cost is Rs 150 per unit and the fixed cost is Rs
1,50,000.
Solution 4
In terms of unit:
BEP = FC/(SP – VC)
= 1,50,000/(250 – 150) =1,500 units
In terms of value:




BEP = FC/MC%
MC% = (SP – VC)/SP
= Rs (250 – 150)/ 250 = 0.40 = 40%
= Rs 1,50,000/0.40 = Rs 3,75,000
Problem 5
A long Beach Bank employs three loan officers, each working eight hours per day. Each officer
processes an average of five loans per day. The bank’s payroll cost for the officers is $820 per
day, and there is a daily overhead expense of $500.
a. Compute the labor productivity.
b. Compute the multifactor productivity, using loans per dollar cost as the measure.
The bank is considering the purchase of new computer software for the loan operation. The
software will enable each loan officer to process eight loans per day, although the overhead
expense will increase to $550.
c. Compute the new labor productivity.
d. Compute the new multifactor productivity.
e. Should the bank proceed with the purchase of the new software? Explain
Solution 5
Problem 6:
Assume you have a product with the following parameters:
Annual Demand = 360 units
Holding cost per year = $1.00 per unit
Order cost = $100 per order
What is the EOQ for this product?
Given the data from Problem, and assuming a 300-day work year, how many orders should be
processed per year? What is the expected time between orders.What is the total cost for the
inventory policy used in Problem ?
Based on the material from Problems , what would cost be if the demand was actually higher
than estimated (i.e., 500 units instead of 360 units), but the EOQ established in problem 3 above
is used? What will be the actual annual total cost?
Solution6
EOQ 
2* Demand *Order Cost

Holding cost
2*360*100
 72000  268.33 items
1
The EOQ model assumes any real quantity is feasible. The actual quantity ordered may need to
be an integer value and may be affected by packaging or other item characteristics. In the
following Problems an EOQ of 268 is assumed.
N
Demand 360

 1.34 orders per year
Q
268
T
Working days
 300 /1.34  224 days between orders
Expected number of orders
Demand *Order Cost (Quantity of Items) *(Holding Cost)

Q
2
360*100 268*1


 134  134  $268
268
2
TC 
Notice that at the EOQ Total Holding Cost and Total Ordering Cost are equal.
Demand *Order Cost (Quantity of Items) *(Holding Cost)

Q
2
500*100 268*1


 186.57  134  $320.57
268
2
TC 
Note that while demand was underestimated by nearly 50%, annual cost increases by only 20%
(320 / 268  120
. ) an illustration of the degree to which the EOQ model is relatively insensitive
to small errors in estimation of demand.
Problem7
What are various types of layout? Explain process layout with diagram?
Solution 7
Types of Layout
• Process • Product • Cellular • Fixed position • Hybrid (mixed)
Process Layout
• Used when the operations system must handle a wide variety of products in relatively small
volumes (i.e., flexibility is necessary)
• Designed to facilitate processing items or providing services that present a variety of
processing requirements.
• The layouts include departments or other functional groupings in which similar kinds of
activities are performed.
• A manufacturing example of a process layout is the machine shop, which has separate
departments for milling, grinding, drilling, and so on.
Process-type layout
Characteristics of Process Layouts
• General-purpose equipment is used
• Changeover is rapid
• Material handling equipment is flexible
• Operators are highly skilled
• Technical supervision is required
• Planning, scheduling and controlling functions arechallenging
• Production time is relatively long
• In-process inventory is relatively high
Advantages:
1. In process layout machines are better utilized and fewer machines are required.
2. Flexibility of equipment and personnel is possible in process layout.
3. Lower investment on account of comparatively less number of machines and lower
cost of general purpose machines.
4. The diversity of tasks and variety of job makes the job challenging and interesting.
5. Supervisors will become highly knowledgeable about the functions under their
department.
Limitations
1. Backtracking and long movements may occur in the handling of materials thus, reducing
material handling efficiency.
2. Material handling cannot be mechanised which adds to cost.
3. Process time is prolonged which reduce the inventory turnover and increases the in-process
inventory.
4. Lowered productivity due to number of set-ups.
5. Throughput (time gap between in and out in the process) time is longer
Problem8
What are the objective & procedure of method study?
Solution 8
Objectives
The objectives of method study can be :
-The improvement of processes and procedures.
-The improvement of factory,shop and workplace layout.
- The improvement of the design of plant and equipment.
-Economy in human effort and the reduction of unnecessary fatigue.
-Improvements in the use of materials, machines and manpower.
-The development of a better physical working environment.
-Improvement of quality of the products.
Method Study Procedure
This procedure involves seven basic steps as follows :
SELECT : the work to be studied
RECORD: all the relevant facts about the present method
EXAMINE : the facts critically and in ordered sequences, using the techniques best suited to the
purpose.
DEVELOP : the most practical, economic and effective method having due regard to all
contingent circumstances.
DEFINE: the new method so that it can always be identified
INSTALL. : the method as standard practice
MAINTAIN : the method by regular routine checks.It has been proved that the adoption of such
a procedure ensures that no significant point is overlooked and helps in achieving maximum
possible results.
Problem 9:
Carolyn Barrett, a marketing surveyor, takes an average of 10 minutes to complete a particular
questionnaire. Carolyn’s performance rating (pace) is 110% and there is an allowance of 15%.
What is the Normal time for completing this questionnaire?
What is the Standard time for completing this questionnaire?
Solution 9:
Normal time  (total time)(%working on this task)(rating)/(number of units produced)
 (10)(1.00)(1.10)/1  11 minutes
Standard time 
Total Normal time
11
11


 12.9 minutes
1-Allowance factor 1  0.15 .85
Problem 10
The two steps in preparing chocolate candy bars are molding and packaging. Personal fatigue
and delay allowances are set at 15%. The molding machine operator is rated at 110% and the
packer is rated at 80%. Observed times per batch are given below.
Observed Time in Minutes
Task
Molding
Packing
1
26
45
2
30
50
3
29
35
4
31
30
Determine the Normal and standard times for both tasks.
Solution 10
Task
Molding
Packing
1
26
45
Observed Times in Minutes
2
3
30
29
50
35
For Molding:
Average for the actual Molding cycle  29 minutes per batch
Normal time  (total time)(% working)(rating)/(number of units produced)
 (29)(1.00)(1.10) /1  31.9 minutes per batch
Standard time  (Normal time)/(1-Allowance)
 31.90 /(1  0.15)  37.5 minutes per batch
For Packing:
Average actual Packing time = 40 minutes
4
31
30
Normal time  (total time)(%working)(rating)/(number of units produced)
 (40)(1.00)(.80)  32 minutes per batch
Standard time  (Normal time)/(1-Allowance)
 (32)/(1  0.15)  37.6 minutes