2007 Institute of Chartered Financial Analysts of India

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2007 Institute of Chartered Financial Analysts of India
(ICFAI) University Politics M.B.A Business
Administration Operations Management-I (MB241):
Question paper
Marks are indicated against each question.
1. Achieving the production targets to meet the market demand is important for any
organization. Productivity can be improved by dividing the job into sub tasks and assigning
them to workers based on their skills and capabilities. This concept was adopted by
F.W.Taylor in his book —Principles of scientific management“. This concept is known as
(a) Hawthorne studies
(b) Scientific motion study of jobs
(c) Division of labor
(d) Scheduling techniques of employees
(e) Moving assembly line.
(1 mark)
2. A planning system that schedules the precise quantity of materials needed to make a
product is called
(a) Flexible scheduling
(b) Cycle time management
(c) Material requirements planning
(d) Economic order quantity
(e) Just-in-time management.
(1 mark)
3. The payback period for a project, with an initial investmen t of Rs.15 lakh, that is expected
to generate an income of Rs. 3 lakh per annum is
(a) 2 years
(b) 3 years
(c) 4 years
(d) 5 years
(e) 6 years.
(1 mark)
4. In a transportation problem with m origins and n number of destinations, the solution is
said to be feasible if the number of occupied cells in the transportation matrix are
(a) m x n
(b) m + n
(c) m œ n
(d) m + n œ 1
(e) m + n + 1.
(1 mark)
5. Which of the following is not an aspect of ”planning‘ with regard to the decisions and
activities of operations managers?
(a) Generate a master schedule of what products to make and when
(b) Decide upon production methods to use for each item
(c) Decide on the number of shifts and work hours
(d) Organize changes by incorporating new processes an d procedures
(e) Arrange supplier and subcontractor networks.
(1 mark)
6. A process chart provides macro view of the movement of components and sub assemb
lies of producing a product using certain symbols. Which of the following symbol will the
operations manager use to represent transportation activity in a process chart?
OPERATION: a main step, where the part,
material or product is usually modified or
changed
INSPECTION: indicates a check for quality or
quantity
TRANSPORT: the movement of workers,
materials or equipment
STORAGE: controlled storage in which
material is received into or issued from a store,
or an item is retained for reference purposes
DELAY or TEMPORARY STORAGE:
indicates a delay in the process, or an object
laid aside until required
7. An operation strategy is a high-level integrated plan for business effectiveness or
competitiveness.
Which of the following do es not constitute the key components of operations strategy?
(a) Designing the production system
(b) Facility planning
(c) Marketing
(d) Product/Service design and development
(e) Technology selection and process development.
(1 mark)
8. Which of the following issu es falls under the purview of operational decisions?
(a) Production and process design
(b) Determining the appropriate inventory level for various materials
(c) Assigning jobs and responsibilities to workers
(d) Vendor identification
(e) Facility location and layout.
(1 mark)
9. For a sports bike dealer, sales for the month averaged 300 units. The average increase in
sports bike sales was 40 units per month. In the fifth month 310 units were sold. Forecast
sales for the seventh a month, using the trend adjusted exponential smoothing method.
Take smoothing constants as = 0.2,
ß
= 0.17.
(a) 212
(b) 312
(c) 412
(d) 352
(e) 392.
(2 marks)
10. Walden, a toy manufacturing firm produces two varieties of dolls viz., Barbie Doll (B) and
Teddy Bear (T). The machine time to manufacture a Teddy Bear is 2 hrs whereas a Barbie can
be manufactured in 1 hr and the total available machine hours are 2000 hrs p er day. Each
type of doll requires 1 kg plastic and the supply of plastic per day is not more than 1500
kgs. Additionally the Teddy Bear requires 2 springs and only 600 springs are available per
day. If the firm makes a profit of Rs 30.00 on Barbie Doll and Rs 45.00 on Teddy Bear, then
how many of each doll should be produced per day in order to maximize the total profit.
Which of the following is the correct Linear Programming Problem (LPP) for the above
given information?
(a) Max Z = 30B + 45T; subject to constraints: B + 2T = 2000; B + T = 1500; T = 300
(b) Min Z = 30B + 45T; subject to con straints: B + 2T = 2000; B + T = 1500; T = 300
(c) Max Z = 30B + 45T; subject to constraints: B + 2T = 2000; B + T = 1500; T = 300
(d) Min Z = 30B + 45T; subject to con straints: B + 2T = 2000; B + T = 1500; T = 300
(e) Max Z = 45B + 30T; subject to constraints: B + 2T = 2000; B + T = 1500; T = 300.
(3 marks)
11. Which of the following statements are true concerning ”Product Flexibility‘?
I. It refers to the ability of the production system to quickly shift from producing one
product to another.
II. It is useful for production of custom designed products in small lots.
III. Equipment should be designed to meet the production requirements that are close to
the peak level of demand.
IV. Employees with multiple skills are usually required for this type of setup.
(a) Both (I) and (II) abov e
(b) Both (II) and (III) above
(c) (I), (II) and (III) above
(d) (I), (II) and (IV) above
(e) (II), (III) and (IV) above.
(1 mark)
12. PQR limited manufactures 1,00,000 units of certain component ”x‘. Fixed cost is
Rs.5,00,000 and variable cost per unit is Rs.10. Selling price per unit is Rs.25, then profit at
the output level of 80,000 units is
(a) Rs.5,50,000
(b) Rs.6,00,000
(c) Rs.6,50,000
(d) Rs.7,00,000
(e) Rs.7,50,000.
(2 marks)
13. Mr. Bob, the operations manager is doubtful about the workmen performance. He
instructed the supervisor to determine how much time an average worker takes to complete
a job under standard work conditions. The concept is known as
(a) Time measurement
(b) Work sampling
(c) Job analysis
(d) Work measurement
(e) Scheduling.
(1 mark)
14. Which of the following statements is not a condition to be satisfied for work
measurement?
(a) The worker should be an average performer
(b) The selected job should use different types of tools and materials
(c) The job should be measurable
(d) The job should have a definite start time
(e) The job should have a definite end time.
(1 mark)
15. Lakeside hospital has used 9-month, moving average forecasting method to predict
drug and surgical dressing inventory requirements. The actual demand for an item using the
previous moving average method is given below. Find the forecast for the month of July
using the exponential smoothing method.
( = 0.2)
Year 2006 2007
Month Oct Nov Dec Jan Feb Mar Apr May Jun
Demand 78 65 90 71 80 101 84 60 73
(a) 50 units
(b) 56 units
(c) 60 units
(d) 65 units
(e) 77 units.
17. Managers use different models for dev eloping a process layout. Which of the following
statements are
true concerning load distance model?
I. In load distance model templates are used to develop product and fixed position layouts.
II. The load distance model is used to minimize the material movemen t.
III. In load distance model generally the load is fixed .
IV. In lo ad distance mod el computerized relative allocation of facilities technique is used.
(a) Both (I) and (II) above
(b) Both (II) and (III) above
(c) (I), (II) and (III) above
(d) (I), (III) and (IV) above
(e) (II), (III) and (IV) above.
(1 mark)
18. Which of the following statements are not true?
I. Job identification describes the department, number of workers, reporting, authority, etc.
II. Job duties describe the duties and responsibilities.
III. Job specification describes the skills and qualifications.
IV. Job title describes the set of activities to be performed on jo b.
V. Job content specifies the purpose and responsibilities.
(a) Both (I) and (II) above
(b) Both (II) and (III) above
(c) Both (III) and (IV) above
(d) Both (IV) and (V) above
(e) (II), (III) and (IV) above.
(1 mark)
19. Operations management involves planning, organizing, controlling, directing and
coordinating all activities of production systems, which convert resources inputs into
products or services. Which of the following does not belong to controlling function?
(a) Inspect the quality levels
(b) Compare costs to budget
(c) Assign responsibility for every activity
(d) Encourage pride in performing as expected
(e) Compare inventory level to targets.
(1 mark)
20. The following information belongs to ABC co.
March April May June
Opening stock 523 160 380 29
Demand 15000 14600 15200 14800
Working days 23 24 22 23
Worker productivity = 39 units / day.
No. of workers = 14.
Shortage cost = Rs.3 per unit. Find shortage cost for the mo nth of May.
(a) Rs 8,424
(b) Rs 7,424
(c) Rs 6,424
(d) Rs 5,424
(e) Rs 4,424.
(2 marks)
21. Using the judgment and opinions of knowledgeable individuals to predict outcomes is
referred to as
(a) Time series analysis
(b) Substitution effect
(c) Quantitative forecasting
(d) Qualitative forecasting
(e) Regression modeling.
(1 mark)
22. Which of the following is not true in case of Point Rating technique?
(a) It is based on the ranking of various weighted factors that influence the choice of
location
(b) Locations are ranked by the appropriate weightages given to each factor
(c) Evaluation should be only quantitative and not qu alitative
(d) Implementation of this type of system requires careful ju dgment
(e) Location with highest score is considered superior.
(1 mark)
23. —A written statement explaining the objectives of a job, what the job ho lder actually
does, how he or she
actually does it, and under what conditions the job is performed“ is a definition of
(a) Job specification
(b) Job analysis
(c) Job description
(d) Job evaluation
(e) Job design.
(1 mark)
24. Operations managers are needed to consider several factors before choosing a
production process. Batch size and product variety are important factors influencing the
process design. Choose the correct statements from the following.
I. Product focused dedicated production system is suitable where variety of products are
manufactured in small batch sizes.
II. Process focused job shop system is more appropriate where product variety is not
significant and the batch size is relatively large.
III. Product focused dedicated production system is more suitable where product variety is
not significant and the batch size is relatively large.
IV. Process focused job shop system is suitable where variety of products are manufactured
in small batch sizes.
(a) Both (I) and (II) abov e
(b) Both (II) and (III) above
(c) Both (III) and (IV) above
(d) (I), (II) and (III) above
(e) (II), (III) and (IV) above.
(1 mark)
25. Ms. Sunitha, operations manager of Calco & Co is in the process of identifying
manpower requirements for the next one year. As per the classification of decisions in
operations management, in which of the following category do such decisions fall?
(a) Tactical decisions
(b) Facility planning
(c) Strategic decisions
(d) Job analysis
(e) Operational decisions.
(1 mark)
26. Two experienced managers have resisted the introduction of computerized exponential
smoothing system claiming that —their judgmental forecasts are much better than any
impersonal computer could do“. Their past record of prediction is given below
Week 1 2 3 4 5 6 7 8 9 10
Actual demand 400 420 420 300 380 500 560 440 500 480
Forecast
450 500 400 380 360 400 500 480 400 500
demand
Compute Mean Absolute Deviation (MAD) and the tracking signal for the given information.
(a) 57, 0.65
(b) 57, 0.53
(c) 65, 0.66
(d) 65, 0.78
(e) 72, 0.63.
(2 marks)
28. Organizations need to plan to make different type of products to satisfy the market
demand. The process
of combining individual products into a product group or product type is known as
(a) Master planning
(b) Operations planning
(c) Capacity planning
(d) Production planning
(e) Aggregate planning.
(1 mark)
29. In which of the following strategies of aggregate planning, current order commitments
are fulfilled in
the future, assuming customers are willing to wait for d elivery?
(a) Varying workforce size strategy
(b) Varying utilization of the workforce strategy
(c) Varying the size of inventory strategy
(d) Backorder strategy
(e) Subcontracting strategy.
(1 mark)
30. Which of the following are true with regard to inventory costs?
I. Suppliers provide discounts to their customers based on carrying cost.
II. If ”x ‘ is the unit price of an item and ”n‘ is the number of items purchased then ”nx‘ is the
total
purchasing cost.
III. Carrying cost also include opportunity costs.
IV. Carrying cost is expressed as a percentage of material cost.
(a) (I), (II) and (III) above
(b) (I), (III) and (IV) above
(c) (I), (II) and (IV) above
(d) (II), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
(1 mark)
31. CRAFT means
(a) Computerized Resource Analysis of Facility and Transportation
(b) Computerized Resource Allocation of Facility Technique
(c) Computerized Relative Allocation of Facilities Technique
(d) Centralized Relative Allocation of Facilities Technique
(e) Centralized Resource Allocation of Facilities Technique.
(1 mark)
32. Introduced in 1938 by Herman W. Lay, potato chips were named as ”Lays‘. Lays was the
first company that promoted potato chips on television and has gained significant market
share over subsequent entrants. Lays introduced Lays wavy, Lays masterpiece barbecue
flavor, Lays baked potato chips, Lays kettle extra crunch, Lays chat street, Lays tomato tango
etc. in the market. The speed of product introduction of Lays was dependant on flexibility
and adaptability of its process focused production system which gained advantage of the
untapped market demand. Which of the following operations strategy did the company
adopt as a competitive weapon?
(a) Quality
(b) Shorter product cycle
(c) Low cost Process
(d) Convenience and location
(e) Facility size.
(2 marks)
33. Months Jan Feb Mar Apr May Jun
Demand 400 500 460 570 600 550
From the above data, forecast the demand for July by simple moving average method.
Using moving averages for 3 months.
(a) 450
(b) 573
(c) 600
(d) 650
(e) 670.
(1 mark)
35. Mr. David was asked to critically examine and define the following activities for a
research scientist. Mr. David had to submit a report consisting of details regarding duties,
responsibilities, tasks, lab, equipment, electronic items, computers, qualification, experience,
analytical skills, vision, training and health. Identify which of the following is being prepared
by Mr. David?
(a) Job specification
(b) Job description
(c) Job content
(d) Job analysis
(e) Job identification.
(1 mark)
36. Dexter Ltd. procured automatic drilling machines. It was observed that under normal
working conditions an average worker takes 3 min 42 sec for a unit output. 3 min 42 sec is
referred to as
(a) Normal time
(b) Work standard
(c) Drilling time
(d) Work sample
(e) Employee self time.
(1 mark)
37. Due to increase in cost of components and unsatisfactory quality of the components,
Adlabs Ltd. Is planning to expand the ownership of the production and distribution chain,
towards the source of supplies. Which of the following is being implemented by Adlabs
Ltd.?
(a) Modernization and expansion
(b) Horizontal integration
(c) Forward integration
(d) Backward integration
(e) Cellular manufacturing.
(1 mark)
38. Onida, started by Mr. G.L. Mirchandani and Mr. Vijay Mansukhan in 1981 in Mumbai,
emerged as market leader for color television. But in past few years, it almost disappeared
from the market. Onida once again establishing itself, extended its product length by
introducing household appliances and latest technology TV‘s. For launching Poison LCD and
Plasma TV, Onida is analyzing market demand. Data available to Onida is historical data,
seasonal data and most recent data. The operations manager Mr. Jaideep used the
weighted moving average method for demand forecasting. Which of the following
best explains Mr. Jaideep‘s choice for forecasting method?
(a) To give more weightage to historical data as the company was not doing well in the past
(b) Equal weightage to all data available for understanding the environment underlying and
surrounding the forecast
(c) To focus on recent data more than older d ata for overcoming the current challen ges
faced by the company
(d) Because it is influenced by variables which establish functional relationship
(e) To give more weightage for seasonal data as the demand for the product is seasonal.
(2 marks)
39. Identifying what work must be performed, how it will be performed, where it is to be
performed and who will perform is known as
(a) Human resource planning
(b) Division of labour
(c) Organization structure and design
(d) Job design
(e) Time study.
(1 mark)
40. Which of the following layout is also known as functional layout or job -shop layout,
involving grouping
of all similar equipment or functions?
(a) Process layout
(b) Product layout
(c) Grouping technology layout
(d) Fixed position layout
(e) Hybrid layout.
(1 mark)
41. The workmen in metal section comp lain ed that the material was too heavy to lift as
proper lifting
machines were not available. Which of the following situation is highlighted in the given
example?
(a) Economic infeasibility of Job design
(b) Job content is not properly defined
(c) Technical infeasibility of Job design
(d) Job description is not properly explained
(e) Job design is behaviorally not feasible.
(1 mark)
42. Which of the following shows the percentage of time an employee or equipment was
occupied or idle?
(a) Performance measurement
(b) Predetermined motion study
(c) Time study
(d) Ratio delay
(e) Historical Analysis.
(1 mark)
43. Blue Star Ltd wishes to forecast the demand for four quarters of the next financial year,
of refrigerators. Actual and forecasted demand for current year is given in the table below:
Quarter I II III IV
Forecast 126 198 150 185
Actual 96 176 160 200
The Mean Absolute Percentage Error (MAPE) for the above data is
(a) 12.40 %
(b) 13.40 %
(c) 14.40 %
(d) 15.40 %
(e) 16.40 %.
44. Which of the following is a disadvantage of ”varying utilization o f workforce‘ as the
strategy for aggregate planning?
(a) Hiring costs
(b) Lay-off costs
(c) Overtime costs
(d) Materials handling costs
(e) Stockout costs.
(1 mark)
45. Which of the following is not true for the simplex method of linear programming
problem for maximization of the objective function?
(a) The algorithm for simplex method is iterative in nature
(b) The value of the constraint in the right-hand side of each of the constraints should be
non-negative
(c) Each of the decision variables of the problem should be non-negative
(d) The algorithm detects whether the problem is infeasible, is unbounded or has multiple
optima
(e) The algorithm is not suitable when there are more than two decision variables.
(1 mark)
46. Which of the following is not true for ”centralized purchasing system‘?
(a) All the purchasing activities are carried out by a separate department
(b) The benefits of bulk purchasing can be realized
(c) The individual departments are flexible to alter its purchasing policy on the basis of
specific requirements
(d) Uniformity in maintaining purchase records
(e) It is more effective for an organization which is having a number of production sites.
(1 mark)
47. Washing machine company is setting its production target for the month of July. Actual
and forecasted demand for last four months is as follows:
(in units)
Month March April May June
Forecast 40 35 45 65
Actual 30 38 37 52
The mean square error (MSE) of the above data is
(a) 80.5
(b) 85.5
(c) 87.5
(d) 95.5
(e) 97.5.
(2 marks)
48. Which of the following statements is false with respect to Inventory Systems?
(a) In fixed order quantity inventory system, inventory records are updated every time the
materials are added to or removed from inventory
(b) Demand for inventories over a period of time is assumed to be constant in fixed order
quantity inventory system
(c) Fixed order period inventory system has a lower average inventory compared to fixed
order quantity inventory system
(d) Orders are placed at equal intervals of time in fixed order period inventory system
(e) Fixed order period inventory system is more applicab le to systems such as retail stores.
(1 mark)
49. Which of the following is not true with regard to steps taken by operation s manager to
modify master production schedule to accommodate imbalances between the actual
production output and the actual market demand?
(a) Modifying the size or composition of the product or service temporarily
(b) Varying the inventory level accordingly with the demand for the product
(c) Developing load reports from the planned order releases
(d) Subcontracting the additional capacity requirements
(e) Altering the price of prod ucts to influence the deman d level.
50. Which of the following is not correct regarding Make-or-Buy An alysis?
(a) Purchase managers, with the assistance of production engineers, generally do a Makeor-buy analysis for materials
(b) It is made based on the break-even analysis
(c) The total cost of buying is equal to sum of fixed cost and unit variable cost times the
number of units demanded
(d) Break-even demand is the demand at which the total cost of making a product is equal
to the total cost of buying the product
(e) Managers use this analysis to determine if the purchase cost of a product from a supplier
is less than the production cost if the product was made in-hou se.
(1 mark)
51. Resource allocation problems can best be solved using which of the following?
(a) Linear programming
(b) Load charts
(c) Break-even analysis
(d) PERT network analysis
(e) Scenario planning.
(1 mark)
52. Organizations use different forecasting methods. In linear regression the relationship
between the variables is defined by a straight line equation. Which of the following
statement is true regarding the relationship of the variables?
(a) Dependent variable influences independent variable
(b) Independent variable influences dependent variable
(c) Independent variable and dependent variable influences each other
(d) Independent variable increase along with the dependent variable
(e) Independent variable decrease along with the dependent variable.
(1 mark)
53. Which of the following is the least likely decision to be made under Operatio ns
Management?
(a) Selecting the location and layout of a facility
(b) How to use quality techniques to reduce waste
(c) Designing and improving the jobs of the workforce
(d) How much capacity is required to balance demand
(e) Deciding which market segments to manufacture pro ducts for.
(1 mark)
55. In a time study th e cycle time is 2.50 minutes; worker performance rating is 75 percent,
average allowance is 15 percent of the job time. Calculate the standard time.
(a) 1.21
(b) 2.21
(c) 3.21
(d) 4.21
(e) 5.21.
(1 mark)
56. Demand for a product for the following four months is estimated as below:
Month March April May June
Demand 6000 4300 6400 5200
Working days 22 23 24 22
Worker productivity = 24 units / day.
No. of workers = 8.
What is the actu al production for the month of June?
(a) 4,224
(b) 4,600
(c) 4,800
(d) 5,000
(e) 6,000.
(2 marks)
57. The fixed cost is Rs.90,0 00 and variable cost per unit is Rs.15 and selling price Rs.20.
Break Even Point occurs at
(a) Rs.2,00,000
(b) Rs.2,40,000
(c) Rs.2,70,000
(d) Rs.3,00,000
(e) Rs.3,60,000.
(1 mark)
58. Which of the following is/are not occasion(s) when job analysis is generally undertaken?
I. When an employee is not performing the role adequately.
II. When a new job is created.
III. When a job is changed significantly as a result of new methods, new procedures, or new
technology.
IV. When the organization commences and the job analysis program is started.
(a) Only (I) above
(b) (I), (II) and (III) above
(c) (I), (II) and (IV) above
(d) (I), (III) and (IV) above
(e) (II), (III) and (IV) above.
(1 mark)
59. Which of the following is not a true assumption of Economic Order Quantity (EOQ)
model?
(a) The cost price of an item is dependent on the order quantity
(b) The cost of executing an order is fixed
(c) The total holding cost of inventories is proportion al to the quantities stored
(d) Demand for a product or its usage rate is constant over time
(e) Lead-time for material delivery is known with certainty.
(1 mark)
60. A forecast made by using exponential smoothing was found to be over-optimistic to the
most recent trends in demand. Which of the following is/are the most suitable corrective
action(s) possible to make the forecast more realistic?
I. Increase the value of .
II. Decrease the value of .
III. Shift to some other forecasting method.
IV. Ensure that remains constant.
(a) Only (I) above
(b) Only (II) above
(c) Only (III) above
(d) Only (IV) above
(e) Both (III) and (IV) above.
61. Value analysis involves the coordinated efforts of the engineering, production and
purchasing personnel and helps in reviewing purchase activities to ensure that expenditures
result in the receipt of appropriate value. Which of the following steps in the procedure of
value analysis precedes the others?
(a) Gather all information about the product design, costs, scrap rates etc.
(b) Evaluate the alternatives on criteria like cost and feasibility and eliminate the nonfeasible alternatives
(c) Examine all the products that are being reordered and identify each product needs and
improvements
(d) Form a team that includes experts from various functional areas that are related to the
functions performed by the material
(e) Refine the feasible alternatives and select the optimal alternative.
(1 mark)
62. An electronics company based in Korea is planning to launch a new product in Indian
market, assuming that no historical data is available to forecast the demand. Which of the
following forecasting methods will the company use for launching its new product?
(a) Historical analogy
(b) Delphi method
(c) Market research
(d) Executive committee consensus
(e) Nominal group technique.
(1 mark)
63. For a product the selling price, variable cost and fixed cost are Rs.45, Rs.40 and
Rs.1,00,000 respectively. At sales of Rs.11,25,0 00, the profit is
(a) Rs.25,000
(b) Rs.30,000
(c) Rs.40,000
(d) Rs.45,000
(e) Rs.50,000.
(2 marks)
64. The objective of using software was to reduce the costs associated with operations and
improve efficiency of the production system. Which of the following is specialized software
that is used for designing products and processes?
(a) Computer aided design
(b) Computer aided manufacturing
(c) Material requirement planning
(d) Automated storage and retrieval systems
(e) Flexible manufacturing system.
(1 mark)
65. In an inventory system the cost of placing an order is Rs. 100 per order. The annual
demand is 5000 units and the inventory carrying cost charge 20% of th e value per year. The
item costs Rs.75 each. Find the Economic Order Quantity (EOQ).
(a) 238 units
(b) 248 units
(c) 258 units
(d) 268 units
(e) 278 units.
(2 marks)
66. The purchase department is one of the key players in achieving the strategic objectives
of a firm. Which of the following is no t a responsibility of the purchase manager?
(a) Vendor development
(b) Selection of suppliers
(c) Value analysis
(d) Control the value chain activities
(e) Contract negotiation and communication interface.
(1 mark)
67. In fixed order quantity system the inventory is continuously checked and new order is
placed when the level of inventory reaches a certain point. This is known as
(a) Economic order quantity
(b) Reorder point
(c) Safety stock
(d) Break even point
(e) Lower inventory level.
(1 mark)
68. Which of the following planning activities is/are supplementary to the Master Production
Schedule (MPS)?
I. Materials requirement planning.
II. Capacity requirement planning.
III. Man-power requirement plan ning.
(a) Only (I) above
(b) Both (I) and (II) above
(c) Both (II) and (III) above
(d) Both (I) and (III) above
(e) All (I), (II) and (III) above.
(1 mark)
69. Operations managers must consider certain factors before selecting a method for
forecasting the future demand. Which of the following aspects is not considered while
selecting a forecasting system?
(a) Time
(b) Data availability
(c) Experience of personnel
(d) Cost
(e) Accuracy.
(1 mark)
70. Operations department plays a significant role in the initial stages of development of
new product. Which of the following steps in the development of new product precedes the
others?
(a) Prototype design
(b) Economic evaluation
(c) Feasibility studies
(d) Initial design of production model
(e) Market testing.
(1 mark)
71. Which of the following is a technique of setting work standards that uses the recorded
standard time data for each of the basic motions associated with performing a task and
summing them up to determine the time required to perform the whole task?
(a) Time study
(b) Work sampling
(c) Historical analysis
(d) Employees self-timing
(e) Predetermined motion time study.
(1 mark)
72. Which of the following statements is not true?
(a) Aggregate plans define how resources can be best employed to meet market demand
(b) The objective of an aggregate plan is to minimize production cost
(c) The objective of an aggregate plan is to improve profits
(d) Aggregate plans help for better customer service
(e) Aggregate plans are prepared from master production schedules.
(1 mark)
73. Firms maintain various types of inventory at various stages of the production process.
Which of the following is a reason for holding ”finished goods‘ as inventory
(a) Production of products as and when the customers demand them can be uneconomical
(b) Obtaining materials from suppliers exactly when needed for production schedules is not
always possible
(c) Quantity discounts can result from larger purchase quantities
(d) Unequal production rates of processing stations may result in process slow-down in the
absence of inventories
(e) Producing and transporting in larger batches reduce material handling and production
costs.
(1 mark)
74. Find the regression equation resulting from the values
x 70, y 90, xy 660, x 514 and n 10
=====
2
.
(a) Y = 0.45 + 1.25X
(b) Y = 0.35 + 3.25X
(c) Y = 0.25 + 1.25X
(d) Y = 1.25 + 0.25X
(e) Y = 0.25 + 2.25X.
(1 mark)
75. Organizations develop a set of rules and guidelines to ensure that their purchasing
personnel conduct business in an ethical manner, which of the following is an unethical
practice in buying?
(a) Keeping organization‘s interest in mind while purchasing
(b) Conducting all purchasing activities honestly and truthfully
(c) Selecting suppliers on merit
(d) Accepting free gifts from suppliers
(e) Completing all purchasing commitments on time.
(1 mark)
76. The planning division of a manufacturing organization wants to formulate its aggregate
output plan for the coming six months on the basis of historical data available with it. For
this purpose, which of the following models should it use?
(a) Linear Programming
(b) Linear Decision Rules
(c) Heuristic Model
(d) Computer Search Model
(e) Data Model.
(1 mark)
77. The manager of Redline Trucking comp any believes that the demand for tyres used on
his trucks is closely related to the number of miles driven. Accordingly, the following data
covering the past 6
months have been collected.
Month 1 2 3 4 5 6
Tyres used 100 150 120 80 90 180
Thousands of miles driven 1500 2000 1700 1100 1200 2700
If it is planned to drive 12,00,000 miles next month. Find the expected number of tyres that
will be used
by using least-squares method.
(a) 80
(b) 88
(c) 94
(d) 98
(e) 90.
(3 marks)
78. Which of the following statements is not true about vertical integration?
(a) It determines the extent to which the production and distribution chain can be b rought
under the ownership of the organization
(b) Always preferable, as there are no risks associated with it
(c) Relieves an organization from a part of its purchasing or marketing functions
(d) Results in an increase in profits due to centralized overheads
(e) Any organization can vertically integrate its activities in two ways forward and backward.
(1 mark)
79. If the idea is found to be both technically and economically feasible then a prototype of
the product is developed. Which the following statement(s) is/are true regarding
”prototype‘?
I. The prototype has all the features of final product.
II. The prototype is tested under standard conditions and defects are noted.
III. On the basis of tests, necessary changes are made in the prototype.
IV. Process of test is carried out until the performance of the prototype reaches satisfactory
level.
(a) Only (I) above
(b) Both (I) and (II) above
(c) Both (I) and (IV) above
(d) (I), (II) and (III) above
(e) (II), (III) and (IV) above.
(1 mark)
80. The doctor in charge of the surgical department wants the purchase manager to procure
some surgical scissors as early as possible. For this purpose, he has submitted a document
containing a clear specification of required materials, quantity required and probable date
of requirement. This document is referred to as
(a) Purchase order
(b) Purchase requisition
(c) Request for proposal
(d) Request for quotation
(e) Request for comments.
(1 mark)
81. Costs trade off for XYZ co. is given by the following diagram.
What is the Economic Order Quantity (EOQ) for the company ?
(a) 20,000 units
(b) 25,000 units
(c) 30,000 units
(d) 35,000 units
(e) 40,000 units.
(1 mark)
1 Answer : (c)
Reason : Division of job into subtasks and assigning them to workers based on their skills
and capabilities is
called Division of labor.
2 Answer : (c)
Reason : A planning system that schedules the precise quantity of materials needed to make
a product is called
Material requirement planning.
3 Answer : (d)
Reason : The payback period or the time taken to recover the initial investment
(Net investment)
15
(Net annual income from investment)
Pay back = = = 5 years.
4 Answer : (d)
Reason : The number of allocations should be equal to m + n œ 1 else the solution is
degenerated.
5 Answer : (e)
Reason : Arrange supplier and subcontractor network is an aspect of organizing activities of
operations manager.
All other alternatives are aspects of planning activity.
6 Answer : (c)
Reason :
Symbol Activity
Operation
Transport
Input
D Delay
Storage
7 Answer : (c)
Reason : Marketing is not a key component of operations strategy. All other options are key
components of operations strategy.
8 Answer : (c)
Reason : Operational Decisions are short-term decisions which are routinely taken and
generally have a time frame of less than a week. They address the problems at the grassroots level such as scheduling the weekly production, assigning jobs to persons etc.
Hence, from above discussion, we can infer that option (c) is correct.
Options (a) and (e) are incorrect because they fall under the purview of Strategic Decision.
Options (b) and (d) are incorrect because they fall under the purview of Tactical Decision
9 Answer : (c)
Reason : From the information given
Average sales A
= 300
Average increase in sales ( Average trend ) T
= 400
Demand for the 5th month D
= 3101
To forecast sales for the 6
th
month we will use the equation
A D (1 )(A T )
=a+-a+
ttt1t1
-T (A A ) (1 )(T )
=ß-+-ß
ttt1t1
-FAT
=+
t1tt
+
A5 =
0.2 (310) + (1 - 0.2) (300 + 40) = 62 + 0.8 (340) = 62+272 = 334
0.17 (334 - 300) + (1 œ 0.17) (40) = 5.78 + 33.2 = 38.98
T=
5
FAT
=+
= 334 + 38.98 = 372.98
655
Let us assume the sales for the month to be 373 units
A6 =
0.2 (373) + (1-0.2) (334 + 38.98)
= 74.6+ 298.38 = 372.98
T6 =
0.17 (372.98 - 334) + (1 œ 0.17) (38.98) = 6.52 + 32.35 =37.80
F7 =
˜
372.98 + 37.80 = 411.96 Units
412 units.
10 Answer : (c)
Reason : Step 1: Defining the decision variables
Let B be the number of dolls to be produced per day of type B (Barbie Doll)
Let T be the number of dolls to be produced per day of type T (Teddy Bear)
Step 2: Formulation of constraints
a. Time constraint :
Since type B requires 1hr machine time and type T requires 2 hrs of the machine time we
have 1B = 2T and this total should not exceed 2000 machine hrs. Thus,
B + 2T = 2000
b. Plastic requirement:
The total supply of plastic should not exceed 1500. thus,
B + T = 1500
c. Spring constraint :
Only the type of doll T requires 2 springs and thus availability of spring is 600. Thus,
2T = 600
T = 300
The no. of dolls to be p roduced cannot be a negative value; it has to be zero or any positive
value. Thus,
B = 0, T = 0 (non negative constraint).
Formulation of objective function.
The objective function is to maximize total profit.
The profits are Rs. 30 and Rs. 45 respectively for doll B and d oll T
Let Z denote profit. Thus,
Max Z = 30B + 45T
Subject to constraints: B + 2T = 2000
B + T = 1500
T = 300.
11 Answer : (d)
Reason : Product Flexibility refers to the ability of the production system to quickly shift
from producing one
product to another. Some business strategies call for production of custom designed
products in small
lots. To produce different products in small lots, general-purpose equipment are usually
required
Following statements are true with regard to Product Flexibility:
I. It refers to the ability of the production system to quickly shift from producing one
product
to another.
II. It is useful for production of custom designed products in small lots.
IV. Employees with multiple skills are usually required for this type of setup.
Hence, from abov e discussion, we can infer that Statement (III) is not true regarding
Product Flexibility.
Equipment should be designed to meet the production requirements that are close to the
peak level of
demand is a volume flexib ility concept.
12 Answer : (d)
Reason :
Fixed Cost = 5,00,000
Variable Cost = 10 þ 80,000 = 8,00,000
7/31/2007
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Total Cost = 13,00,000
Revenue = 25 þ 80,000 = Rs.20,00,000
Profit = Revenue œ Total Cost
= 20,00,000 œ 13,00,000 = Rs 7,00,000.
13 Answer : (d)
Reason : Work measurement is the process of identifying time standards for a job. It is
determining how much
time an average worker takes to complete a job under n ormal work conditions.
14 Answer : (b)
Reason : In work measurement the selected job should be standardized. The job should use
standard tools and
materials. Then only it is po ssible to estimate time standard. When the job is using d
ifferent tools and
materials different times will be observed. It is not possible to get time standard.
15 Answer : (e)
++++++++
x
78 65 90 71 80 101 84 60 73
No.of periods
Reason : Mean Average = = = 78
9
Let us assume the previous forecast was F
= 78, given = 0.2
t-1
For the month of July F
=F
+ (A
+F
) = 78 + 0.2 (73-78) = 77 units.
t
t-1
t-1
t-1
16 Answer : (b)
Reason : S
is the key row with minimum ratio 150.
2
X
is the key column.
1
2 is the key element.
S
is the departing variable.
2
17 Answer : (b)
Reason : Following are true concerning load distance model:
II. The load distance model is used to minimize the material movement.
III. In lo ad distance mod el generally the load is fixed.
18 Answer : (d)
Reason : Following statements are false
IV. Job title describes the set of activities to be performed on job. As Job title describes the
purpose
and responsibilities.
V. Job content specifies the purpose and responsibilities. As Job content specifies the set of
activities
to be performed on job.
Following statements are true:
I. Job identification describes the department, number of workers, reporting, authority, etc.
II. Job duties describe the duties and responsibilities.
III. Job specification describes the skills and qualifications.
19 Answer : (c)
Reason : Assign responsibility for every activity belongs to the function of organizing.
a, b, d and e belong to controlling function.
20 Answer : (a)
Reason : Actual production = (No. working days) x (No. of workers) x (Productivity per day)
= 22 x 14 x 39 = 12012.
Closing stock in May = opening stock + production œ demand
= 380 + 12012 œ 15200 =12392 œ 15200
= - 2808 ( shortage )
Shortage = 2808
Shortage cost = 2808 x Rs.3 = Rs.842 4 / 7/31/2007
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21 Answer : (d)
Reason : Using the judgment and opinions of knowledgeable individuals to predict
outcomes is referred to as
qualitative forecasting.
22 Answer : (c)
Reason : Point Rating technique is based on the ranking of various weighted factors that
influence the choice of
location. Here, evaluation should not only be quantitative, rather it should be more
qualitative as the
information required to make the decisions is often incomplete, and the prediction of the
future
conditions difficult.
Hence, from above discussion, we can infer that option (c) is not true in case of Poin t Rating
technique.
Option (a) is true because it is the definition of Point Rating technique.
Option (b) is true because lo cations are ranked by the appropriate weightages given to
each factor.
Option (d) is true because implementatio n of this type o f system requires careful
judgment.
Option (e) is true because location with highest score is considered superior.
23 Answer : (c)
Reason : Job description is a written statement exp laining the objectives of the job , why a
job exists, what the job
holder actually does, how he or she actually does it, and under what conditions the job is
performed.
24 Answer : (c)
Reason : The correct statements are as follows:
III. Product focused dedicated prod uctio n system is more suitable where product variety is
not
significant and the b atch size is relatively large.
IV. Process focused job shop system is suitable where variety of pro ducts are manufactured
in small
batch sizes.
25 Answer : (a)
Reason : The decisions which are having a time frame of one or two years are called Tactical
decisions.
Identifying manpower requirement is an example of tactical decisions.
26 Answer : (b)
Reason :
27 Answer : (d)
28 Answer : (e)
Reason : In aggregate plan individual products are combin ed together as a product g roup
and product type.
29 Answer : (d)
Reason : In Backorder strategy current order commitments are fulfilled in the future,
assuming customers are
willing to wait for delivery.
Varying the utilization of the workforce: - Under this strategy the company maintains stable
workforce
and the utilization of workforce varies according to the demand.
30 Answer : (d)
Reason : Following are true regarding inventory costs:
II. If ”x‘ is the unit price of an item and ”n‘ is the number of items purchased then ”nx‘ is the
total
purchasing cost.
III. Carrying cost also include opportunity costs.
IV. Carrying cost is expressed as a percentage of material cost.
I. Suppliers provide discounts to their customers based on purchasing cost not on carrying
cost.
31 Answer : (c)
Reason : CRAFT (Computerized Relative Allocation of Facilities Technique) is a compu
terized layout program
that finds a satisfactory layout by evaluating thousands of alternative layouts extremely
quickly.
32 Answer : (b)
Reason : Flexibility of the production system, the speed of the product introduction is
dependant on the flexibility and adaptability of the production system Lays due to its
”Shorter Product Cycle‘ and flexibility of production system was able to introduce product
line relatively quickly. Once the product was introduced and promoted for acceptance by
the market and gained a significant market share, it introduced its other product made the
customers to choose from variety so that the customers are not attracted to other
competitors and gave tough competition to the subsequent entrants.
33 Answer : (b)
Reason : Demand forecast for July ( F
)
7
Demand for (Apr + May + June)
=
3
570 600 550
++
=
3
= 573.33
34 Answer : (a)
Reason :
200 x 100 x 4000
+=
12
In simplex method the following variables are used additionally.
Variables Used in constraint
=
Artificial (dummy) = and
=
Surplus ( - s
)
1
=
Slack
=
In our question it is constraint. Hence a surplus variable (s
) is added with minus sign (deduction)
1
and an artificial variable (A
) is added.
1
200x
+ 100x
-s
+A
= 4000.
1
2
1
1
35 Answer : (d)
Reason : Job analysis is the investigation of the job content and all other information related
to job content.
Setting and defining all requirements which is stated in the question is part of job analysis.
36 Answer : (b)
Reason : The time consumed by an average worker, working at an average speed, to
perform a task under normal
operating conditions is known as time standard, work standard or simply standard.
37 Answer : (d)
Reason : Backward integration refers to the ownership of the production and distribu tion
chain backwards i.e.
towards so urce of supplies. Reducing the dependency on suppliers and pro ducing the
spares and
components to be used in the production by themselves.
38 Answer : (c)
Reason : In weighted moving average method the recent data influences the forecast more
than the older data as
more weightage is given to the most recent
39 Answer : (d)
Reason : Identifying what work must be performed, how it will be performed, where it is to
be performed and
who will perform it is known as Job design.
40 Answer : (a)
Reason : Process layout is also known as functional layout or job-shop layout, involving
grouping of all similar
equipment or functions.
41 Answer : (c)
Reason : The job design should be technically feasible.
Technical feasibility considerations are : - Convenient work load
Required machinery
Required equipment
Required training
In our question the workmen do not have proper lifting machines.
42 Answer : (d)
Reason : Ratio delay shows the percentage of time an employee or equipment was occupied
or idle.
43 Answer : (c)
MAPE = × 0.576
4
= 14.40 %.
44 Answer : (c)
Reason : Overtime costs are incurred when the strategy is to vary the utilization of the
workforce. Very high Hiring costs and Lay-off costs are incurred when the strategy is to vary
the workforce size in response to the output requirements.
Materials Handling costs are incurred when the strategy is to vary the size of inventory.
Stockout costs are incurred in case of a back-order strategy.
45 Answer : (e)
Reason : The algorithm is suitable for any number of decision variables. There is no
restriction for the number of
decision variables in simplex method.
46 Answer : (c)
Reason : The individual departments are flexible to alter its purchasing policy on the basis of
specific
requirements, belongs to decentralized purchasing system.
All other options belong to centralized purchasing system.
47 Answer : (b)
MSE = 1/4 × 342 = 85.5.
48 Answer : (c)
Reason : Fixed Order Period Inventory System, also known as Periodic or Fixed-Interval
System, is one in which managers review the inventory levels periodically and orders are
placed for materials in sufficient quantities. Orders are always placed at equal intervals of
time. Counting takes place only at the review period. Timing of the review is determined by
the estimates of demand during the entire perio d between the reviews. So Fixed Order
Period Inventory System has to protect against stockout during the review period. Hence, it
should ha ve a larger average inventory compared to Fixed Order Quantity Inventory System
as Fixed Order Quantity Inventory System does not have to ensure such a thing.
All the other statements are true for Fixed Order Quantity Inventory System and Fixed Order
Period Inventory System.
49 Answer : (c)
Reason : Developing load reports from the planned order releases belongs to the sequential
steps in the MPS process The Master Production Schedule specifies the type and volume of
each product that is to be produced over the planning horizon. It is used to schedule the
various stages of production, depending on the typeof operation.
Master Production Scheduling is generally based on the results of demand forecasts. These
results are not always accurate and the actual production output is not always the same as
the actual market demand. To accommodate these imbalances, operations manag ers
modify the Master Production Schedule using the following tactics:
1. By modifying the size or composition of the product or service temporarily.
2. By allowing the levels of inventory to increase when the demand for the pro duct is low
and to decrease when the demand is higher.
3. By deferring routine maintenance and allotting the saved labour for manufacturing
purposes.
4. By sharing the responsibilities with a subcontractor.
5. By altering the prices of products to influence the demand level.
50 Answer : (c)
51 Answer : (a)
Reason : Linear Programming is used to allocate scarce resources to strategic alternatives
when the costs of
various resources are linear functions of their qu antities.
52 Answer : (b)
Reason : In linear regression the relationship is defined by straight line equation.
Y = a + bX
Y --- Dependent variable.
X --- Independent variable.
Independent variable influences the depend ent variable.
53 Answer : (e)
Reason : Deciding which market segments to manufacture products for is least likely the
decision made under
operations management.
54 Answer : (c)
Reason: Th e number o f tasks for each workstation.
55 Answer : (b)
Reason : Average cycle time = 2.50 minutes
Performance rating = 75 % = 0.75
Normal time = Average cycle time x performance rating = 2.50 x 0.75 = 1.875
Available fraction = 1-0.15=0.8 5
Normal time
1.875
Standard time = = = 2.21
Available fraction
0.85
56 Answer : (a)
Reason : Actual production = (No. working days) x (No. of workers) x (Productivity per day)
= 22 x 8 x 24 = 4224
57 Answer : (e)
Fixed Cost Contribution per units
Reason : BEP = Contribution per unit = Selling price œ Variable cost = 20 œ 15 = Rs.5
90,000
BEP = = 18,000 units
5
BEP in Revenues = 18,000 x 20
= Rs.3,60,000
58 Answer : (a)
Reason : When an employee is not performing their ro le adequately job analysis is not
done. For all other
occasions‘ job analysis can be performed.
59 Answer : (a)
Reason : The cost price of an item is independent of the order quantity so that there are no
economies of scale
involved in the purchase of materials.
60 Answer : (b)
Reason : Over reacting to the most recent demand implies that the demand forecasted is
very optimistic. Therefore
to reduce the forecasted demand, the value of should be reduced.
61 Answer : (c)
Reason : The step -by- step procedure of value analysis is :
Examine all the products that are being reordered and identify each product needs and
improvements
Gather all information about the product design, costs, scrap rates etc.
•
Form a team that includes experts from various functional areas that are related to the
functions
performed by the material
•
Generate all alternatives by generating new ideas and evaluate different ways of
accomplishing the
tasks
•
Evaluate the alternatives on criteria like cost and feasibility and eliminate the non- feasible
alternatives
•
Refine the feasible alternatives and select the optimal alternative.
62 Answer : (b)
Reason : Delphi Method: Effective method when launching a new product. The Delphi
method brings together the
expertise of many functional domain experts who have good understanding of the market
characteristics
and consumer behavior. They can give the organization a good estimate on the future
demand of the
product.
63 Answer : (a)
Reason : Sales = 11,25,000
11, 25, 000 25, 000
In units =
45 =
Sales 11,25,000
Variable cost
(25,000 þ 40) 10,00,000
Contribution 1,25,000
Fixed cost 1,00,000
Profit 25,000
64 Answer : (a)
Reason : Computer aided design (CAD) is a technique for specifying designing,
implementing, introducing and
using computer based systems for design purposes. It makes use of computer systems (also
known as
CAD system) to assist in the creation, modification, analysis and optimization of a design .
Computer aided manufacturing (CAM) is a method of automation wherein computers are
used either
directly to control the processing equipment or indirectly to support manufacturing
operations. The
machines usually perform a variety of operations, receiving instructions from the computer
on the
sequence and specifications o f its operations.
Flexible manufacturing System (FMS) is a form of flexible automation in which several
machine tools
are linked together by a material-handling system, with a central computer controlling all
aspects of the
system. This system is generally used to produce a variety of parts that have similar
processing
requirements.
AR/RS is a computer controlled warehouse system that automates inflow and outflow of the
materials
from the warehouse and shopfloor on the basis of prod uction requirements.
Material requirement planning sy stems were used for planning and controlling operations
65 Answer : (c)
Reason: Annual demand A = 5000
Ordering cost per order O = 100
Carrying charge = 20% on cost of each item
= 20% on 75 = 75 x 20/100 = 15
2 AO 2 5000 100
××
OQ 258.2
===
E = 258 units.
C 15
66 Answer : (d)
Reason : Following are responsibilities of the purchase manager:
•
Selection of suppliers
•
Vendor development
•
Value analysis
•
Contract negotiation and communication interface.
67 Answer : (b)
Reason : Reorder point:- In fixed order qu antity system inventory is continuously checked
and new order placed
when the quantity reaches a certain point, which is known as reorder point.
-
68 Answer : (b)
Reason : The master production scheduling process involves the planning of activities to
determine whether or
not an operation can achieve its production as stated in the MPS. Materials requirement
planning (MRP)
and capacity requirement planning (CRP) are the two supplementary planning activities
involved in this
process
69 Answer : (c)
Reason : The selection of a forecasting system depends on the time period for which
forecast is needed, the
amount and nature of data available and the cost and accuracy of the method.
70 Answer : (c)
Reason : The following are the important steps involved in the development of new
products
•
Idea generation
•
Feasibility studies
•
Prototype design
•
Prototype testing
•
Initial design of production model
•
Economic evaluation
•
Market testing
•
Final design of product model.
71 Answer : (e)
Reason : Predetermined Motion Time Study is a technique of setting work standards that
uses the recorded
standard time data for each of th e basic motions associated with performing a task and
summing them up
to determine the time required to perform the whole task.
72 Answer : (e)
Reason : Master prod uction schedules are prepared from aggregate plans by disintegrating
the operations.
73 Answer : (a)
Reason : Production of products as and when the customers demand them can be
uneconomical, Prod ucts can be
shown to customers is a reason for holding finished g ood s as inventory
(b) and (c) are the reasons for holding non-materials as inventory
(d) and (e) are the reasons for holding semi-finished g ood s as inv entory.
74 Answer : (c)
x 70, y 90, xy 660, x 514 and n 10
=====
2
Reason :
n( xy) ( x)( y)
b n( x ) ( x )
=22
10 x 660 70 x 90
b 1.25
==
2
10x 514 70
a 9 7 x1.25
=a 0.25
=
Y = 0.25 + 1.25X
75 Answer : (d)
Reason : Accepting free gifts from suppliers is an unethical practice in buying.
Organizations develop a set of rules and guidelines to ensure that their purchasing
personnel conduct
business in an ethical manner. Some of these rules are:
•
Organizations interest should be kept in mind while purchasing
•
Selection of suppliers should be on merit
•
Purchasing activities should be conducted honestly and truthfully
•
All purchasing commitments should b e complete on time.
•
No undue favor should be taken from or given to suppliers
76 Answer : (c)
Reason : The organization should use Heuristic Model, as such a mo del is based on
historical aggregate planning
data available with it. Hence option (c) is the correct answer.
77 Answer: (b)
The expected number of tyres that will be used = 88.
78 Answer : (b)
Reason : This is not true for vertical integration. Vertical integration is not always preferable.
Decisions to produce components, instead o f buying them, may trap an organization into
using outdated technology. The economies of scale obtained by vertical integration can as
well be obtained by maintaining long term relationships with suppliers. Also, vertically
integrating an organization may diversify its activities so wide that it does not do anything
particularly well.
(a) This a true statement for vertical integration. By vertical integration, an operation
manager determines the extent to which the prod uction and distribution chain is brought
under the ownership of the organization. That is, the degree of vertical integration
determines how much of a product is to be produced by the organization, and how much is
to be bought from the suppliers.
(c) This is true for vertical integration. Vertical integration relieves an organization from a
part of its purchasing and marketing functions. As the company integrates backward it
produces many of its raw materials and components themselves. Thus it eliminates many
purchasing activities. As the organization integrates forward, it stats selling its product
themselves so much of the marketing expenses incurred earlier is reduced.
(d) Th is is true for vertical integration. This can result in an increase in profits due to
centralized overheads, pooling of R&D an d design efforts, and economies of scale in
production. After vertically integrating a plan t has flexibility of production and it can
increase the level of production, which will provide it with economies of scale. They can
reduce the overhead by centralizing the many of the activities like R&D and design.
(e) This is a true statement for vertical integration. Any organization can vertically integrate
its activities in two ways: forward and backward. Forward integration is the expansion of
ownership of production to the distribution chain, towards the market. Backward integration
expands the ownership of the production and distribution chain backwards, i.e. towards the
source of supplies.
79 Answer : (e)
Reason : (I) is incorrect statement; Prototype does not have all the features of the final
product but has all basic characteristics of the product.
Following statements are true:
II. The pro totype is tested under standard conditions & defects are noted.
III. On the basis of tests, necessary changes are mad e in the prototype.
IV. Process of test is carried out until the performance of the prototype reaches
satisfactory level.
80 Answer : (b)
Reason : Purchase requisition is a document containing a clear specification of required
materials, quantity
required and probable date of requirement.
Hence, from above discussion, we can infer that option (b) is correct.
Purchase order is a legal document that authorizes the supplier to produ ce the goods.
Hence, it is not
applicable here.
Request for proposal is a request for bids that indicates the specifications for a software
project or other
system needs. Hence, it is not applicable here.
Quotation is a document given by the suppliers, in which they quote the price per unit of
material, the
delivery schedule, the mod e of transportation and special conditions of the supplier, if any.
Hence, it is
not applicable here.
Request for Comments (RFC) is a set of technical and organizational notes about the
Internet
(originally the ARPANET), beginning in 1969. Hence, it is not applicable here.
81 Answer : (b)
Reason : Economic order quantity: - The quantity for which the total annual cost is
minimum.
From the graph the total annual cost is minimum at = 25
EOQ = 25,00 0 units.
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