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CHIANG KAI SHEK COLLEGE NAME 2 SCORE COURSE/YEAR Multiple Choice. Choose the best answer. Write your letter choice in CAPITAL LETTER in the answer sheet provided above. No erasures allowed. 1. A company uses two major material 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 The probability that there will be a 3% increase in the cost of both Material 1 and Material 2 is (E) A. 15% C. 40% B. 20% D. 80% CIA 1194, 0597 2. Ryerson Company has three sales departments, each contributing the following percentages of total sales: clothing, 50%; hardware, 30%; and household sundries about 20%. In the past, the clothing, hardware, and household sundries department had error rates of about 2%, 5% and 2.5%. A random corporate audit has found a weekly damaged goods rate of sufficient magnitude to alarm Ryerson’s management. The probability (rounded) that this rate occurred in the clothing department is (M) A. 1% C. 33-1/3% B. 25% D. 50% CMA 1292 3. Sago Co. uses regression analysis to develop a model for predicting costs. Two different cost drivers (machine hours and direct materials weight) are under consideration as the independent variable. Relevant data were run on a computer using one of the standard regression programs, with the following results: Machine hours Direct materials weight Y intercept coefficient 2,500 4,600 B coefficient 5.0 2.6 R2 0.70 0.50 Quiz No. Which regression equation should be used? A. y = 2,500 + 3.5x B. y = 2,500 + 5.0x C. y = 4,600 + 1.3x D. y = 4,600 + 2.6x AICPA 1192 4. The results of regressing Y against X are as follows: Intercept Slope When the value of X is 10, the estimated value of Y is A. 6.78 C. 20.63 B. 8.05 D. 53.84 Coefficient 5.23 1.54 CMA 0408 5. Soft, Inc. has a target total labor cost of P3,600 for the first four batches of a product. Labor is paid P10 an hour. If Soft expects an 80% learning curve, how many hours should the first batch take? (D) A. 57.6 hours. C. 230.4 hours. B. 140.63 hours. D. 360 hours. Bobadilla 6. A manufacturing company required 800 direct labor hours to produce the first lot of four units of a new motor. Management believes that a 90% learning curve will be experienced over four lots of production. How many direct labor hours will be required to manufacture the next 12 units? A. 1,792 C. 2,016 B. 1,944 D. 2,160 CMA 0408 7. Hovland has estimated the first batch of product will take 40 hours to complete. A 90% learning curve is expected. If labor is paid $15 per hour, the target labor cost for 4 batches of product is (E) A. $600. C. $2,160. B. $1,944 D. $2,400 D, L & H 9e 8. The Webb Company's new process will be carried out in one department. The production process has an expected learning curve of 80%. The costs subject to the learning effect for the first batch produced by the process were $10,000. Using the simplest form of the learning function, the cumulative average cost after the sixteenth batch is: (E) A. $3,276.80 D. $8,000.00 B. $4,096.00 E. $10,000.00 C. $5,120.00 AICPA adapted Page 1 of 3 CHIANG KAI SHEK COLLEGE 9. BG plc has recently developed a new product. The nature of BG plc's work is repetitive, and it is usual for there to be an 80% learning effect when a new product is developed. The time taken for the first unit was 22 minutes. Assuming that an 80% learning effect applies, the time to be taken for the fourth unit is nearest to (D) A 9.91 minutes. D 15.45 minutes. B 9.97 minutes. E 17.60 minutes. C 14.08 minutes. CIMA 0503 10. Moss Point Manufacturing recently completed and sold an order of 50 units that had costs as shown in the below. Direct materials $1,500 Direct labor (1,000 hours X $8.50) 8,500 Variable overhead (1,000 hours x $4.00) *4,000 Fixed overhead **1,400 $15,400 * Applied on the basis of direct labor hours. ** Applied at the rate of 10% of variable cost. The company has now been requested to prepare a bid for 350 units of the same product. If an 80% learning curve is applicable, Moss Point’s total cost on this order would be estimated at (D) A. $26,400 C. $37,950 B. $31,790 D. $54,120 CMA, Adapted 11. Under frost-free conditions, Cal Cultivators expects its strawberry crop to have a $60,000 market value. An unprotected crop subject to frost has an expected market value of $40,000. If Cal protects the strawberries against frost, then the market value of the crop is still expected to be $60,000 under frost-free conditions and $90,000 if there is a frost. What must be the probability of a frost-free condition for Cal to be indifferent to spending $10,000 for frost protection? A. 0.200 C. 0.750 B. 0.667 D. 0.800 12. Kane Corp. estimates that it would incur a $100,000 cost to prepare a bid proposal. Kane estimates also that there would be an 80% chance of being awarded the contract if the bid is low enough to result in a net profit of $250,000. What is the expected value of the payoff? A. $0 C. $180,000 B. $150,000 D. $220,000 AICPA 0592 Quiz No. 2 13. The Teeners’ Club sells fresh hot cider at Recto football games. The frequency distribution of the demand for cups of hot cider per game is presented below: Unit sales volume Probability 10,000 0.10 20,000 0.15 30,000 0.15 40,000 0.40 50,000 0.20 The hot cider is sold for P35.00 a cup and the cost per cup is P20.00. Any unsold hot cider is discarded because it will spoil before the next game. What is the estimated demand for hot cider at the next football game if a deterministic approach based on the most likely outcome is used? A. 16,000 C. 40,000 B. 34,500 D. 50,000 Bobadilla 14. Pongo Company’s managers are attempting to value a piece of land that they own. One potential occurrence is that the old road that borders the land gets paved. Another possibility is that the road does not get paved. A third outcome is that the road might be destroyed and completed replaced by a new road. Based on the following future states of nature, their probabilities, and subsequent values of the land, what is the expected value of the land? Future States of Nature (SN) Probability SN 1: Current road gets paved 0.5 SN 2: Road does not get paved 0.4 SN 3: Current road destroyed and replaced with new road 0.1 Estimate of land value under each possible future state of nature: (E) Value if SN 1 $200,000 Value if SN 2 $100,000 Value if SN 3 $550,000 A. $133,333 C. $225,000 B. $195,000 D. $283,333 Gleim The next two questions are based on the following information. Gleim Poppin' Corn Co. has gross profits of $50 for each box of popcorn it sells. Poppin' Corn also has a $20 holding fee for each box of popcorn it does not sell, and a $25 loss of goodwill for every box of popcorn it is unable to provide to its customers. Managers are expecting to produce 1,000 boxes next month. Page 2 of 3 CHIANG KAI SHEK COLLEGE 15. What is Poppin' Corn's expected net profit if demand is predicted to be 950 boxes? A. $45,000 C. $46,500 B. $46,250 D. $47,500 16. What is Poppin' Corn's expected net profit if demand is predicted to be 1,100 boxes? A. 47,000 C. 48,000 B. 47,500 D. 50,000 17. Schippi Inc. is developing a new type of watch. The optimistic time to complete the project is 7 weeks, the most likely time is 13 weeks, and the pessimistic time is 16 weeks. Using PERT, how long is the expected duration of this activity? A. 6 weeks. C. 12.5 weeks. B. 7 weeks. D. 13 weeks. Gleim 18. California Building Corporation uses the critical path method to monitor construction jobs. The company is currently 2 weeks behind schedule on Job#181, which is subject to a $10,500-perweek completion penalty. Path A-B-C-F-G-H-I has a normal completion time of 20 weeks, and critical path A-D-E-F-G-H-I has a normal completion time of 22 weeks. The following activities can be crashed. Activities Cost to Crash – 1Week Cost to Crash – 2 Weeks BC $ 8,000 $15,000 DE 10,000 19,600 EF 8,800 19,500 California Building desires to reduce the normal completion time of Job#181 and, at the same time report the highest possible income for the year. California Building should crash (M) A. Activity BC 2 weeks. B. Activity EF 2 weeks. C. Activity BC 1 week and activity EF 1 week. D. Activity DE 1 week and activity EF 1 week. CMA 1288 2 Which item below would be part of a linear programming formulation of this problem? A. Maximize: Contribution < 4A + 5B. C. Subject to: 2.5A + 4B < 60. B. Subject to: A = 0. D. Subject to: 4A + 5B = 130. CIA 1191 20. ABC Craft Co. is evaluating the profitability of a new product. If the product becomes successful the present value of future cash flow (excluding investment) is estimated to be P3,000,000. If the product is not successful the present value of the condition is estimated at P500,000. The required investment is P1,500,000. What are the probabilities that would have to be assigned to the successful and not successful to be indifferent between the two actions – invest and do not invest? (M) RPCPA 1085 A. B. C. D. Successful 40% 45% 50% 60% Not successful 60% 55% 50% 40% Answer Sheet 1. A 6. A 11. D 16. B 2. C 7. B 12. C 17. C 3. B 8. B 13. C 18. D 4. C 9. B 14. B 19. C 5. B 10. D 15. C 20. A 19. The data below were gathered on two different machine centers and two products. Product Hours per Unit A B Hours Available Machine Center 1 2.5 4 60 Machine Center 2 6 3 70 Contribution per unit $4 $5 Quiz No. Page 3 of 3