FORECASTING

MGT613 Operation Management Solved MCQS Chapert 3b by William Stevenson

Forecasting
52. Forecasts based on judgment and opinion don't include
A. executive opinion
B. salesperson opinion
C. second opinions
D. customer surveys
E. Delphi methods
Second opinions generally refer to medical diagnoses, not demand forecasting.

53. In business, forecasts are the basis for:

A. capacity planning
B. budgeting
C. sales planning
D. production planning
E. all of the above
A wide variety of areas depend on forecasting.

54. Which of the following features would not generally be considered common to all forecasts?
A. Assumption of a stable underlying causal system.
B. Actual results will differ somewhat from predicted values.
C. Historical data is available on which to base the forecast.
D. Forecasts for groups of items tend to be more accurate than forecasts for individual items.
E. Accuracy decreases as the time horizon increases.
In some forecasting situations historical data are not available.

55. Which of the following is not a step in the forecasting process?

A. determine the purpose and level of detail required
B. eliminate all assumptions
C. establish a time horizon
D. select a forecasting model
E. monitor the forecast
We cannot eliminate all assumptions.

56. Minimizing the sum of the squared deviations around the line is called:
A. mean squared error technique
B. mean absolute deviation
C. double smoothing
D. least squares estimation
E. predictor regression
Least squares estimations minimizes the sum of squared deviations around the estimated regression
function.

57. The two general approaches to forecasting are:

A. mathematical and statistical
B. qualitative and quantitative
C. judgmental and qualitative
D. historical and associative
E. precise and approximation
Forecast approaches are either quantitative or qualitative.

58. Which of the following is not a type of judgmental forecasting?

A. executive opinions
B. sales force opinions
C. consumer surveys
D. the Delphi method
E. time series analysis
Time series analysis is a quantitative approach.

59. Accuracy in forecasting can be measured by:

A. MSE
B. MRP
C. MAPE
D. MTM
E. A & C
MSE is mean squared error; MAPE is mean absolute percent error.

60. Which of the following would be an advantage of using a sales force composite to develop a
demand forecast?
A. The sales staff is least affected by changing customer needs.
B. The sales force can easily distinguish between customer desires and probable actions.
C. The sales staff is often aware of customers' future plans.
D. Salespeople are least likely to be influenced by recent events.
E. Salespeople are least likely to be biased by sales quotas.
Members of the sales force should be the organization's tightest link with its customers.

61. Which phrase most closely describes the Delphi technique?

A. associative forecast
B. consumer survey
C. series of questionnaires
D. developed in India
E. historical data
The questionnaires are a way of fostering a consensus among divergent perspectives.

62. The forecasting method which uses anonymous questionnaires to achieve a consensus forecast is:
A. sales force opinions
B. consumer surveys
C. the Delphi method
D. time series analysis
E. executive opinions
Anonymity is important in Delphi efforts.

63. One reason for using the Delphi method in forecasting is to:
A. avoid premature consensus (bandwagon effect)
B. achieve a high degree of accuracy
C. maintain accountability and responsibility
D. be able to replicate results
E. prevent hurt feelings
A bandwagon can lead to popular but potentially inaccurate viewpoints to drown up other important
considerations.

64. Detecting non-randomness in errors can be done using:

A. MSEs
B. MAPs
C. Control Charts
D. Correlation Coefficients
E. Strategies
Control charts graphically depict the statistical behavior of forecast errors.

65. Gradual, long-term movement in time series data is called:

A. seasonal variation
B. cycles
C. irregular variation
D. trend
E. random variation
Trends move the time series in a long-term direction.

66. The primary difference between seasonality and cycles is:

A. the duration of the repeating patterns
B. the magnitude of the variation
C. the ability to attribute the pattern to a cause
D. the direction of the movement
E. there are only 4 seasons but 30 cycles
Seasons happen within time periods; cycles happen across multiple time periods.
67. Averaging techniques are useful for:
A. distinguishing between random and non-random variations
B. smoothing out fluctuations in time series
C. eliminating historical data
D. providing accuracy in forecasts
E. average people
Smoothing helps forecasters see past random error.

68. Putting forecast errors into perspective is best done using

A. Exponential smoothing
B. MAPE
C. Linear decision rules
D. MAD
E. Hindsight
MAPE depicts the forecast error relative to what was being forecast.

69. Using the latest observation in a sequence of data to forecast the next period is:
A. a moving average forecast
B. a naive forecast
C. an exponentially smoothed forecast
D. an associative forecast
E. regression analysis
Only one piece of information is needed for a nave forecast.

70. For the data given below, what would the naive forecast be for the next period (period #5)?

A. 58
B. 62
C. 59.5
D. 61
E. cannot tell from the data given
Period 5's forecast would be period 4's demand.

71. Moving average forecasting techniques do the following:

A. immediately reflect changing patterns in the data
B. lead changes in the data
C. smooth variations in the data
D. operate independently of recent data
E. assist when organizations are relocating
Variation is smoothed out in moving average forecasts.

72. Which is not a characteristic of simple moving averages applied to time series data?
A. smoothes random variations in the data
B. weights each historical value equally
C. lags changes in the data
D. requires only last period's forecast and actual data
E. smoothes real variations in the data
Simple moving averages can require several periods of data.

73. In order to increase the responsiveness of a forecast made using the moving average technique,
the number of data points in the average should be:
A. decreased
B. increased
C. multiplied by a larger alpha
D. multiplied by a smaller alpha
E. eliminated if the MAD is greater than the MSE
Fewer data points result in more responsive moving averages.

74. A forecast based on the previous forecast plus a percentage of the forecast error is:
A. a naive forecast
B. a simple moving average forecast
C. a centered moving average forecast
D. an exponentially smoothed forecast
E. an associative forecast
Exponential smoothing uses the previous forecast error to shape the next forecast.

75. Which is not a characteristic of exponential smoothing?

A. smoothes random variations in the data
B. weights each historical value equally
C. has an easily altered weighting scheme
D. has minimal data storage requirements
E. smoothes real variations in the data
The most recent period of demand is given the most weight in exponential smoothing.

76. Which of the following smoothing constants would make an exponential smoothing forecast
equivalent to a naive forecast?
A. 0
B. .01
C. .1
D. .5
E. 1.0
An alpha of 1.0 leads to a nave forecast.

77. Simple exponential smoothing is being used to forecast demand. The previous forecast of 66
turned out to be four units less than actual demand. The next forecast is 66.6, implying a smoothing
constant, alpha, equal to:
A. .01
B. .10
C. .15
D. .20
E. .60
A previous period's forecast error of 4 units would lead to a change in the forecast of 0.6 if alpha equals
0.15.

78. Given an actual demand of 59, a previous forecast of 64, and an alpha of .3, what would the
forecast for the next period be using simple exponential smoothing?
A. 36.9
B. 57.5
C. 60.5
D. 62.5
E. 65.5
Multiply the previous period's forecast error (-5) by alpha and then add to the previous period's
forecast.

79. Given an actual demand of 105, a forecasted value of 97, and an alpha of .4, the simple
exponential smoothing forecast for the next period would be:
A. 80.8
B. 93.8
C. 100.2
D. 101.8
E. 108.2
Multiply the previous period's forecast error (8) by alpha and then add to the previous period's forecast.

80. Which of the following possible values of alpha would cause exponential smoothing to respond
the most quickly to forecast errors?
A. 0
B. .01
C. .05
D. .10
E. .15
Multiple Choice Quiz
1. A qualitative forecast

a. predicts the quality of a new product.

b. predicts the direction, but not the magnitude, of change in a variable.
c. is a forecast that is classified on a numerical scale from 1 (poor quality) to
10 (perfect quality).
d. is a forecast that is based on econometric methods.

2. Which of the following is not a qualitative forecasting technique?

a. Surveys of consumer expenditure plans

b. Perspectives of foreign advisory councils
c. Consumer intention polling
d. Time-series analysis

3. The first step in time-series analysis is to

a. perform preliminary regression calculations.

b. calculate a moving average.
c. plot the data on a graph.
d. identify relevant correlated variables.

4. Forecasts are referred to as naive if they

a. are based only on past values of the variable.

b. are short-term forecasts.
c. are long-term forecasts.
d. generally result in incorrect forecasts.

5. Time-series analysis is based on the assumption that

 a. random error terms are normally distributed.
b. there are dependable correlations between the variable to be forecast and
other independent variables.
c. past patterns in the variable to be forecast will continue unchanged into the
future.
d. the data do not exhibit a trend.

6. Which of the following is not one of the four types of variation that is estimated in time-
series analysis?

a. Predictable
b. Trend
c. Cyclical
d. Irregular

7. The cyclical component of time-series data is usually estimated using

a. linear regression analysis.

b. moving averages.
c. exponential smoothing.
d. qualitative methods.

8. In time-series analysis, which source of variation can be estimated by the ratio-to-trend

method?

a. Cyclical
b. Trend
c. Seasonal
d. Irregular

9. If regression analysis is used to estimate the linear relationship between the natural
logarithm of the variable to be forecast and time, then the slope estimate is equal to

a. the linear trend.

b. the natural logarithm of the rate of growth.
 c. the natural logarithm of one plus the rate of growth.
d. the natural logarithm of the square root of the rate of growth.

10. The use of a smoothing technique is appropriate when

a. random behavior is the primary source of variation.

b. seasonality is present.
c. data exhibit a strong trend.
d. all of the above are correct.

11. The greatest smoothing effect is obtained by using

a. a moving average based on a small number of periods.

b. exponential smoothing with a small weight value.
c. the root-mean-square error.
d. the barometric method.

12. The root-mean-square error is a measure of

a. sample size.
b. moving average periods.
c. exponential smoothing.
d. forecast accuracy.

13. Barometric methods are used to forecast

a. seasonal variation.
b. secular trend.
c. cyclical variation.
d. irregular variation.

14. A leading indicator is a measure that usually

a. changes at the same time and in the same direction as the general economy.
b. responds to a change in the general economy after a time lag.
c. changes in the same direction as the general economy before the general
 economy changes.
d. has all of the properties listed above.

15. If 3 of the leading indicators move up, 2 move down, and the remaining 6 are constant,
then the diffusion index is

a. 3/6 = 50%
b. 3/11 = 27%
c. 5/11 = 45%
d. 6/11 = 55%

16. A single-equation econometric model of the demand for a product is a ________

equation in which the quantity demanded of the product is an ________ variable.

a. structural, exogenous
b. structural, endogenous
c. definitional, exogenous
d. definitional, endogenous

17. A reduced form equation expresses

a. an exogenous variable as a function of endogenous variables.

b. an endogenous variable as a function of exogenous variables.
c. an exogenous variable as a function of both endogenous and exogenous
variables.
d. an endogenous variable as a function of both exogenous and endogenous
variables.

18. Trend projection is an example of which kind of forecasting?

a. Qualitative
b. Time-series
c. Barometric
d. Econometric

19. Turning points in the level of economic activity can be forecast by using
 a. Time-series analysis
b. Exponential smoothing
c. Barometric methods
d. Moving average

20. Econometric forecasts require

a. accurate estimates of the coefficients of structural equations.

b. forecasts of future values of exogenous variables.
c. appropriate theoretical models.
d. all of the above.

MCQ: HR plans of any organization does not include

1. personnel plans
2. production plans
3. compensation plans
4. training and development plans

MCQ: A personnel plan requires forecast of

1. personnel needs
2. supply of inside candidates
3. supply of outside candidates
4. All of above

MCQ: Relationship between two variables can be identified with help of

1. ratio analysis
2. scatter plot
3. trend analysis
4. All of above

MCQ: Process which consists how and what positions are to be filled is called

1. Employment planning
 2. Human resource planning
3. Succession planning
4. All of above

MCQ: Study of different employment needs of company is

1. ratio analysis
2. scatter plot
3. trend analysis
4. All of above

Which of the following are advantages of simulation?

Simulation allows "what-if?" type of questions.

Simulation can usually be performed by hand or using a small calculator.

Simulation does not interfere with the real-world system.

all of the above

(a) and (c) only

The first step in simulation is to

set up possible courses of action for testing.

construct a numerical model.

 validate the model.

define the problem.

none of the above

Which of the following are disadvantages of simulation?

inability to analyze large and complex real-world situations

"time compression" capability

could be disruptive by interfering with the real-world system

is not usually easily transferable to other problems

all of the above

The first step in the Monte Carlo simulation process is to

generate random numbers.

set up cumulative probability distributions.

establish random number intervals.

simulate trials.
 set up probability distributions.

Cumulative probabilities are found by

summing all the probabilities associated with a variable.

simulating the initial probability distribution.

summing all the previous probabilities up to the current value of the variable.

any method one chooses.

none of the above

If we are going to simulate an inventory problem, we must

run the simulation for many days.

run the simulation for many days many times, i.e., using multiple sets of random
numbers.

run the simulation many times, i.e., using multiple sets of random numbers.

run the simulation once, for a relative short period of time.

none of the above

From a practical perspective, if we have a waiting line problem for
which the Poisson and negative exponential distributions do not
apply, and we desire a reasonably accurate solution, we should
modify the queuing equations to make them appropriate for our problem.

use simulation.

use the simple queuing equations even though we realize they are inappropriate.

build a physical model and use that to study the problem.

none of the above

All of the following are various ways of generating random

numbers except

table of random numbers

spin of roulette wheel

computer-generated random numbers

Von Neumann midsquare method

Fibonacci series

The three types of mathematical simulation models are

 operational gaming, Monte Carlo, systems simulation.

Monte Carlo, queuing, maintenance policy.

Monte Carlo, systems simulation, computer gaming.

system simulation, operational gaming, weather forecasting.

none of the above

Simulation should be thought of as a technique for

increasing one's understanding of a problem.

obtaining a relatively inexpensive solution to a problem.

obtaining an optimal solution to a problem.

providing quick and dirty answers to complex problems.

none of the above

Good forecasts usually result by using choosing a/n

appropriate process involving several steps.
A)
correct mathematical technique.
B)
correct qualitative method.
C)
experienced forecaster.
D)
2
 Perfect forecasts can be obtained only by using
the right techniques.
A)
personnel with the right experience.
B)
a right blend of software and experience.
C)
carefully controlled conditions, but never obtained in the real world.
D)
3
As the number of periods used in a moving average forecast increases, the forecast
becomes
increasingly sensitive
A)
much more responsive
B)
very aggressive
C)
less responsive
D)
4
If responsiveness to recent data is important to the forecaster, then the number of periods
used in a moving average forecast should be
small.
A)
large.
B)
medium.
C)
either small or large.
D)
5
As the number of periods used in a moving average forecast increases, the lag between
the forecast and the actual event
increases.
A)
decreases.
B)
stays the same.
C)
may increase or decrease.
 D)
6
For the data (0,100), (1,200), (2,210), (3,220), (4,260), (5,330) where the first number in
the parenthesis is the period and the second number is the actual demand, 3 period
moving average forecast for period 6 will be equal to the
270.
A)
220.
B)
275.
C)
170.
D)
7
For the data (0,100), (1,200), (2,210), (3,220), (4,260), (5,330) where the first number in
the parenthesis is period and the second number is the actual demand, 4 period moving
average forecast for period 6 will be equal to the
250.
A)
255.
B)
270.
C)
182.5.
D)
8
For the data (0,100), (1,200), (2,210), (3,220), (4,260), (5,330) where the first number in
the parenthesis is period and the second number is the actual demand, 4 period moving
average forecast for period 7 will be equal to the
250.
A)
255.
B)
270.
C)
cannot find
D)
9
In exponential smoothing the actual weight assigned to previous data
decreases with the age of data.
A)
increases with the age of data.
 B)
is independent of the age of data
C)
stays the same regardless of age
D)
10
In exponential smoothing the sum of the weights assigned to previous data
tends to equal 1.0.
A)
equals 1.0.
B)
may be less than 1.0.
C)
may be greater than 1.0.
D)
11
SUMPRODUCT function in excel can be used to
sum two columns/rows and then multiply the sum.
A)
multiply numbers of one column/row with the corresponding numbers of the other
B) column/row.
multiply corresponding numbers of two columns/rows and add the products.
C)
either A or C since they will give the same result.
D)
12
For the data (0,100), (1,200), (2,220), (3,220), (4,266), (5,318) where the first number in
the parenthesis is period and the second number is the actual demand, exponentially
smoothed forecast for period 6 (F6) with initial forecast (F0) = 100 and =0.2 is equal to
206.
A)
306
B)
318.
C)
305.7
D)
1 The principle of Occam's Razor says we must choose the simplest forecasting trend
model.

A) True

B) False

2 An attraction of MAPE as a measure of fit is its simple interpretation.

A) True

B) False

3 Over long periods of times multiplicative time series models may to be favored over
additive time series models because the data magnitude changes.

A) True

B) False

4 In exponential smoothing, the model becomes less responsive to recent data as the
smoothing constant increases.

A) True

B) False

5 Regression analysis can be used for forecasting a monthly time series data using a trend
variable and 12 binary predictors for the months.

A) True

B) False

6 A computer analysis reveals that the best-fitting trend model is Yt = 4.12 e0.987 t. The
trend was fitted using year-end common stock prices for Melodic Kortholt Outlet for the last six
years. The R2 is 0.8571. Which conclusion is not correct?

A) The absolute annual growth (in dollars per share) is increasing.

B) Few investments could match the astounding growth rate.

C) At the end of year 3 the stock price would be nearly $80.

D) The exponential model is inappropriate for financial data.

7 If we fit a linear trend to 10 observations on time series data that are growing
exponentially, then it is most likely that

A) the fitted trend will be too high at t = 1 and t = 10.

B) the fitted trend will be too low in the middle.

C) the forecasts (if extrapolated) will be too low.

8 Suppose the estimated quadratic model Yt = 500 + 20 t - t2 is the best-fitting trend of

sales of XYZ Inc. using data for the past twenty years (t = 1, 2, ... , 20). Which statement is
incorrect?

A) Sales are increasing by about 20 units per year.

B) The turning point would be in period 10.

C) Latest year sales are no better than in year zero.

D) The trend was higher in year 10 than in year 20.

9 Which is a time series?

A) The M1 component of the U.S. money supply (n = 20 quarters).

B) The unemployment rates for the U.S. states (n = 50 states).

C) The Gross Domestic Product for the E.U. members (n = 15 nations).

D) The inflation rate for housing in U.S. metropolitan areas (n = 46 cities).

10 Which is not an additive component of a time series?

A) Trend.

B) Seasonal.

C) Irregular.

D) Periodicity.

11 The fitted annual sales trend is Yt = 187.3 e .047 t. On average, sales are

A) rising by an increasing absolute amount each year.

B) rising by a declining absolute amount each year.

C) falling by a declining absolute amount each year.

D) falling by an increasing absolute amount each year

12 The fitted annual sales trend is Yt = 187.3 e .047 t. The sales forecast for year 5 would be

A) 236.9

B) 178.7

C) 168.2

D) 148.1

13 Concerning a multiplicative seasonal index for monthly data, which statement is

incorrect?

A) An index value of 1.000 indicates no seasonal deviation from trend.

B) The estimated indexes are adjusted so they always sum to 12.

C) To make forecasts, we divide the projected trend by each month's index.

D) They are obtained by the process called decomposition of a time series.

14 Which statement is correct for a simple index?

A) For the base year, the index is set to 0.000.

B) We cannot use index numbers to compare two time series measured in different units.

C) The simple relative index for period t = 5 is calculated as Y5/Y1.

D) Weighted index numbers have few practical applications due to their complexity.

1
_____________ is the total expected sales of a given product or service for ______________
in a specific market over a stated period of time.
Sales potential; the entire industry
A)
Sales forecast; the entire industry
B)
Market potential; an individual firm
C)
Market potential; the entire industry
 D)
None of the above
E)
2
The sales forecast:
is typically less than the sales potential
A)
is typically equal to the sales potential
B)
is typically slightly higher than the sales potential
C)
is always significantly higher than the sales potential
D)
might be higher or lower than the sales potential - you never know
E)
3
The North American Industry Classification System (NAICS) was developed jointly by the:
United States, Canada, and United Kingdom
A)
United States, United Kingdom, and France
B)
United States, Canada, and Mexico
C)
United States, France, and Germany
D)
United States, Germany, and Australia
E)
4
The oldest and simplest method of forecasting sales is:
Sales force composite
A)
Buyer's intentions
B)
Test market
C)
Executive opinion
D)
Moving average
E)
5
The method of forecasting that involves a panel of experts that try to reach consensus is:
sales force composite
A)
buyer's intentions
B)
test market
C)
Delphi technique
D)
None of the above
E)
6
Sales force composite forecasts can be inaccurate because salespeople often:
"low ball" their estimates so quotas can be more easily obtained
A)
are poor at math
B)
don't have any stake in the accuracy of the forecast
C)
have minimal contact with customers
D)
All of the above.
E)
7
Past sales data is used as an input to which of the following methods of forecasting?
moving average
A)
exponential smoothing
B)
regression analysis
C)
All of the above.
D)
None of A-B-C is correct
E)
8
A capacity-based forecast would make the most sense for:
a carwash in Ohio
A)
 a popular restaurant that is always full
B)
a hotel with sales that fluctuate by the season
C)
a university with declining enrollment
D)
All of the above
E)
9
All of the following are guidelines to enhance the accuracy of sales forecasts, except:
understand math and statistics
A)
maximize number of market factors
B)
use more than one method
C)
use minimum / maximum technique
D)
recognize situation limits
E)
10
A __________ is a financial plan that a sales manager uses to plan for profits by anticipating
revenues and expenditures:
forecast
A)
budget
B)
Delphi technique
C)
must-do forecast
D)
sales potential
E)
11
The keyword in the definition of sales territory is:
customer
A)
geographical
B)
 salesperson
C)
number
D)
intermediary
E)
1
CORRECT
Demand planning is the combined process of forecasting and managing
customer demands to create a planned pattern of demand that meets the firm's
operational and financial goals.
True
A)
False
B)
Feedback: A is the correct answer and the focus of demand planning.
2
CORRECT
_____ are regular patterns of repeating highs and lows.
Seasonality and cycles
A)
Trends
B)
Shifts or step changes
C)
Autocorrelation
D)
Forecast error
E)
Feedback: A is the correct answer as this describes the seasonal and cyclic
patterns in demand.
3
CORRECT
_____ describes the relationship of current demand with past demand.
Seasonality and cycles
A)
Trends
B)
Shifts or step changes
C)
Autocorrelation
D)
Forecast error
E)
 All of the above
F)
Feedback: D is the correct answer and describes autocorrelation of past and
current demand.
4
CORRECT
The forecasting process should suit the period of time over which the user's
current actions will affect future business performance.
True
A)
False
B)
Feedback: A is the correct answer and describes the time horizon of designing
a forecasting process.
5
CORRECT
High-level business managers usually have more experience and access to more
sources of information upon which to base their judgments.
True
A)
False
B)
Feedback: A is the correct answer and justifies the use of executive judgment
forecasts.
6
CORRECT
The ________ develops forecasts by asking a panel of experts to individually
respond to a series of questions.
Historical analogy approach
A)
Executive judgment approach
B)
Grassroots forecasting approach
C)
Marketing research forecasting approach
D)
Delphi method
E)
Feedback: E is the correct answer and this is the definition of the Delphi
method of forecasting.
7
CORRECT
The ___________ forecasting model computes a forecast as the average of
demands over a number of immediate past periods.
Time series
A)
 Causal
B)
Simulation
C)
Moving average
D)
All of the above
E)
Feedback: D is the correct answer as this is the definition of a moving average
forecast.
8
CORRECT
An adjustment to the moving average model that is sometimes used for stable
demand patterns is a _______ model.
Time series
A)
Causal
B)
Simulation
C)
Weighted moving average
D)
None of the above
E)
Feedback: E is the correct answer and defines a weighted moving average
model where different weights are assigned to each period's demand
according to its importance.
9
CORRECT
Regression analysis is the most commonly used method for estimating
relationships between leading indicators and demand.
True
A)
False
B)
Feedback: A is the correct answer and explains the popularity of this causal
forecasting model.
10
CORRECT
Forecast _____ measures how closely the forecast aligns with the observations
over time.
Accuracy
A)
Bias
B)
 Accuracy and bias
C)
Mean absolute deviation
D)
None of the above
E)
Feedback: A is the correct answer and defines forecast accuracy.
11
CORRECT
The ultimate goal of demand management is to match demand and operational
capacity in order to attain the business's competitive objectives.
True
A)
False
B)
Feedback: A is the correct answer and is the goal of demand management.
12
CORRECT
A postponable product is one that can be configured to its final form ______
and ______ once actual customer demand is known.
Quickly, inexpensively
A)
Quickly, costly
B)
Slowly, inexpensively
C)
Slowly, costly
D)
All of the above
E)
Feedback: A is the correct answer and describes postponable products.
13
CORRECT
In _____ the partners collaboratively discuss such issues as the introduction of
new products, store openings/closings, changing inventory policies, and product
promotions.
Market planning
A)
Demand and resource planning
B)
Execution
C)
Analysis
D)
All of the above
 E)
Feedback: A is the correct answer and defines market planning.
14
CORRECT
In ____________, orders are placed, delivered, received, and paid for.
Market planning
A)
Demand and resource planning
B)
Execution
C)
Analysis
D)
All of the above
E)
Feedback: C is the correct answer and defines analysis.
15
CORRECT
Managers can manage demand by:
Influencing the timing or quantity of demand through pricing changes
A)
Influence the timing of order fulfillment
B)
Encourage customers to shift their orders from one product the another
C)
All of the above
D)
None of the above
E)

ry the following multiple choice questions to test your knowledge of Chapter 4. Once you have answered
the questions, click on Submit Answers for Grading to get your results.

Y
Year Quarter
Sales value (000)
2001 1 30
2 20
3 40
4 50
2002 1 40
2 30

1. Look at the data in the table above.

 The four - quarter centred moving average for 2001, quarter 3 is:

37,500
35,000
40,000
36,250

2. In the above table the four - quarter centred moving average for 2001, quarter 4
is:
50,000
38,750
36,250
37,500

3. Finding the centred four - quarter moving average in this way helps us identify
the:
Irregular component
Seasonal component
Trend component
Cyclical component

4. If we first subtract the trend value (T) for each quarter from the original value (Y),
then average the values for a given quarter over successive years, then for
short-term data we get:
Seasonal component
Unseasonal data
Deseasonalised data
Cyclical component

5. Deseasonalised data involves:

Adding the Seasonal component (S) to the original data (Y)
Subtracting the Trend component (T) from the original data (Y)
Adding the Trend component (T) to the original data (Y)
 Subtracting the Seasonal component (S) from the original data (Y)

6. We can use the regression line for past data for forecasting future data. We are
then using the line which:
Minimises the sum of squared deviations of past data from the line
Maximises the sum of squared deviations of past data from the line
Maximises the sum of deviations of past data from the line
Minimises the sum of deviations of past data from the line

7. When we use an approach which implies that the forecast for the next time
period should take into account the observed error in the earlier forecast for the
current time period, then we are using:
Exponential Smoothing
Regression analysis
Decision Tree analysis
Time Series analysis

8. Using regression analysis for forecasting, a high value for R2 suggests that we
can:
Be totally confident in our forecast
Have no confidence in our forecast
Be reasonably confident in our forecast
Have little confidence in our forecast

9. Which of the following is a major problem for forecasting, especially when using
regression analysis?
The past cannot be known
The future exactly follows the patterns of the past
The future is not entirely certain
The future may not follow the patterns of the past

10 Which of the following circumstances is likely to make a forecast using (multiple)

. regression analysis less reliable?
All the relevant variables are included in the regression equation
Some important variables are missing from the regression equation
 No important variables are missing from the regression equation
All the points lie exactly along the regression line in the scatter diagram

FORECASTING
Operations generated forecasts often not to do with
a. Inventory requirements
b. Resource needs
c. Time requirements
d. Sales
(Ans:d)

Which of the following is not true for forecasting?

a. Forecasts are rarely perfect
b. The underlying casual system will remain same in the future
c. Forecast for group of items is accurate than individual item
d. Short range forecasts are less accurate than long range forecasts
(Ans:d)

Which of the following is not a forecasting technique?

a. Judgemental
b. Time series
c. Time horizon
d. Associative
(Ans:c)

In which of the following forecasting technique, subjective inputs obtained from various sources are
analyzed?
a. Judgemental forecast
b. Time series forecast
c. Associative model
d. All of the above
(Ans:a)

In which of the following forecasting technique, data obtained from past experience is analyzed?
a. Judgemental forecast
b. Time series forecast
c. Associative model
d. All of the above
(Ans:b)

Delphi method is used for

a. Judgemental forecast
b. Time series forecast
c. Associative model
d. All of the above
(Ans:a)

Short term regular variations related to the calendar or time of day is known as
a. Trend
b. Seasonality
c. Cycles
d. Random variations
(Ans:b)

The demand for period t-2 and t-1 is 10 and 12 cases respectively. As per nave method, the demand for next
period t is
a. 10
b. 11
c. 12
d. 14
(Ans:d)

Calculate four periods moving average forecast from the last six periods
Period Demand

1 38

2 40

3 42

4 40

5 44

6 38
a. 40
b. 41
c. 42
d. 43
(Ans:b)

Calculate a weighted average forecast using a weight of .50 to the most recent period, .40 for the next recent
period and .30 for the next period
Period Demand

1 38

2 40

3 42
 4 40

5 44

6 38
a. 46.6
b. 47.6
c. 48.6
d. 49.6
(Ans:c)

A linear trend equation has the form

a. F=a-bt
b. F=a+bt
c. F=2a-bt
d. F=2a+bt
(Ans:b)

If the actual demand for a period is 100 units but forecast demand was 90 units. The forecast error is
a. -10
b. +10
c. -5
d. +5
(Ans:b)

Which one of the following is a sales forecasting technique that can be utilized in
preparing the annual profit plan?

Linear programming.

Exponential smoothing. Detailed Answer

Queuing theory.

Program Evaluation and Review Technique (PERT).

2
The four components of time series data are secular trend, cyclical variation,
seasonality, and random variation. The seasonality in the data can be removed by
 Multiplying the data by a seasonality factor.

Ignoring it.

Taking the weighted average over four time periods. Detailed Answer

Subtracting a seasonality factor from the data.

3
A forecasting technique that is a combination of the last forecast and the last
observed value is called

Delphi.

Least squares.

Regression.

Exponential smoothing. Detailed Answer

4
As part of a risk analysis, an auditor wishes to forecast the percentage growth in
next months sales for a particular plant using the past 30 months sales results.
Significant changes in the organization affecting sales volumes were made within
the last 9 months. The most effective analysis technique to use would be

Unweighted moving average.

Exponential smoothing. Detailed Answer

Queuing theory.

Linear regression analysis.

5
What are the four components of a time series?

Trend, cyclical, seasonal, and irregular. Detailed Answer

Alpha, cyclical, seasonal, and irregular.

 Alpha, cyclical, seasonal, and repetitive.

Trend, cyclical, seasonal, and repetitive.

6
The moving-average method of forecasting

Is a cross-sectional forecasting method.

Regresses the variable of interest on a related variable to develop a forecast.

Derives final forecasts by adjusting the initial forecast based on the smoothing
constant.

Includes each new observation in the average as it becomes available and discards the
oldest observation. Detailed Answer

7
Violation of which assumption underlying regression analysis is prevalent in time
series analysis?

Variance of error term is constant.

Error terms are independent. Detailed Answer

Distribution of error terms is usually normal.

Expected value of error term equals zero.

8
Sales of big-screen televisions have grown steadily during the past 5 years. A
dealer predicted that the demand for February would be 148 televisions. Actual
demand in February was 158 televisions. If the smoothing constant () is 0.3, the
demand forecast for March, using the exponential smoothing model, will be

148 televisions.

151 televisions. Detailed Answer

155 televisions.

158 televisions.
9
Sunrise Corporations actual sales for May were $22,000,000, a result $600,000
greater than projected. Actual sales for June totaled $22,500,000. Using
exponential smoothing with a smoothing factor (alpha) of 0.7, Sunrises projected
sales for July would be

$22,476,000

$22,296,000 Detailed Answer

$21,856,000

$21,820,000

10
A common characteristic of simple regression analysis, learning curve analysis, and
time series analysis is that they all.

Can accommodate nonlinear behavior.

Use past data to estimate future values. Detailed Answer

Adjust for inflation.

Establish causation.

In decision theory, those uncontrollable future events that can affect the outcome
of a decision are

Payoffs.

States of nature. Detailed Answer

Probabilities.

Nodes.

2
The Booster Club at Blair College sells hot dogs at home basketball games. The
group has a frequency distribution of the demand for hot dogs per game and plans
to apply the expected value decision rule to determine the number of hot dogs to
stock. The Booster Club should select the demand level that

Is closest to the expected demand.

Has the greatest probability of occurring.

Has the greatest expected opportunity cost.

Has the greatest expected monetary value. Detailed Answer

3
A company is simulating the actions of a government agency in which 50% of the
time a recall of a product is required, 40% of the time only notification of the buyer
about a potential defect is required, and 10% of the time no action on its part is
required. Random numbers of 1 to 100 are being used. An appropriate assignment
of random numbers for the recall category would be

1-40

40-90

61-100

11-60 Detailed Answer

4
Sweivel Company is preparing its budget and, taking into consideration the recent
pace of economic recovery, has developed several sales forecasts and the
estimated probability associated with each sales forecast. To determine the sales
forecast to be used for budgeting purposes, which one of the following techniques
should Sweivel use?

Expected value analysis. Detailed Answer

Continuous probability simulation.

Exponential distribution analysis.

Sensitivity analysis.
5
Bosworth, Inc., sells its product for $100 per unit while incurring variable operating
costs of $60 per unit and $25,000,000 of fixed operating costs. The management
team believes there is a 20% probability sales for the upcoming period will be
600,000 units, a 50% probability sales will be 800,000 units, and a 30% probability
sales will be 1,000,000 units. The expected value of Bosworths operating profit for
the upcoming period is

$32,800,000

$8,200,000

$7,800,000 Detailed Answer

$7,000,000

6
Brown Veterinary Clinic schedules weekend staff based on the number of animals
being boarded. The clinic has a total of four staff members available to work on
weekends. Based on state regulations, the clinic is required to have one staff
member on site for up to 10 animals. Two staff members are required for 11-23
animals, three staff for 24-36 animals and all four staff members must work if there
are 37-45 animals being boarded. The clinic has experienced the following average
number of animals in the past 12 weekends.
Average Number of Animals ...Number of Weekends
12 ...............................................1
20 ...............................................4
25 ...............................................3
35 ...............................................2
40 ...............................................2
Using expected value analysis, how many staff members should the clinic schedule
for each weekend during the upcoming month?

3 Detailed Answer

4
7
A quantitative technique useful in projecting a firms sales and profits is

Probability distribution theory. Detailed Answer

Gantt charting.

Learning curves.

Queuing theory.

8
A widely used approach that managers use to recognize uncertainty about
individual items and to obtain an immediate financial estimate of the consequences
of possible prediction errors is

Expected value analysis.

Learning curve analysis.

Sensitivity analysis. Detailed Answer

Regression analysis

9
Through the use of decision models, managers thoroughly analyze many
alternatives and decide on the best alternative for the company. Often, the actual
results achieved from a particular decision are not what was expected when the
decision was made. In addition, an alternative that was not selected would have
actually been the best decision for the company. The appropriate technique to
analyze the alternatives by using expected inputs and altering them before a
decision is made is

Expected value analysis.

Linear programming.

Program Evaluation Review Technique (PERT)

Sensitivity analysis. Detailed Answer

10
The process of evaluating the effect of changes in variables such as sales price or
wage rates on the optimum solution in a linear programming application is called

Iterative analysis.

Regression analysis.

Sensitivity analysis. Detailed Answer

Matrix analysis.

81. A manager uses the following equation to predict monthly receipts: Yt = 40,000 + 150t. What is
the forecast for July if t = 0 in April of this year?
A. 40,450
B. 40,600
C. 42,100
D. 42,250
E. 42,400
July would be period 3, so the forecast would be 40,000 + 150(3).

82. In trend-adjusted exponential smoothing, the trend adjusted forecast (TAF) consists of:
A. an exponentially smoothed forecast and a smoothed trend factor
B. an exponentially smoothed forecast and an estimated trend value
C. the old forecast adjusted by a trend factor
D. the old forecast and a smoothed trend factor
E. a moving average and a trend factor
Both random variation and the trend are smoothed in TAF models.

83. In the "additive" model for seasonality, seasonality is expressed as a ______________

adjustment to the average; in the multiplicative model, seasonality is expressed as a __________
adjustment to the average.
A. quantity, percentage
B. percentage, quantity
C. quantity, quantity
D. percentage, percentage
E. qualitative, quantitative
The additive model simply adds a seasonal adjustment to the de-seasonalized forecast. The multiplicative
model adjusts the de-seasonalized forecast by multiplying it by a season relative or index.

84. Which technique is used in computing seasonal relatives?

A. double smoothing
B. Delphi
C. Mean Squared Error (MSE)
D. centered moving average
E. exponential smoothing
The centered moving average serves as the basis point for computing seasonal relatives.

85. A persistent tendency for forecasts to be greater than or less than the actual values is called:
A. bias
B. tracking
C. control charting
D. positive correlation
E. linear regression
Bias is a tendency for a forecast to be above (or below) the actual value.

86. Which of the following might be used to indicate the cyclical component of a forecast?
A. leading variable
B. Mean Squared Error (MSE)
C. Delphi technique
D. exponential smoothing
E. Mean Absolute Deviation (MAD)
Leading variables, such as births in a given year, can correlate strongly with long-term phenomena such
as cycles.

87. The primary method for associative forecasting is:

A. sensitivity analysis
B. regression analysis
C. simple moving averages
D. centered moving averages
E. exponential smoothing
Regression analysis is an associative forecasting technique.

88. Which term most closely relates to associative forecasting techniques?

A. time series data
B. expert opinions
C. Delphi technique
D. consumer survey
E. predictor variables
Associate techniques use predictor variables.

89. Which of the following corresponds to the predictor variable in simple linear regression?
A. regression coefficient
B. dependent variable
C. independent variable
D. predicted variable
E. demand coefficient
Demand is the typical dependent variable when forecasting with simple linear regression.

90. The mean absolute deviation (MAD) is used to:

A. estimate the trend line
B. eliminate forecast errors
C. measure forecast accuracy
D. seasonally adjust the forecast
E. all of the above
MAD is one way of evaluating forecast performance.

91. Given forecast errors of 4, 8, and - 3, what is the mean absolute deviation?
A. 4
B. 3
C. 5
D. 6
E. 12
Convert each error into an absolute value and then average.

92. Given forecast errors of 5, 0, - 4, and 3, what is the mean absolute deviation?
A. 4
B. 3
C. 2.5
D. 2
E. 1
Convert each error into an absolute value and then average.
93. Given forecast errors of 5, 0, - 4, and 3, what is the bias?
A. - 4
B. 4
C. 5
D. 12
E. 6
Sum the forecast errors.

94. Which of the following is used for constructing a control chart?

A. mean absolute deviation (MAD)
B. mean squared error (MSE)
C. tracking signal (TS)
D. bias
E. none of the above
The mean squared error leads to an estimate for the sample forecast standard deviation.

95. The two most important factors in choosing a forecasting technique are:
A. cost and time horizon
B. accuracy and time horizon
C. cost and accuracy
D. quantity and quality
E. objective and subjective components
More accurate forecasts cost more but may not be worth the additional cost.

96. The degree of management involvement in short range forecasts is:

A. none
B. low
C. moderate
D. high
E. total
Short range forecasting tends to be fairly routine.

97. Which of the following is not necessarily an element of a good forecast?

A. estimate of accuracy
B. timeliness
C. meaningful units
D. low cost
E. written
A good forecast can be quite costly if necessary.

98. Current information on _________ can have a significant impact on forecast accuracy:
A. prices
B. promotion
C. inventory
D. competition
E. all of the above
Demand in the future could be subject to decision-making prompted by prices, promotions, inventory
or competition. Accuracy will be affected if these are (or are not) taken into consideration.

99. A managerial approach toward forecasting which seeks to actively influence demand is:
A. reactive
B. proactive
C. influential
D. protracted
E. retroactive
Simply responding to demand is a reactive approach.

100. Customer service levels can be improved by better:

A. mission statements
B. control charting
C. short term forecast accuracy
D. exponential smoothing
E. customer selection

NETWORK ANALYSIS

1. In a CPM/PERT network a dummy activity is necessary when

a) two activities have the same starting node
b) two activities have the same ending node
c) a node does not actually connect to another node
d) when two activities share the same starting and ending node
e) none of the above
(Answer: d)
{Text on page 24 and the lecture in the section on The Project Network: A dummy activity is necessary
when two activities share the same starting and ending nodes. Dummy activities are especially necessary
when the network is analyzed by computer since the computer would not be able to tell the two
activities apart if they have the same starting and ending nodes.}
2. Shared slack in an activity network is defined as
a) the amount of time an activity can be delayed without delaying the entire project.
b) the amount of slack that an activity has in common with another activity.
c) the amount of unused resources for an activity.
d) the amount by which a time estimate can be in error without affecting the critical path
computations.
(Answer: b)
{Text on page 230: There is an important distinction between activity slack and shared slack. Activity slack
is the amount of time an activity can be delayed without delaying the entire project. However, often
activities in sequence that both have activity slack share some of that slack. For example suppose Activity
A has 4 days of slack and is immediately followed by Activity B with 8 days of slack.. If Activity A is
delayed by 4 days then the project will not be delayed (it had 4 days slack). However, now Activity B will
no longer have 8 days of slack but only 4. That is because 4 of the 8 days were shared with Activity A and
it used up that shared slack. Shared slack is the amount of slack shared by two activities. Sometimes
a concept of "free" slack is defined which is the amount of time an activity can be delayed without delaying
the start of another activity.}
3. The objective of project crashing is to
a) reduce the project duration
b) revise the network critical path and completion times when the schedule falls hopelessly
behind
c) minimize the cost of crashing
d) reduce indirect costs such a interest on investments
e) more than one statement above is true
(Answer: e)
{Text on pages 243 in the section on Project Crashing and Time-Cost Trade-Off and the lecture in the
section on The General Relationship of Time and Cost: The primary objective of project crashing is
usually to reduce the duration of the project, possibly to avoid cost penalties associated with missing a
deadline. However, indirect costs usually increase as a project increases in duration so that it may be
economical to spend resources to crash the project to save on indirect costs.}
 4. If an activity has zero activity slack it
a) means that the project is expected to be delayed.
b) must be a dummy activity.
c) is on the critical path.
d) all of the above
e) none of the above
(Answer: c)
{Text on pages 230-231 in the section on Activity Slack and the lecture in the section on Activity Slack:
Activities on the critical path have zero slack, i.e. if they are delayed at all the entire project is delayed.
Therefore, if an activity has zero slack it must be on the critical path.}
5. Assume that activity G has the following times:
Early start time = 7 days
Early finish time = 13 days
Late start time = 15 days
Late finish time = 21 days
Which of the following statements is true about activity G?
a) activity G takes 9 days to complete
b) activity G has a slack time of 8 days.
c) activity G is on the critical path.
d) activity G takes 8 days to complete
(Answer: b)
{The activity time is the difference between the early start and early finish times or the late start and late
finish times. Therefore the activity time of activity G is 13-7 = 6 days. Thus statements (a) and (d) are false.
The slack time for an activity is the difference between its early start and late start times or between
its early finish and late finish times. Thus the slack for activity G is 15 7 = 8 days and statement (b) is
true. Activity G is not on the critical path since it has positive slack so statement (c) is false.}
6. Assuming a beta distribution is being used, if the most likely time for an activity increases by 1 week,
what will happen to the expected time for that activity?
a) it will increase by 4 weeks.
b) it will increase by 1 week.
c) it will remain the same.
d) it would increase by 2/3.
(Answer: d)
{Text on page 232 and the lecture in the section on Probabilistic Time Estimates: The equation for
the expected time of an activity when there are probabilistic time estimates is

t=
Increasing the most likely time by 1 unit will increase the numerator by 4 because of the multiplication.
The expected time however, will only increase by a factor of 4/6 or 2/3 because of the division by 6 in the
denominator.}
7. Using the network above, which of the following statements is true?
a) the critical path is 1-3, 3-5, 5-7
b) the earliest start data for activity 5-7 is 10
c) the latest start date for activity 2-5 is 11
d) the project completion time is 15 weeks
(Answer: a)
{Text on pages 227 229 in the section on Activity Scheduling and the lecture in the section on Activity
Scheduling: The table of early and late start and finish times, along with slack are given below.
Activity Late Start Early Start Late Finish Early Finish Slack

12 2 0 9 7 2
13 0 0 7 7 0

24 11 7 13 9 4

25 9 7 12 10 2

35 7 7 12 12 0

36 11 7 12 8 4

47 13 9 17 13 4

57 12 12 17 17 0

67 12 8 17 13 4
As can be seen, statement (a) is true as the critical activities are those with no slack. As can be seen, the other
statements are also false.

Time Estimates
(weeks)

Activity a m b

12 2 3 10

13 8 12 20

14 10 14 16

25 6 10 12

35 14 20 25

37 3 5 7

46 8 12 20

57 1 1 1

68 6 10 12

78 1 3 7
8. Using the data above to calculate the expected time and variance for each activity, which of the
following statements is true?
a) the expected time for activity 1-3 is 12.67
b) the variance for activity 3-5 is 3.36
c) the largest expected time occurs for activity 1-4
d) the largest variance is for activity 1-3
e) more than one statement above is true
(Answer: e)
{Text on pages 232 and the lecture in the section on Probabilistic Time Estimates: The table with
the expected times and the activity time variances is given below.
Activity a m b Mean Variance

12 2 3 10 4.00 1.78

13 8 12 20 13.00 4.00

14 10 14 16 13.67 1.00

25 6 10 12 9.67 1.00

35 14 20 25 19.83 3.36

37 3 5 7 5.00 0.44

46 8 12 18 12.33 2.78

57 1 1 1 1.00 0.00

68 6 10 12 9.67 1.00

78 1 3 7 3.33 1.00
As can be seen from the table both (b) and (d) are true so that more than one of the statements are correct.}
9. There is usually more pressure, real and perceived, associated with project management than in a normal
management position.
a) True
b) False
(Answer: a)
{Text on page 218: Project management can be a very intense job subject to a great deal of pressure.
Projects have definite milestones that have to be met and there can be many things that can go wrong on a
project.}
10. In the PERT approach, using the project mean time and standard deviation to perform probabilistic
analysis should be done with caution unless the number of activities is large enough to support the
assumptions of the central limit theorem.
a) True
b) False
(Answer: a)
{Text on page 236 in the section on Probabilistic Network Analysis: The project mean time and standard
deviation can always be obtained by adding the times and variances on the critical path. However, the use
of the normal distribution to calculate probabilities can only be done if the individual activity times have
normal distributions, which they usually do not, of there are enough activities (30 or more) on the critical
path for the central limit theorem to apply. If this is not true then the probabilistic analysis should be
interpreted with caution.}
11. As activities are crashed, the critical path may actually change.
a) True
b) False
(Answer: a)
{Text on page 243: When activities on the critical path are crashed, often activities that were not previously
on the critical path can become critical. In other words, as we shorten the longest path in the network , the
critical path, by crashing, another path can become the longest path.}
 12. Once the individual activity times have been determined, the computations to find the critical path in
PERT are the same as in CPM.
a) True
b) False
(Answer: a)
{The computations for the critical path are exactly the same whether we are using PERT or CPM. The only
difference is that in PERT the activity times used are expected or average times while they are a fixed time
estimate in CPM.}
13. Slack is something a project manager wishes to avoid if possible because it means the activity time
estimates were inaccurate.
a) True
b) False
(Answer: b)
{Text on page 230: Slack is actually beneficial for project managers because if gives some flexibility in the
allocation of resources from activities with slack to more critical activities, and it also gives protection
against when things go wrong and activities are delayed.}

In a PERT network, the

earliest (activity) start time
is the

Your earliest
Answer: time that
an activity
can be
finished
without
delaying
the entire
project.
Correct earliest
Answer: time that
an activity
can start
without
violation of
precedence
requiremen
ts.

Incorrect. See section 13.2.

2. Which of the following, if any, may not be one of the

questions answered by PERT or PERT/Cost?

Your Answer: Are there enough resources available

to complete the project on time?
Correct Answer: none of the above

Incorrect. See sections 13.2 and 13.3.

3. PERT

Your Answer: allows computation of the programs

evaluation.
Correct Answer: is a network technique that uses
three time estimates for each
activity in a project.

Incorrect. See section 13.2.

4. Time an activity would take assuming very unfavorable

conditions is represented by the

Your Answer: pessimistic time (b).

CORRECT.

5. The expected time in PERT is

Your Answer: a weighted average of the most

optimistic time, most pessimistic time,
and four times the most likely time.

CORRECT.

6. Given the following activitys optimistic, most likely, and

pessimistic time estimates of 6, 10, 14 days,
respectively, compute the PERT time for this activity.

Your Answer: 12
Correct Answer: 10

Incorrect. See section 13.2.

7. What is the critical path for the project described in the

following table?
 Your Answer: A, B, C, D
Correct Answer: B, D

Incorrect. See section 13.2.

8. Consider a project that has an expected completion time

of 60 weeks and a standard deviation of five weeks.
What is the probability that the project is finished in 70
weeks or less (round to two decimals)?

Your Answer: 0.50

Correct Answer: 0.98

Incorrect. See section 13.2.

9. How long could activity E be delayed without delaying

the completion of the project described in the following
table?

Your Answer: 17
 Correct Answer: 9

Incorrect. See section 13.2.

10. Which of the following is one of the assumptions of

PERT?

Your Answer: All of the above are assumptions of

PERT.
Correct Answer: Total project completion time follows
a normal probability distribution.

Incorrect. Only one option is correct.

11. The first step in planning and scheduling a project is to

Your Answer: develop the work breakdown structure.

CORRECT.

PERT and CPM

a.
are most valuable when a small number of activities must be scheduled.
b.
have different features and are not applied to the same situation.
c.
do not require a chronological relationship among activities.
d.
have been combined to develop a procedure that uses the best of each
d

Which is not a significant challenge of project scheduling?

a.
deadlines exist.
b.
activities are independent.
c.
many employees could be required.
d.
delays are costly
b
Arcs in a project network indicate
a.
completion times.
b.
precedence relationships.
c.
activities.
d.
the critical path
b

The critical path

a.
is any path that goes from the starting node to the completion node.
b.
is a combination of all paths.
c.
is the shortest path.
d.
is the longest path.
d

The earliest start time rule

a.
compares the starting times of all activities for successors of an activity.
b.
compares the finish times for all immediate predecessors of an activity.
c.
determines when the project can begin.
d.
determines when the project must begin.
b
Activities following a node
a.
can begin as soon as any activity preceding the node has been completed.
b.
have an earliest start time equal to the largest of the earliest finish times for all
activities entering the node.
c.
have a latest start time equal to the largest of the earliest finish times for all activities
entering the node.
d.
None of the alternatives is correct
b

Activities G, P, and R are the immediate predecessors for activity W. If the earliest finish
times for the three are 12, 15, and 10, then the earliest start time for W
a.
is 10.
b.
is 12.
c.
is 15.
d.
cannot be determined.
c

Activities K, M and S immediately follow activity H, and their latest start times are 14,
18, and 11. The latest finish time for activity H
a.
is 11.
b.
is 14.
c.
is 18.
d.
cannot be determined
a
When activity times are uncertain,
a.
assume they are normally distributed.
b.
calculate the expected time, using (a + 4m + b)/6.
c.
use the most likely time.
d.
calculate the expected time, using (a + m + b)/3.
b

To determine how to crash activity times

a.
normal activity costs and costs under maximum crashing must be known.
b.
shortest times with crashing must be known.
c.
realize that new paths may become critical.
d.
All of the alternatives are true.
d

Slack equals
a.
LF EF.
b.
EF LF.
c.
EF LS.
d.
LF ES.
b
Activities with zero slack
a.
can be delayed.
b.
must be completed first.
c.
lie on a critical path.
d.
have no predecessors.
c

In deciding which activities to crash, one must

a.
crash all critical activities.
b.
crash largest-duration activities.
c.
crash lowest-cost activities.
d.
crash activities on the critical path(s) only
d

For an activity with more than one immediate predecessor activity, which of the
following is used to compute its earliest finish (EF) time?
a.
the largest EF among the immediate predecessors.
b.
the average EF among the immediate predecessors.
c.
the largest LF among the immediate predecessors.
d.
the difference in EF among the immediate predecessor
a
Which of the following is always true about a critical activity?
a.
LS = EF.
b.
LF = LS.
c.
ES = LS.
d.
EF = ES
c

For an activity with more than one immediate successor activity, its latest-finish time is
equal to the
a.
largest latest-finish time among its immediate successors.
b.
smallest latest-finish time among its immediate successors.
c.
largest latest-start time among its immediate successors.
d.
smallest latest-start time among its immediate successors
d

Which of the following is a general rule for crashing activities?

a.
Crash only non-critical activities.
b.
Crash activities with zero slack.
c.
Crash activities with the greatest number of predecessors.
d.
Crash the path with the fewest activities.
 What is the critical path through the network above?

Your Answer: ABDEF

Yes, that's correct.

2. What would be the critical

path if the duration of
activity C increased to 10?

Your Answer: ABCEF

Correct Answer: ABCF

No, that's not correct.

3. What form of planning

and control focuses on the
low volumehigh variety
end of the continuum?

Your Answer: Quality

plannin
g and
control
Correct Project
Answer: plannin
g and
control

No, that's not correct.

4. Which of the following

elements is not normally
common in projects?
 Your Answer: No
defined
end point

Yes, that's correct.

5. Successful project
management does NOT
include which of the
following factors?

Your Interchanga
Answer: ble staff

Yes, that's correct.

6. Which is the first stage in

the project management
model?

Your Project
Answer: planning
Correct Understan
Answer: ding the
project
environme
nt

No, that's not correct.

7. A clear hierarchy of
objectives in the project
definition would NOT
normally contain:

Your The
Answer: purpose
Correct Control
Answer: mechanis
ms

No, that's not correct.

8. A critical path network
diagram does NOT:

Your Answer: Help

determi
ne the
amount
of float.
Correct Calculat
Answer: e earned
value.

No, that's not correct.

9. Projects are usually in

high-volume, low-variety
operations.

Your Answer: True

Yes, that's correct.

10. A Gantt chart is used to

show a project timeline
diagramatically.

Your Answer: False

Correct Answer: True

No, that's not correct.

11. The Critical Path is an

activity (or series of
activities) that if delayed
will delay the whole
project.

Your Answer: False

Correct Answer: True

No, that's not correct.

12. Which of the following

 activities would NOT be
an appropriate way of
crashing a project?

Your Answer: Sub-

contracti
ng
Correct Reducing
Answer: quality

No, that's not correct.

13. Which of the following

should be taken into
account when planning a
project?

Your Operation
Answer: al
environm
ent
Correct All of the
Answer: above

No, that's not correct.

14. Projects with high levels

of complexity are likely to
be especially difficult to
define and set realistic
objectives for.

Your Answer: True

Correct Answer: False

No, that's not correct.

This would be true of
projects with high
uncertainty.

15. Changes to the project

involve moving from:

Your Answer: Project

control
stage to
 project
definition
stage.

Yes, that's correct.

For the background information on the first group of

three questions, refer to the table that follows.
Activity Immediate follower Estimated time
A E 6
B F 5
C D,G 8
D F 4
E end 5
F end 10
G end 10
A)1. The critical path is:
B)B-F.
C)C-D-F.
D)C-G.
E)A-E.

2 INCORRECT The time for the critical path is:

A)20 days.
B)11 days.
C)18 days.
D)19 days.
E)none of the above.

3 INCORRECT The path with the greatest slack time is:

A)A-E.
B)B-F.
C)C-D-F.
D)C-G.

A major limitation of Gantt charts in project

4 INCORRECT
management is that they do not:
A)indicate the major activities involved.
B)show activity times.
C)show the timing of activities.
D)show precedence relationships.
E)give a visual portrayal.

5 INCORRECT Which is not a feature of PERT/CPM?

A)An estimate of how long a project will

take.
B)A graphical display of project
activities.
 C)An indication of critical activities.
D)An indication of slack time.
E)All are features.

Which of these may require the use of a

6 CORRECT
dummy activity?
A)Gantt chart.
B)Activity-on-arrow network.
C)Activity-on-node network.
D)Both b and c.
E)None of these.

The distribution that is used to represent path

7 INCORRECT
times is the
A)bivariate.
B)beta.
C)normal.
D)Poisson.

The standard deviation of a path is computed

8 CORRECT
as:
A)the sum of the standard deviations of
all activities on the path.
B)the square root of the sum of the
standard deviations of all activities on
the path.
C)the sum of the variances of all
activities on the path.
D)the square root of the sum of the
variances of all activities on the path.
E)none of these.

An important assumption in PERT calculations

9 CORRECT
is:
A)activity times are normally
distributed.
B)activity times are independent.
C)a computer will be available to do the
calculations.
D)a and b.
E)a and c.

INVENTORY MANAGEMENT

MCQ: Reorder point is divided by number of sold units for per unit of time to calculate

A. relevant carrying cost

B. relevant ordering cost
 C. purchase order lease time
D. number of purchase orders

Purchase order lead time is multiplied to number of units is sold per unit of time to calculate

A. carrying costs
B. relevant total costs
C. economic order quantity
D. reorder point

An example of purchasing costs include

A. incoming freight
B. storage costs
C. insurance
D. spoilage

If an average inventory is 2000 units and annual relevant carrying cost of each unit is $5 then
annual relevant carrying cost will be

A. $5,000
B. $4,500
C. $5,500
D. $6,000

Cost of product failure, error prevention and appraisals are classified as

A. stocking costs
B. stock-out costs
C. costs of quality
D. shrinkage costs

activities related to coordinating, controlling and planning activities of flow of inventory are
classified as

A. decisional management
B. throughput management
C. inventory management
D. manufacturing management

1. When developing inventory cost models, which of the following are not included as costs to place an
order?
A) Phone calls
B) Taxes1
C) Clerical
D) Calculating quantity to order
E) Postage
Answer: B

2. Which of the following is not included as an inventory holding cost?

A) Annualized cost of materials
B) Handling
C) Insurance
D) Pilferage
E) Storage facilities
Answer: A

3. Which of the following is not an assumption of the basic fixed-order quantity inventory model?
A) Ordering or setup costs are constant
B) Inventory holding cost is based on average inventory
C) Diminishing returns to scale of holding inventory
D) Lead time is constant
E) Demand for the product is uniform throughout the period
Answer: C

4. Assuming no safety stock, what is the re-order point (R) given an average daily demand of 50 units,
a lead time of 10 days and 625 units on hand?
A) 550
B) 500
C) 715
D) 450
E) 475
Answer: B

5. If annual demand is 12,000 units, the ordering cost is $6 per order and the holding cost is $2.50 per
unit per year, which of the following is the optimal order quantity?
A) 576
B) 240
C) 120.4
D) 60.56
E) 56.03
Answer: B

6. Using the economic order quantity model, which of the following is the total ordering cost of inventory
given an annual demand of 36,000 units, a cost per order of $80 and a holding cost per unit per
year of $4?
A) $849
B) $1,200
C) $1,889
D) $2,267
E) $2,400
Answer: E

7. A company has recorded the last five days of daily demand on their only product. Those values are
120, 125, 124, 128, and 133. The time from when an order is placed to when it arrives at the
company from its vendor is 5 days. Assuming the basic fixed-order quantity inventory model fits
this situation and no safety stock is needed, which of the following is the reorder point (R)?
A) 120
B) 126
C) 630
D) 950
E) 1,200
Answer: C

8. The Pareto principle is best applied to which of the following inventory systems?
A) EOQ
B) Fixed-time period
C) ABC classification
D) Fixed-order quantity
E) Optional replenishment system
Answer: C

9. Using the ABC classification system for inventory, which of the following is a true statement?
A) The C items are of moderate dollar value
B) You should allocate about 15 % of the dollar volume to B items
C) The A items are of low dollar value
D) The A items are of high dollar value
E) Inexpensive and low usage items are classified as C no matter how critical
Answer: D

10.Which one of the following descriptions best defines the cycle-service level as a measure
of customer service?
a. The preferred proportion of annual demand instantaneously filled from stock
b. The number of stockouts tolerated per year
c. The preferred proportion of days in the year when an item is in stock
d. The desired probability of not running out of stock in any one inventory cycle
Answer: d

11.Which one of the following statements is best?

a. A P system requires more safety stock than a Q system.
b. A P system lends itself more to quantity discounts than does a Q system.
c. A P system requires more administrative control and computer support than does
a Q system.
d. In a periodic review system, the value of Q is kept the same from one cycle to another.

Answer: a
12.Sark Incorporated is out of stock for a key item, which has a backorder of 200 units. An open
order of 750 units is scheduled for arrival on the following Monday. What is the current inventory
position at Sark?
a. Less than or equal to 0 units
b. Greater than 0 but less than or equal to 500 units
c. Greater than 500 but less than or equal to 750 units
d. Greater than 750 units
Answer: c

13.For an item under continuous review, the on-hand inventory is only 20 units and the reorder
point R is 100 units. There are no backorders, but there is one open order for 90 units. Which
one of the following statements is TRUE?
a. There is no need to order at the present time.
b. The current inventory position is 100 units.
c. An order should be placed now for 20 units.
d. An order should be placed now for 10 units.
Answer: a

14.The Franklin County Hospital is currently using a continuous review system to control its
inventory. One of the items in inventory is an elastic band. The average demand for this item is
200 boxes per week, and the standard deviation in weekly demand is 50 boxes. If the lead time
is 3 weeks and the hospital wants a 99 percent cycle-service level, what is the reorder point for
this item?

a. Less than 650 boxes

b. Greater than 650 boxes but less than 750 boxes
c. Greater than 750 boxes but less than 850 boxes
d. Greater than 850 boxes
Answer: c

Table 1
A company operating under a continuous review system has an average demand of 50 units per
week for the item it produces. The standard deviation in weekly demand is 20 units. The lead time
for the item is 6 weeks, and it costs the company $30 to process each order. The holding cost for
each unit is $10 per year. The company operates 52 weeks per year.
 15.Use the information in Table 1. What is the economic order quantity (EOQ) for this item?
a. Less than 175 units
b. Greater than 175 units but less than or equal to 200 units
c. Greater than 200 units but less than or equal to 225 units
d. Greater than 225 units
a

16.Use the information in Table 1. What is the desired safety stock level if the company has a policy
of maintaining a 90 percent cycle-service level?
a. Less than 50 units
b. Between 50 units and 100 units
c. Between 100 units and 150 units
d. Greater than 150 units
b

17.Use the information in Table 1. What is the reorder point if the company finally decides to have a
95 percent cycle-service level?
a. Less than or equal to 300 units
b. Between 300 and 325 units
c. Between 325 and 350 units
d. Greater than 350 units
d

18. A company has recorded the last five days of daily demand on their only product. Those values are
120, 125, 124, 128, and 133. The time from when an order is placed to when it arrives at the
company from its vendor is 5 days. Assuming the basic fixed-order quantity inventory model fits
this situation and no safety stock is needed, which of the following is the reorder point (R)?
A) 120
B) 126
C) 630
D) 950
E) 1,200
Answer: C

19. If it takes a supplier four days to deliver an order once it has been placed and the standard
deviation of daily demand is 10, which of the following is the standard deviation of usage during
lead time?
A) 10
B) 20
C) 40
D) 100
E) 400
Answer: B
20. A company wants to determine its reorder point (R). Demand is variable and they want to build a
safety stock into R. If the average daily demand is 12, the lead time is 5 days, the desired z
value is 1.96, and the standard deviation of usage during lead time is 3, which of the following is
the desired value of R?
A) About 6
B) About 16
C) About 61
D) About 66
E) About 79
Answer: D

21. A store has collected the following information on one of its products:

Demand = 10,000 units/year

Standard deviation of weekly demand = 25 units
Ordering costs = $30/order
Holding costs = $4/unit/year
Cycle-service level= 95%
Lead time = 2 weeks
Number of weeks per year = 50 weeks

If a firm uses the continuous review system to control the inventory, what would be the order quantity and
reorder point?

Answer:
= 387.30 387 units
258 units

22. Assuming no safety stock, what is the re-order point (R) given an average daily demand of 100
units and a lead time of 5 days?
Answer: 500
Which of the following is not an inventory?
a. Machines
b. Raw material
c. Finished products
d. Consumable tools
(Ans:a)

The following classes of costs are usually involved in inventory decisions except
a. Cost of ordering
b. Carrying cost
c. Cost of shortages
d. Machining cost
(Ans:d)
 The cost of insurance and taxes are included in
a. Cost of ordering
b. Set up cost
c. Inventory carrying cost
d. Cost of shortages
(Ans:c)

Buffer stock is the level of stock

a. Half of the actual stock
b. At which the ordering process should start
c. Minimum stock level below which actual stock should not fall
d. Maximum stock in inventory
(Ans:c)

The minimum stock level is calculated as

a. Reorder level (Nornal consumption x Normal delivery time)
b. Reorder level + (Nornal consumption x Normal delivery time)
c. (Reorder level + Nornal consumption) x Normal delivery time
d. (Reorder level + Nornal consumption) / Normal delivery time
(Ans:a)

Which of the following is true for Inventory control?

a. Economic order quantity has minimum total cost per order
b. Inventory carrying costs increases with quantity per order
c. Ordering cost decreases with lo size
d. All of the above
(Ans:d)

The time period between placing an order its receipt in stock is known as
a. Lead time
b. Carrying time
c. Shortage time
d. Over time
(Ans:a)

Re-ordering level is calculated as

a. Maximum consumption rate x Maximum re-order period
b. Minimum consumption rate x Minimum re-order period
c. Maximum consumption rate x Minimum re-order period
d. Minimum consumption rate x Maximum re-order period
(Ans:a)

Average stock level can be calculated as

a. Minimum stock level + of Re-order level
b. Maximum stock level + of Re-order level
c. Minimum stock level + 1/3 of Re-order level
d. Maximum stock level + 1/3 of Re-order level
(Ans:a)

The Economic Order Quantity (EOQ) is calculated as

a. (2D*S/h)^1/2
b. (DS*/h)^1/2
c. (D*S/2h)^1/2
d. (D*S/3h)^1/2
Where, D=Annual demand (units), S=Cost per order, h=Annual carrying cost per unit
(Ans:a)

The order cost per order of an inventory is Rs. 400 with an annual carrying cost of Rs. 10 per unit. The
Economic Order Quantity (EOQ) for an annual demand of 2000 units is
a. 400
b. 440
c. 480
d. 500
(Ans:a)

QUEUEING THEORY

Times between two successive requests arriving, called the

A. Interarrival time
B. Arrival time
C. Poisson distribution
D. Average residual service time

Average residual service time, which again assumes Poisson arrivals as:

A. Average residual service time= 1/Arithemtic mean+(1+ C^2)

B. Average residual service time= 2xArithemtic mean+(1+ C^2)
C. Average residual service time=1/ 2xArithemtic mean+(1+ C^2)
D. Average residual service time=1/ 2xArithemtic meanx(1+ C^2)

Exponential distribution, is such a distribution ehich has a C, of value

A. 0
B. 1
C. 2
D. 3

n I/O system with a single disk gets on average 50 I/O requests per second and average time
for a disk to service an I/O request is 10 ms, utilization of I/O system would be

A. 0.2
B. 0.5
 C. 0.75
D. 1.5

One of most widely used exponential distributions is called a

A. Passion distribution
B. Possible distribution
C. Poisson distribution
D. Poisson association