OPERATIONS MANAGEMENT

First Exam
Dr. Jooh Lee

Name:_______________*

** TRUE-FALSE QUESTIONS (75 pts: 3 pts. each)

___ 1. The zero value of coefficient of determination indicates an absence of any relationship between two variables.
___ 2. An iso-profit line represents all combinations of the products which would yield the same value of profits.
___ 3. The feasible solution space (or area) only contains points that satisfy all constraints.
___ 4. When using a simple moving average to forecast demand, one would give equal weight to all demand figures.
___ 5. The per-unit contribution of a product is measured by the difference between fixed cost and unit variable cost.
___ 6. A simplex method is possible to solve L.P. problems with more than three (n>3) decision variables.
___ 7. One of the major assumptions underlying the break-even analysis is that everything which is produced can be sold.
___ 8. Productivity is measured by the ratio of input to output (= inputs / outputs).
___ 9. EVPI is the difference between expected profit under perfect information (EPPI) and the minimum Expected monetary
value (EMV).
___10. The breakeven point is defined as the level of output at which fixed costs are equal to the variable costs.
___11. The random factor in time series refers to an unanticipated or unpredictable effect due to unusual occurrence.
___12. Frederick W. Taylor addresses advantages of the division of labor and specialization of the job.
___13. In decision trees, circular nodes are used to denote a chance event (i.e., state of nature).
___14. Changing one or more of the objective coefficients will change the feasible solution area(or space) in the L.P.
___15. The first step, and a key element, in the decision making process is to develop all possible alternatives.
___16. The MINIMAX criterion is a pessimistic approach in decision making under extremely uncertainty.
___17. In decision theory, state of nature refer to possible conditions which may happen in the future.
___18. The MAXIMIN approach involves choosing the alternatives that has the "best worst" payoff.
___19. The smoothing constant () can range only from -1.0 to 1.0.
___20. In a simple linear regression model, Y=A+BX, Y is the dependent variable and X is the independent variable.
___21. Forecast accuracy or reliability can be determined by the smoothing constant () in exponential smoothing
method.
___22. Decision tree problems should be analyzed (or solved) backwards.
___23. R-square (R2) refers to the correlation coefficient in the regression and correlation analysis..
___24. The value of Correlation coefficient can range only from 0 to 1.

___25. The term "EPPI" represents the maximum amount that should be paid for information that completely eliminates
the uncertainty?
Answer: True 2, 3, 4, 6, 7, 11, 13, 17, 18, 20, 22,
** MULTIPLE CHOICE QUESTIONS (60 points: 3 pts. each)
___ 1. Iso-profit line represents all possible combinations of:
a. the decision variables which will produce a given profit. c. the constraints which will produce a given profit.
b. the objective function which will produce a given profit. d. the solution points in the feasible solution area.
___ 2. Which of the following is used to used to obtain the best linear trend line in a linear regression analysis?
a. Scatter diagram. b. Correlation of coefficient.
c. Least square method.
d. Coefficient of determination.
___ 3. Which of the following is an appropriate sequence of steps in the decision making process?
a. problem - criteria - model - alternatives - action
b. problem - model - criteria - alternatives - action
c. criteria - problem - model - alternatives action
d. criteria - model - alternatives - analysis - problem
___ 4. The term opportunity loss (regrets) is most closely associated with:
a. minimax
b. maximax
c. maximin
___ 5. Some assumptions of the general L.P. model are:
a. linearity, divisibility, certainty, nonnegativity.
c. certainty, linearity, feasibility, nonnegativity.

d. Laplace

b. linearity, stockasticity, additivity, divisibility.

d. constraints, objective function, decision variable.

___ 6. A feasible solution area (or space) in a L.P. problem represents:

a. area which satisfies all of the inequality constraints.
b. area which satisfies all of the constraints.
c. area which satisfies all of the objective function.
d. are which satisfies all of the decision variables.
___ 7. Three major methods of estimating a trend of time series are:
a. Freehand curve, moving average, and least square. b. Freehand curve, least square, and seasonal method.
c. Trend, cyclical, seasonal, and correlation.
d. Moving average, least square, and regression.
___ 8. The forecasting methodology which express the degree of the strength of the relationship between two variables of
a linear relationship is :
a. time series method.
b. regression method.
c. correlation method. d. exponential smoothing.
___ 9. Which of the following is not a method (approach) for decision making under extremely uncertainty ?
a. EMV
b. MINIMAX
c. MAXIMAX
d. MAXIMIN
___10. Which of the following is not a major components required to structuring a linear programming ?
a. constraints
b. decision variables
c. objective function d. feasible solutions
___11. Which of the following corresponds to the predictor variable in a simple linear regression?
a. Regression coefficient
b. Independent variable
c. Dependent variable
d. Predicted variable
___12. When using a weighted moving average to forecast demand, on e would:
a. use a alpha of between 0 and 1.
b. assign more weight to the more current data.
c. give equal weight to a all demand figure.
d. include new data to the average without discarding old one.
___13. In breakeven analysis which of the following is not true?
a. Fixed cost = Variable cost
b. Total revenue = Total costs
c. BEP = FC / ( Price - VC)
d. (Price)(Q) = FC + VC * Q
___14. When a time series is decomposed which of the following is not a major component?

a. cyclical factor

b. seasonal factor

c. time change factor

d. variation (random) factor

___15. If the minimum expected regret is computed, it indicates to a decision maker the:
a. expected value of perfect information.(EVPI)
b. expected payoff under certainty (EPPI).
c. expected monetary value (EMV).
d. expected payoff under risk (EOL).
___16. The theoretical limit on the number of decision variables that can be handled by the simplex method is:
a. 1
b. 2
c. 3
d. unlimited
___17. The mean absolute deviation (MAD) or mean squared error (MSE) are used to:
a. estimate the trend line. b. eliminate forecast errors. c. measure forecast accuracy. d. seasonally adjust
forecast.
___18. The maximum amount of money that decision maker would be willing to pay to obtain any additional information
in order to eliminate uncertainty is represented by the:
a. expected value of perfect information (EVPI).
b. expected payoff with perfect information (EPPI).
c. highest expected monetary value (EMV).
d. highest expected opportunity loss (EOL).
___19. Which of the following methods is closely related to the opinion/judgmental forecasting?
a. Regression analysis.
b. Exponential Smoothing. c. Delphi techniques
d. Least square method.
___20. In a simple linear regression model, Y = a + b X, which term (s) is (are) the predictor(S) variable (s)?
a. Y
b. X
c. a
d. b
Answer: 1-A, 2-C, 3-A, 4-A, 5-A, 6-B, 7-A, 8-C, 9-A, 10-D, 11-B, 12-B, 13-A, 14-C, 15-A, 16-D, 17-C, 18-A, 19-C
20-B

** MULTIPLE CHOICE PROBLEMS(120 pts. : 6 pts. each)

___ 1. For the constraints given below, which pairs of points are (within) the feasible solution space of this
maximization problem?
(1) X1 + X2 5,
(2) 2X1 + 2X2 6,
(3) 3X1 + 5X2 15
a. X1=3.0, X2=3.0
b. X1=3.0, X2=1.0
c. X1=1.0, X2=1.0
d. X1=2.0, X2=4.0

e. None

___ 2. Which of the choices below constitutes a simultaneous solution to these equations:
(1) 3X + 4Y = 10 and (2) 5X + 4Y = 14 ?
a. X = 2, Y = 0.5
b. X = 4, Y = -0.5
c. X = 2, Y = 1
d. X = 1, Y = 2

e. None

___ 3. What combination of X and Y will yield the optimum for this problem ?
Maximize Z = 10X + 30Y
subject to: (1) 4X + 6Y 12 and
a. X = 2.0, Y = 0.0
b. X = 1.5, Y = 1.0
c. X = 0.0, Y = 2.0

e. None

(2) 8X + 4Y 16.
d. X = 3.0, Y = 2.0

___ 4. What combination of X and Y will provide a minimum for this problem ?
Minimize Z = X + 3Y
subject to: (1) 2X + 4Y 12 and (2) 5X + 2Y 10
a. X = 6.0, Y = 0.0
b. X = 5.0, Y = 0.0
c. X = 1.0, Y = 2.5
d. X = 2.5, Y = 1.0

e. None

___ 5. A paper mill department has fixed costs of $200,000/ year, variable costs of $15/unit, and annual revenue of
$960,000 at a volume of 48,000 units. The break-even volume(units) is:
a. 20,000
b. 30,000
c. 40,000
d. 50,000 units
e. None
___ 6. If alpha() is 0.2 and the current demand is 200, the forecast for the current period was 175 and for the last period
was 150; what is the forecast for the next period ?
a. 160
b. 180
c. 190
d. 195
e. None

Ft = F t-1 +
(A t-1 - F t-1)
___ 7. A firm has two plants(X and Y) producing the same product which sells for $12 each. Fixed costs are
$5,000/year at plant X and $7,000/year at plant Y and variable costs are $3.00/unit and $2.00/unit for X and Y,
respectively. The total profit at X and Y are equal when the volume of each plant(units) is:
a. 500
b. 1,000
c. 1,500
d. 2,000
e. None

(8-11) The LEE's Publishing Company intends to publish a textbook in Operations Management. Fixed costs are
$20,000 per year, variable cost per unit is 50 percent of their $20 per-unit selling price. Give your answers
about the following questions.

___ 8. If annual sales are 3,000 units, what are the annual profits?
a. $10,000
b. $20,000
c. $30,000

d. $40,000

e. None

___ 9. What variable cost per unit would result in $30,000 annual profits if annual sales are 4,000 units?
a. $7.00
b. $7.50
c. $8.00
d. $8.50
e. None
___ 10 How much annual revenue is required to breakeven ?
a. 20,000
b. 30,000
None

c. 40,000

d. 50,000

e.

___11. What price must book be sold for to obtain a yearly profit of $30,000, assuming that estimated demand would be
realized at the break-even ?
a. $10
b. $30
c. $35
d. $40
e. None
* (12-15) Using the data below, give your answers for following questions.
Period Demand
Feb.
50
Mar.
40
Apr.
45
May.
35
___12. Forecast demand for June using the Naive approach.
a. 25
b. 35
c. 40
None

d. 50

e.

___13. Forecast demand for June using a weighted moving average with weights of 1, 2, and 3 where the heaviest weight
for the most recent period.
a. 39.17
b. 45.83
c. 43.33
d. 40.83
e.
None
___14. Following linear equation is used to predict monthly sales:
Yt = 20 + 10 t. What is the forecast for June if t = 0 in Feb. of this year?
a. 60
b. 50
c. 55
d. 40

e. None

___15. Given an actual demand of 45, a forecasting value of 40 for Apr. and an alpha of 0.5, what would the forecast for
the next time period (June) be using exponential smoothing?
a. 37.5
b. 38.75
c. 42.5
d. 35.25
e. None
Ft = F t-1 +
(A t-1 - F t-1)
* Next five questions(16-20) are based on the following information.
State of nature
--------------------------------------------------------------

High(0.2) Moderate(0.5) Low(0.3)

-------------------------------------------------------------Buy
$ 70
$ 60
$ 10
Alternatives

Rent

50

40

20

Lease
60
50
-(30)
-------------------------------------------------------------* Each value represents profit.
___16. The MINIMAX strategy would be:
a. High
b. Moderate

c. Low

d. Buy

e. Rent

f. Lease

___17. If P(High) is 0.2, P(moderate) is 0.5, and P(low) is 0.3, the choice for the maximum expected value would be:
a. Buy
b. Rent
c. Lease
d. High
e. Moderate
f. Low
___18. The maximin strategy would be:
a. High
b. Moderate

c. Low.

d.Buy

e. Rent

___19. The value of EPPI is:

a. $6
b. $14

c. $30

d. $70

e. $ 50

___20. The value of EVPI is:

a. $3
b. $14

c. $22

d. 20

e. None

f. Lease

Answer: 1-B, 2-C, 3-C, 4-A, 5-C, 6-B, 7-D, 8-A, 9-B, 10-C, 11-C, 12-B, 13-A, 14-A, 15-B, 16-D, 17-A, 18-E, 19-E, 20-A