Production and Operations Management

Fall 2006
Quiz #3
Date: 12/19/2006
A. Multiple Choices(40%)
Name: student no.:
1. Quality of life issues include:
a. proximity to markets.
b. prevailing wage rates.
c. local and state taxes.
d. recreational facilities.

2. Which of these is NOT identified as a component of a geographical information system?

a. Hardware
b. Data
c. Software
d. Network

3. McKenna Restaurant wishes to open a new store. Based on the following subjective criteria,
where 10 is excellent and 0 is poor, where should the new store be located?

a. A
b. B
c. C
d. D

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4. The Hunan Restaurant wishes to locate a new facility. Based on the following subjective
criteria, where should the new facility be located? (Very good = 5, Good = 4, Fair = 3, Poor =
2, and Very poor = 1)

a. A
b. B
c. C
d. D

5. Four departments are located in adjacent bays in the same loading dock. The distance
between adjacent bays is 30 feet, the distance between bays separated by another (Alpha and
Charlie, Bravo and Delta) is 60 feet, and the distance between Alpha and Delta is 90 feet. Use
the information in the table to calculate the total load distance for this layout.
To To To To
From Alpha Bravo Charlie Delta
Alpha 0 15 20 30
Bravo 5 0 12 8
Charlie 10 7 0 4
Delta 15 24 6 0

a. 3930
b. 18480
c. 9240
d. 12660

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6. A company makes products at four different plants and ships them to four different
distribution centers. The cost of shipping a single unit between each combination of plant and
distribution center is shown in the table. The capacity of each plant and demand for each
distribution center is also displayed for your calculating pleasure. What is the total cost for
the optimal solution?
Z Y X W Supply
A $6 $9 $12 $14 500
B $9 $1 $5 $8 450
C $6 $8 $4 $5 375
D $9 $14 $15 $8 400
Demand 750 225 325 425
a. $9,575
b. 10,455
c. $9,850
d. $10,780

7. Which of the following is NOT a step in setting up a transportation tableau?

a. Create a row for each plant being considered.
b. Remove the lowest and highest cost intersections from consideration.
c. Create a column for each warehouse being considered.
d. Add a column and a row for plant capacities and total demands.

8. Which of the following factors would cause an operations manager to hold higher
inventories?
a. A high probability of obsolescence.
b. An extremely complicated procedure for adjusting a machine between production of two
different types of product.
c. An exceedingly high cost of capital.
d. A constant item cost regardless of the quantity ordered.

9. Anticipation inventory is a consequence of:

a. moving inventory from one point to another in a system.
b. being able to produce a large quantity of items simultaneously as cheaply as producing
one item.
c. variable and unpredictable demand or lead time.
d. variable yet predictable demand or lead time.

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10. Which of these would increase repeatability?
a. Lower product demand.
b. The use of the one-worker, multiple-machines concept.
c. Investment in flexible resources that can produce a wide variety of products.
d. The use of a specially designed part for each application.

11. What is generally true about the class A items in ABC analysis? They represent:
a. about 20 percent of all items.
b. about 30 percent of all items.
c. about 20 percent of the dollar usage.
d. about 50 percent of the dollar usage.

12. Which one of the following statements concerning the economic order quantity (EOQ)
model is TRUE?
a. An increase in holding cost will increase the EOQ value.
b. A decrease in demand will increase the EOQ value.
c. A decrease in holding cost will increase the EOQ value.
d. None of the above is true.

13. 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

14. A regression equation with a coefficient of determination near one would be most likely to
occur when the data demonstrated a:
a. seasonal demand pattern.
b. trend demand pattern.
c. cyclical demand pattern.
d. random demand pattern.

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15. Which one of the following statements about the patterns of a demand series is FALSE?
a. The five basic patterns of most business demand series are the horizontal, trend,
seasonal, cyclical, and random patterns.
b. Estimating cyclical movement is difficult. Forecasters do not know the duration of the
cycle because they cannot predict the events that cause it.
c. The trend, over an extended period of time, always increases the average level of the
series.
d. Every demand series has at least two components: horizontal and random.

16. Which one of the following statements about forecasting is TRUE?

a. Determining turning points, which are periods when the growth rate of demand will
change, can best be accomplished with time-series methods.
b. In the short-term (here, one to three months in the future), managers are typically
interested in forecasts of total sales and groups or families of products.
c. Causal models are the methods most often used for short-term forecasting.
d. For time horizons exceeding two years, forecasts are usually developed for total sales
demand in dollars or some other common unit of measurement such as barrels, pounds,
or kilowatts.

17. Using salesforce estimates for forecasting has the advantage that:
a. no biases exist in the forecasts.
b. statistical estimates of seasonal factors are more precise than any other approach.
c. forecasts of individual sales force members can be easily combined to get regional or
national sales totals.
d. confusion between customer wants (wish list) and customer needs (necessary
purchases) is eliminated.

18. Which one of the following statements about forecasting is FALSE?

a. You should use the simple moving-average method to estimate the mean demand of a
time series that has a pronounced trend and seasonal influences.
b. The weighted moving-average method allows forecasters to emphasize recent demand
over earlier demand. The forecast will be more responsive to change in the underlying
average of the demand series.
c. The most frequently used time-series forecasting method is exponential smoothing
because of its simplicity and the small amount of data needed to support it.
d. In exponential smoothing, higher values of alpha place greater weight on recent
demands in computing the average.

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19. With the multiplicative seasonal method of forecasting:
a. the times series cannot exhibit a trend.
b. seasonal factors are multiplied by an estimate of average demand to arrive at a seasonal
forecast.
c. the seasonal amplitude is a constant, regardless of the magnitude of average demand.
d. there can be only four seasons in the time-series data.

20. Which one of the following statements is TRUE?

a. The ideal of zero bias and zero MAD can be accomplished by systematically searching
for the best values of the smoothing constants.
b. Bias is always less than MAD.
c. For projections of more stable demand patterns without trends, seasonal influences, or
cyclical influences, use larger values of n in the simple moving-average approach.
d. Getting a single forecast of 500 units for the month of July is better than getting a
forecast showing a 95 percent chance that demand for July will be between 450 and
550 units.

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B. Essay Questions(60%)
1. (16%)Calculate three forecasts using the following data. First, for periods 4 through 10,
develop the exponentially smoothed forecasts using a forecast for period 3 (F3) of 120.0 and
an alpha of 0.3. Second, calculate the three-period moving-average forecast for periods 4
through 10. Third, calculate the weighted moving average for periods 4 through 10, using
weights of .60, .30, and .10. Calculate the mean absolute deviation (MAD) and the
cumulative sum of forecast error (CFE) for each forecasting procedure. Which forecasting
procedure would you select? Why?

Month Demand

1 120
2 115
3 125
4 119
5 127
6 114
7 120
8 124
9 116
10 137

2. (8%)The marketing department for a major manufacturer tracks sales and advertising
expenditures each month. Data from the past nine months and regression output appear in the
following table. Interpret the equation coefficients and the values for the coefficient of
determination and the correlation coefficient.

Month Sales (units) Advertising

($1,000)
1 86,010 25
2 134,697 40
3 202,025 65
4 141,180 45
5 217,086 70
6 178,399 55
7 156,975 50

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8 113,155 35
9 191,901 60

SUMMARY OUTPUT
Regression Statistics
Multiple R 0.997
R Square 0.995
Adjusted R 0.994
Square
Standard Error 3298.324
Observations 9

ANOVA
Df
Regression 1
Residual 7
Total 8

Coefficients
Intercept 12312.05
Advertising 2945.21
($1,000)

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3. (10%)An assistant manager is reviewing the costs associated with the stores best-selling
product. The data available follows.

Demand = 500 units/year

Order cost = $40/order
Holding cost = $7/unit/year

What would be the EOQ and its associated ordering and holding costs?
If annual demand doubles and all other costs remain the same, what is the new EOQ and total
annual cost?

4. (10%)A store has collected the following information on one of its products:

Demand = 4,500 units/year

Standard deviation of weekly demand = 12 units
Ordering costs = $40/order
Holding costs = $3/unit/year
Cycle-service level = 90% (z for 90% = 1.28)
Lead-time = 2 weeks
Number of weeks per year = 52 weeks

If a firm uses the continuous review system to control the inventory, what would be
the order quantity and reorder point?
The firm decided to change to the periodic review system to control the items
inventory. For the most recent review, an inventory clerk checked the inventory of
this item and found 300 units. There were no scheduled receipts or backorders at
the time. How many units should be ordered? (HINT: Use the EOQ model to
derive P, the time between reviews.)

5. (12%)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% (z for 90% = 1.64)
Lead-time = 2 weeks

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 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?
The firm decided to change to the periodic review system to control the items inventory. For
the most recent review, an inventory clerk checked the inventory of this item and found
200 units. There were no scheduled receipts or backorders at the time. How many units
should be ordered? (HINT: Use the EOQ model to derive P, the time between reviews.)

6. (12%)A national firm has beef jerky processing facilities in Locations 1, 2, 3, and 4. They
ship to central distributors (represented as A, B, C, and D) handling four regions of the
country. The per-unit shipping costs between each possible combination of locations are
shown in the following table.

A B C D
1 $5 $10 $5 $4
2 $3 $4 $4 $3
3 $8 $6 $8 $2
4 $2 $3 $5 $9
The processing facility locations are capable of monthly production (in tons) as follows:
Location 1: 600
Location 2: 350
Location 3: 475
Location 4: 850

The central distributors have firm commitments for the following quantities:
Distributor A: 650
Distributor B: 725
Distributor C: 400
Distributor D: 500

What is the lowest-cost shipping arrangement that can be made between the plant locations and
distributors and what is the annual shipping cost?

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