# OPMA 3306 Midterm Exam Operations Management

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## OPMA 3306 Midterm Exam Operations Management

OPMA 3306 Midterm Exam Operations Management

OPMA3306

OPMA 3306 Midterm Examination Operations Management

Question 1

Two managers are debating the consequences of adding something – we’ll call it “Component X” – to their firm’s product-service bundle. Pat says that adding Component X is going to really improve the firm’s business. Francis says that adding Component X is necessary just to keep up with competitors.

If Pat is right, that means Component X is a(n) ____________.

If Francis is right, that means Component X is a(n)_______________.

• Order-winner; order-qualifier
• Order-qualifier; order-winner
• Order-quantifier; order-qualifier

Question 2

It costs \$115 to place an order for inventory item Q54 regardless of the order quantity. Item Q54’s purchase cost is \$29.22, and demand for Q54 is 50 units per month. Holding cost (annual) for Q54 is estimated at 15% of the purchase cost. What is the optimum time between orders for Q54?

• Not in excess of 2 months
• In excess of 2 months but not in excess of 3 months
• In excess of 3 months but not in excess of 4 months
• In excess of 4 months but not in excess of 5 months
• In excess of 5 months

Question 3

Actual and forecasted demand for the last six periods was as follows:

Period Demand Forecast

1 60 63

2 58 54

3 64 70

4 56 58

5 66 67

6 62 54

What was MAPE in this scenario?

• Not in excess of 1.0%
• In excess of 1.0% but not in excess of 1.1%
• In excess of 1.1% but not in excess of 1.2%
• In excess of 1.2% but not in excess of 1.3%
• In excess of 1.3%

Question 4

A decision-maker has to choose from among four mutually exclusive capacity options. Each option has a payoff associated with future demand states. The options and associated payoffs (in \$millions) are as follows:

Options

Demand Standing Small Subcontract Large

States Pat Expansion Hybrid Expansion

Slow -5.0 1.0 -2.0 -6.0

Modest 0.0 3.0 4.0 -3.0

Booming 0.0 4.5 4.0 7.0

Suppose that the probability of a Booming demand state is 0.3. Further suppose that the Slow and Modest demand states are equally likely. What would be the expected value of perfect information in this scenario?

• Not in excess of \$1 million
• In excess of \$1 million but not in excess of \$1.05 million
• In excess of \$1.05 million but not in excess of \$1.08 million
• In excess of \$1.08 million but not in excess of \$1.09 million
• In excess of \$1.09 million

Question 5

Which of the following is factor underpinning the flow shop’s advantage over the job shop?

• Ease of changeover to accommodate greater product variety
• Efficiencies in per-unit variable cost made possible by special-purpose equipment
• Small batch quantities that facilitate marketing to more heterogeneous market Segments
• Both A and C
• None of the above

Question 6

Marketing has forecast that at almost any reasonable price annual demand for a new product will be for 8,000 units. Production of this product will generate \$12,000 per year in fixed costs, with a variable cost per unit of \$4.50. At what minimum price would producing/selling this item become a profitable endeavor?

• Not in excess of \$4.25
• In excess of \$4.25 but not in excess of \$6.50
• In excess of \$6.50 but not in excess of \$8.75
• In excess of \$8.75 but not in excess of \$11.00
• In excess of \$11.00

Question 7

Suppose two forecasting methods – call them FM1 and FM2 – are being compared. FM1’s MAD and MAPE are smaller than FM2’s. FM2’s MSE is smaller than FM1’s. If FM2 is determined to be the better choice, this must mean that in this situation:

• Avoiding the occasional large error is important
• Major changes in the fundamental demand pattern are expected in the future
• Demand is expected to become less variable in the future
• Fundamental changes in seasonal patterns have occurred
• None of the above

Question 8

The following decision tree has been mapped out to help Sammy choose among three courses of action:

If Sammy chooses Option A over the others because Option A is “the least risky,” he’ll be passing up how much in expected value?

• Not more than \$10
• More than \$10 but not more than \$30
• More than \$30 but not more than \$50
• More than \$50 but not more than \$70
• More than \$70

Question 9

If, for a given productive resource, you take into account things like the product mix and maintenance requirements, you are estimating ___________ rather than __________ capacity.

• Pure; reactive
• Theoretical (design); efficient
• Forecasted; actual
• Smoothed; random
• Effective; theoretical (design)

Question 10

An analyst is evaluating two time-series forecasting techniques. Using data from the past, she notes that technique B would have performed better than technique A over the evaluation period. If she goes ahead and chooses technique B for future use, she must therefore be confident that __________.

• A fundamental assumption of time-series forecasting is invalid in this setting
• Unprecedented trends or cycles will emerge in the future
• Random variation is increasing in this time series
• Important predictor variables are missing from Technique A
• None of these

Question 11

Which of the following statements about the difference between services and manufactured goods is most appropriate?

• Services tend to involve tangible transformations to a greater degree than do manufactured goods.
• None of the above statements is appropriate.
• Manufactured goods tend to be produced for distinct, local markets, while services tend to be produced and marketed for broad geographic regions.
• In manufacturing, production and consumption can be greatly separated across time or distance; in services, production and consumption often occur in close proximity.
• Producing manufactured goods tends to be more labor-intensive than does producing services.

Question 12

For a given inventory item, the appropriate risk of a stockout has been determined to be 12%. Demand for this item averages 20 units per week, with a standard deviation of 5.36 units. Lead time is a certain 3 weeks. What is the appropriate reorder point?

• Not in excess of 68 units
• In excess of 68 units but not in excess of 70 units
• In excess of 70 units but not in excess of 72 units
• In excess of 72 units but not in excess of 74 units
• In excess of 74 units

Question 13

A forecasting analyst has available the following data from previous time periods:

Actual

Month Demand

June 612

July 594

August 598

September 606

Exponential smoothing with a = 0.4 is used. Assuming the May forecast was for 607, October’s forecast would be

• 623.0
• 609.0
• 607.0
• 603.0
• Can’t be determined with this information

Question 14

A forecasting analyst has available the following data from previous time periods:

Actual

Month Demand

June 612

July 594

August 598

September 606

What would the October forecast be if a two-period moving average were used?

• 603.0
• 602.0
• 607.0
• 623.0
• 609.0

Question 15

PTC is manufacturing and assembling a small number of complex catalytic winders. The first winder requiredm500 direct labor-hours, and it looks as if the second will require only 475. If a total of four winders are ultimately manufactured and assembled, what will be the total direct labor requirements?

• Not more than 1,800 hours
• More than 1,800 hours but not more than 1,810 hours
• More than 1,810 hours but not more than 1,840 hours
• More than 1,840 hours but not more than 1,890 hours
• More than 1,890 hours

Question 16

Suppose that last year it cost \$12 to hold a unit in inventory for a year. If this year holding cost will be \$14 but everything else remains the same, which of the following must be true?

• The optimum order quantity will increase
• The optimum order quantity will remain unchanged
• The optimum order quantity will double
• The optimum order quantity will decrease
• None of the above

Question 17

If everything goes right, it takes six minutes to assemble a squidgeroo. The employee responsible for assembling the squidgeroo works an eight-hour shift, but the work center must be shut down for four minutes three times per shift for required maintenance. For the most recent eight-hour shift worked, output was 74 units. What was utilization?

• Not in excess of 90%
• In excess of 90% but not in excess of 92%
• In excess of 92% but not in excess of 94%
• In excess of 94% but not in excess of 96%
• In excess of 96%

Question 18

It would be difficult to classify most firms as either “pure service” or “pure manufacturer.” This is because most of what’s sold in today’s economy can be categorized as ___________.

• Outsourced
• Green
• Product-service bundles
• Order qualifying
• Order winning

Question 19

When demand grows or diminishes at a predictable rate over some period of time, that is referred to

• Cyclicality
• Trend
• Seasonality
• Exponentiality
• None of the above

Question 20

In industry X, customers are becoming less interested in product variety and more interested in a low price. Process choice in this industry should be trending more toward the ___________ end of the process continuum and away from the ___________ end of the process continuum.

• Job shop; flow shop
• Process shop; product shop
• Flow shop; job shop
• Project shop; process shop
• Batch shop; queue shop

Question 21

A decision-maker has to choose from among four mutually exclusive capacity options. Each option has a payoff associated with future demand states. The options and associated payoffs (in \$millions) are as follows:

Options

Demand Standing Small Subcontract Large

States Pat Expansion Hybrid Expansion

Slow -5.0 1.0 -2.0 -6.0

Modest 0.0 3.0 4.0 -3.0

Booming 0.0 4.5 4.0 7.0

Suppose that the probability of a Booming demand state is 0.3. Further suppose that the Slow and Modest demand states are equally likely. What would be the expected value of the option that should be chosen?

• Not in excess of \$1.75 million
• In excess of \$1.75 million but not in excess of \$2.15 million
• In excess of \$2.15 million but not in excess of \$2.65 million
• In excess of \$2.65 million but not in excess of \$3.15 million
• In excess of \$3.15 million

Question 22

Process choice J has monthly fixed costs of \$10,000 and variable costs of \$25 per unit. Process choice K has monthly fixed costs of \$13,000 and variable costs of \$24 per unit. Which of the following statements is correct?

• Process J is the better choice so long as monthly demand is less than 2,800 units.
• Process K is the better choice so long as monthly demand exceeds 3,000 units.
• Process J is the better choice so long as annual demand is in excess of 40,000 units.
• Process J and K have identical costs at an annual demand of 15,000 units.
• None of the above statements is accurate.

Question 23

If a firm chooses to structure its processes at the flow shop end of the process continuum, that firm typically will be pursuing ___________ with ____________ technology.

• Diseconomies of scope; general-purpose but labor-intensive
• Economies of scale; specialized but capital-intensive
• Economies of scale; general-purpose but labor-intensive
• Economies of variation; flexible but capital-intensive
• Economies of decentralization; rigid but labor-intensive

Question 24

Which of the following is a factor in determining the reorder point for an inventory item?

• the item’s EOQ
• the design capacity of the item’s work center
• the item’s utilization
• the item’s learning rate
• none of the above are factors

Question 25

Every morning a florist must decide how many dozens of roses to stock. Roses have a shelf life f only one day, but at the end of the day unsold roses have a salvage value of \$2 per dozen. Roses have a wholesale cost of \$5 per dozen and a retail value of \$19 per dozen. Historically, demand for roses has never been less than 20 dozen and never been in excess of 25 dozen, and demand for roses has been evenly distributed across this range (i.e., the probability of demand’s being for 20 dozen is equal to the probability of it’s being for 21 dozen, and so on). What is the optimum stocking quantity?

• We would be indifferent between 22 dozen and 23 dozen
• Not in excess of 22 dozen
• 24 dozen
• 22 dozen

Question 26

Suppose annual demand for a given item is 1,200 units. For this item, ordering cost is \$60 and the annual cost of holding a unit in inventory is \$10. Further suppose that currently this item is ordered in quantities of 120.

How much money would be saved by switching to an optimal order quantity?

• Not in excess of \$100
• In excess of \$100 but not in excess of \$200
• In excess of \$200 but not in excess of \$600
• In excess of \$600 but not in excess of \$1,000
• In excess of \$1,000

Question 27

For a given inventory item, demand averages 30 units per week, with a standard deviation of 4.2 units. Lead time for this item is a constant 3 weeks, and based on this lead time the reorder point has been set at 100 units. What is the stockout risk associated with this particular reorder point?

• Not in excess of 5%
• In excess of 5% but not in excess of 6.5%
• In excess of 6.5% but not in excess of 8%
• In excess of 8% but not in excess of 9.5%
• In excess of 9.5%