Operations Management Exam 2

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Operations Management Quizzes & Trivia

Questions and Answers
  • 1. 

    A large office which has a typing pool, a copying department and all the managers in a large suite of offices is an example of:

    • A.

      A line process

    • B.

      A batch process

    • C.

      A project process

    • D.

      A continuous process

    Correct Answer
    B. A batch process
    Explanation
    A large office which has a typing pool, a copying department, and all the managers in a large suite of offices can be considered an example of a batch process. In a batch process, similar tasks or activities are grouped together and completed in batches or sets. In this scenario, the typing pool and copying department may handle multiple tasks together, such as typing and copying documents in batches, while the managers may handle their tasks in a separate batch. This approach allows for efficiency and streamlining of work by grouping similar activities together.

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  • 2. 

    A company makes necklaces with attached letters. Department A makes up the chains and letters. Department B assembles the necklaces when orders are received. Departments A and B are, respectively:

    • A.

      Make-to-stock, make-to-stock

    • B.

      Make-to-stock, make-to-order

    • C.

      Make-to-order, make-to-stock

    • D.

      Make-to-order, make-to-order

    Correct Answer
    B. Make-to-stock, make-to-order
    Explanation
    Department A is responsible for making the chains and letters in advance, without specific customer orders. This indicates a make-to-stock strategy, where products are produced based on anticipated demand. Department B, on the other hand, assembles the necklaces only when orders are received. This suggests a make-to-order approach, where products are manufactured based on specific customer requests.

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  • 3. 

    A company makes necklaces with attached letters. Department A makes up the chains and letters. Department B assembles the necklaces when orders are received. Department B would be primarily concerned with:

    • A.

      Forecasting customer orders

    • B.

      Planning capacity

    • C.

      Use of overtime

    • D.

      Delivery time

    • E.

      A and B

    Correct Answer
    D. Delivery time
    Explanation
    Department B would be primarily concerned with delivery time because they are responsible for assembling the necklaces when orders are received. Their main focus would be on ensuring that the completed necklaces are delivered to the customers within the specified time frame. This involves coordinating with Department A to ensure timely production of the chains and letters, managing the assembly process efficiently, and coordinating with the shipping department to ensure prompt delivery.

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  • 4. 

    An entrepreneur is planning to start a factory to produce specialized plastic containers. She has decided to choose either a line or batch process and has selected two possible sites, one in a small town and one in a big city. She has discovered the following facts:    Small Town City Capital Not readily available Readily available Labor Unskilled available All types of labor Market  Small Large Based on the information just presented, which of the following should be chosen?

    • A.

      Line in city

    • B.

      Line in small town

    • C.

      Batch in city

    • D.

      Batch in small town

    Correct Answer
    A. Line in city
    Explanation
    Based on the information given, the entrepreneur should choose a line process in the city. This is because the capital is readily available in the city, which is crucial for setting up a factory. Additionally, the city offers a larger market, which means there is a higher potential for sales and profits. Although the small town may have unskilled labor available, the availability of different types of labor in the city can provide more flexibility and options for the entrepreneur.

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  • 5. 

    Identify the correct statement from the given choices.

    • A.

      A batch process is characterized by jumbled flow while the line process is characterized by a regular sequential flow

    • B.

      The project form of operations is characterized by difficult planning and scheduling rules.

    • C.

      Batch production is synonymous to mass production systems.

    • D.

      All the above

    • E.

      A & B

    Correct Answer
    E. A & B
    Explanation
    The correct statement is "A & B". This means that both options A and B are correct. Option A states that a batch process is characterized by jumbled flow, while option B states that the project form of operations is characterized by difficult planning and scheduling rules.

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  • 6. 

    Which of the following statements regarding Dell Computer is false?

    • A.

      Dell is a practitioner of the mass customization process.

    • B.

      Dell builds its computers overseas in order to gain a low-cost advantage.

    • C.

      Dell keeps very little inventory of finished goods.

    • D.

      Dell utilizes a global supply chain, but assembles its computers in the U.S.

    • E.

      Dell's research focuses on manufacturing issues, not computer part design.

    Correct Answer
    B. Dell builds its computers overseas in order to gain a low-cost advantage.
    Explanation
    Dell builds its computers overseas in order to gain a low-cost advantage. This statement is false because Dell actually assembles its computers in the U.S., not overseas. Dell utilizes a global supply chain, but the assembly of its computers takes place in the U.S. This allows Dell to have better control over the manufacturing process and ensures high-quality standards. By keeping the assembly in the U.S., Dell can also respond quickly to customer demands and customization requests.

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  • 7. 

    A product-focused process is commonly used to produce

    • A.

      High-volume, high-variety products

    • B.

      Low-volume, high-variety products

    • C.

      High-volume, low-variety products

    • D.

      Low-variety products at either high- or low-volume

    • E.

      High-volume products of either high- or low-variety

    Correct Answer
    C. High-volume, low-variety products
    Explanation
    A product-focused process is commonly used to produce high-volume, low-variety products. This means that the process is designed to efficiently produce a large quantity of the same product, while minimizing the variety of products being produced. This type of process is often used in industries such as automotive manufacturing, where a large number of identical products are produced in a standardized manner. By focusing on high volume and low variety, the process can optimize efficiency and reduce costs.

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  • 8. 

    Harley Davidson

    • A.

      Utilizes job shops to make each of its modules

    • B.

      Uses product focused manufacturing

    • C.

      Uses a large number of modules to build a small number of different bikes

    • D.

      Uses work cells to feed its assembly line

    • E.

      All of the above are true.

    Correct Answer
    D. Uses work cells to feed its assembly line
    Explanation
    The correct answer is "uses work cells to feed its assembly line." This means that Harley Davidson utilizes work cells, which are small production units, to supply components to its assembly line. Work cells are efficient in terms of time and cost as they allow for a smooth flow of materials and reduce the need for transportation between different production areas.

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  • 9. 

    When done correctly, mass customization

    • A.

      Increases pressure on supply chain performance

    • B.

      Helps eliminate the guesswork that comes with sales forecasting

    • C.

      Drives down inventories

    • D.

      Increases pressure on scheduling

    • E.

      All of the above

    Correct Answer
    E. All of the above
    Explanation
    Mass customization refers to the process of producing customized products on a large scale. When done correctly, it increases pressure on supply chain performance because it requires efficient coordination and synchronization of various activities to meet individual customer demands. It also helps eliminate the guesswork that comes with sales forecasting as the products are tailored to specific customer needs. Additionally, mass customization drives down inventories as products are produced based on actual customer orders, reducing the need for excessive stock. Lastly, it increases pressure on scheduling as the production process needs to be flexible and responsive to accommodate customization requests.

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  • 10. 

    In mass service and service factory quadrants of the service process matrix, the operations manager could focus on all of the following except

    • A.

      Automation

    • B.

      Standardization

    • C.

      Tight quality control

    • D.

      Removing some services

    • E.

      Customization

    Correct Answer
    E. Customization
    Explanation
    In mass service and service factory quadrants of the service process matrix, the operations manager could focus on automation, standardization, tight quality control, and removing some services. However, customization is not a focus in these quadrants. Mass service and service factory involve high volume and standardized services, where customization may not be feasible or necessary. The focus is on efficient and consistent processes rather than tailoring services to individual customers.

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  • 11. 

    Which of the following statements regarding ethical and environmentally friendly processes is true?

    • A.

      Operations managers can be environmentally sensitive, but they must avoid following a low cost strategy.

    • B.

      Processes can be environmentally friendly or socially responsible, but not both.

    • C.

      Operations managers can be environmentally sensitive and still follow a low cost strategy.

    • D.

      Using energy-efficient lighting saves so little that it should not be labeled environmentally friendly.

    • E.

      The only business strategy consistent with ethical and environmentally sensitive management is the differentiation strategy.

    Correct Answer
    C. Operations managers can be environmentally sensitive and still follow a low cost strategy.
    Explanation
    This statement suggests that operations managers can prioritize environmental concerns while still striving to minimize costs. It implies that being environmentally sensitive does not necessarily mean sacrificing a low cost strategy. This aligns with the idea that organizations can adopt sustainable practices and still be financially efficient.

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  • 12. 

    What two numbers are contained in the daily report to the CEO of Walt Disney Parks & Resorts regarding the six Orlando parks?

    • A.

      Yesterday’s forecasted attendance and yesterday’s actual attendance

    • B.

      Yesterday’s actual attendance and today’s forecasted attendance

    • C.

      Yesterday’s forecasted attendance and today’s forecasted attendance

    • D.

      Yesterday’s actual attendance and last year’s actual attendance

    • E.

      Yesterday’s forecasted attendance and the year-to-date average daily forecast error

    Correct Answer
    A. Yesterday’s forecasted attendance and yesterday’s actual attendance
    Explanation
    The daily report to the CEO of Walt Disney Parks & Resorts regarding the six Orlando parks includes yesterday's forecasted attendance and yesterday's actual attendance. This information is important for the CEO to understand how well the parks are performing in terms of attendance and to evaluate the accuracy of the attendance forecasts. By comparing the forecasted attendance with the actual attendance, the CEO can assess the effectiveness of their forecasting methods and make informed decisions regarding park operations and future planning.

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  • 13. 

    Forecasts

    • A.

      Become more accurate with longer time horizons

    • B.

      Are rarely perfect

    • C.

      Are more accurate for individual items than for groups of items

    • D.

      All of the above

    • E.

      None of the above

    Correct Answer
    B. Are rarely perfect
    Explanation
    Forecasts are rarely perfect because they are based on assumptions and predictions about future events, which are inherently uncertain. No matter how much data and analysis is used, there will always be some degree of error or deviation from the actual outcome. Therefore, it is important to understand that forecasts are not guaranteed to be completely accurate and should be interpreted with caution.

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  • 14. 

    The three major types of forecasts used by business organizations are

    • A.

      Strategic, tactical, and operational

    • B.

      Economic, technological, and demand

    • C.

      Exponential smoothing, Delphi, and regression

    • D.

      Causal, time-series, and seasonal

    • E.

      Departmental, organizational, and territorial

    Correct Answer
    B. Economic, technological, and demand
    Explanation
    The correct answer is economic, technological, and demand. Business organizations use these types of forecasts to make informed decisions about their operations. Economic forecasts help them understand the overall economic conditions and trends that may impact their business. Technological forecasts help them anticipate advancements in technology that may affect their industry. Demand forecasts help them predict customer demand for their products or services. By considering all three types of forecasts, organizations can develop strategies and plans to adapt and thrive in a changing business environment.

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  • 15. 

    Which of the following is not a type of qualitative forecasting?

    • A.

      Executive opinions

    • B.

      Sales force composites

    • C.

      Consumer surveys

    • D.

      The Delphi method

    • E.

      Moving average

    Correct Answer
    E. Moving average
    Explanation
    Moving average is not a type of qualitative forecasting because it is a quantitative forecasting method. Qualitative forecasting methods rely on subjective opinions, judgments, and experiences to make predictions, whereas quantitative methods use historical data and mathematical models. Executive opinions, sales force composites, consumer surveys, and the Delphi method are all examples of qualitative forecasting techniques that involve gathering opinions and input from individuals or groups. On the other hand, moving average is a quantitative method that calculates the average of a set of data points over a specific time period to identify trends and patterns.

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  • 16. 

    Which of the following techniques uses variables such as price and promotional expenditures, which are related to product demand, to predict demand?

    • A.

      Associative models

    • B.

      Exponential smoothing

    • C.

      Weighted moving average

    • D.

      Time series

    • E.

      All of the above

    Correct Answer
    A. Associative models
    Explanation
    Associative models use variables such as price and promotional expenditures, which are related to product demand, to predict demand. These models analyze the relationship between these variables and demand patterns to make accurate predictions. Unlike other techniques such as exponential smoothing and weighted moving average, associative models specifically focus on the relationship between demand and other relevant factors, making them suitable for predicting demand based on these variables. Therefore, the correct answer is associative models.

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  • 17. 

    Which of the following statements about time series forecasting is true?

    • A.

      It is based on the assumption that future demand will be the same as past demand.

    • B.

      It makes extensive use of the data collected in the qualitative approach.

    • C.

      The analysis of past demand helps predict future demand.

    • D.

      Because it accounts for trends, cycles, and seasonal patterns, it is more powerful than causal forecasting.

    • E.

      All of the above are true.

    Correct Answer
    C. The analysis of past demand helps predict future demand.
    Explanation
    Time series forecasting is a method that involves analyzing past demand patterns to predict future demand. By examining historical data and identifying trends, cycles, and seasonal patterns, it becomes possible to make accurate forecasts about future demand. This approach does not rely on qualitative data or assume that future demand will be the same as past demand. Additionally, while time series forecasting is powerful in capturing trends and patterns, it is not necessarily more powerful than causal forecasting, which considers the relationship between variables. Therefore, the correct statement in this case is that the analysis of past demand helps predict future demand.

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  • 18. 

    Time series data may exhibit which of the following behaviors?

    • A.

      Trend

    • B.

      Random variations

    • C.

      Seasonality

    • D.

      Cycles

    • E.

      They may exhibit all of the above.

    Correct Answer
    E. They may exhibit all of the above.
    Explanation
    Time series data refers to a sequence of observations taken at regular intervals over time. These observations can show different patterns or behaviors. Trend refers to a long-term increase or decrease in the data. Random variations are unpredictable fluctuations that occur in the data. Seasonality refers to regular patterns that repeat at fixed intervals, such as daily, weekly, or yearly. Cycles refer to longer-term patterns that repeat over a longer period of time, such as economic cycles. Therefore, time series data can exhibit all of these behaviors simultaneously.

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  • 19. 

    What is the approximate forecast for May using a four-month moving average? Nov 39 Dec 36 Jan 40 Feb 42 Mar 48 Apr 46

    • A.

      38

    • B.

      42

    • C.

      43

    • D.

      44

    • E.

      47

    Correct Answer
    D. 44
    Explanation
    The four-month moving average is calculated by taking the average of the sales data for the previous four months. In this case, the average of the sales data for Feb, Mar, Apr, and May would be 42+48+46+44 = 180, and dividing it by 4 would give us 45. Therefore, the approximate forecast for May using a four-month moving average would be 45.

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  • 20. 

    John’s House of Pancakes uses a weighted moving average method to forecast pancake sales. It assigns a weight of 5 to the previous month’s demand, 3 to demand two months ago, and 1 to demand three months ago. If sales amounted to 1000 pancakes in May, 2200 pancakes in June, and 3000 pancakes in July, what should be the forecast for August?

    • A.

      2400

    • B.

      2511

    • C.

      2067

    • D.

      3767

    • E.

      1622

    Correct Answer
    B. 2511
    Explanation
    The weighted moving average method assigns different weights to previous demand data based on their recency. In this case, the weight assigned to the previous month's demand is 5, the weight for demand two months ago is 3, and the weight for demand three months ago is 1. To calculate the forecast for August, we multiply the demand in May by 5, the demand in June by 3, and the demand in July by 1. Then, we sum these values and divide by the sum of the weights (5 + 3 + 1 = 9). Using this formula, the forecast for August is (1000 * 5 + 2200 * 3 + 3000 * 1) / 9 = 2511. Therefore, the correct answer is 2511.

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  • 21. 

    A six-month moving average forecast is better than a three-month moving average forecast if demand

    • A.

      Is rather stable

    • B.

      Has been changing due to recent promotional efforts

    • C.

      Follows a downward trend

    • D.

      Follows a seasonal pattern that repeats itself twice a year

    • E.

      Follows an upward trend

    Correct Answer
    A. Is rather stable
    Explanation
    A six-month moving average forecast is better than a three-month moving average forecast if demand is rather stable because a longer time period allows for a smoother average that is less influenced by short-term fluctuations. This provides a more accurate representation of the overall trend and helps to reduce the impact of random variations in the data.

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  • 22. 

    Increasing the number of periods in a moving average will accomplish greater smoothing, but at the expense of

    • A.

      Manager understanding

    • B.

      Accuracy

    • C.

      Stability

    • D.

      Responsiveness to changes

    • E.

      All of the above are diminished when the number of periods increases.

    Correct Answer
    D. Responsiveness to changes
    Explanation
    When the number of periods in a moving average is increased, it will result in greater smoothing of the data. However, this increased smoothing comes at the expense of responsiveness to changes. In other words, as more periods are included in the average, the moving average becomes slower to react to any recent changes or fluctuations in the data. Therefore, the responsiveness to changes is diminished when the number of periods increases.

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  • 23. 

    Which of the following statements comparing the weighted moving average technique and exponential smoothing is true?

    • A.

      Exponential smoothing is more easily used in combination with the Delphi method.

    • B.

      More emphasis can be placed on recent values using the moving average.

    • C.

      Exponential smoothing is considerably more difficult to implement on a computer.

    • D.

      Exponential smoothing typically requires less record keeping of past data.

    • E.

      Exponential smoothing allows one to develop forecasts for multiple periods, whereas weighted moving averages does not.

    Correct Answer
    D. Exponential smoothing typically requires less record keeping of past data.
    Explanation
    Exponential smoothing typically requires less record keeping of past data because it assigns more weight to recent data points, making older data less significant. This allows for a simpler and more efficient forecasting process as it focuses on the most recent trends and patterns. In contrast, the weighted moving average technique requires the maintenance and tracking of historical data with different weights assigned to each data point.

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  • 24. 

    Given an actual demand of 103, a previous forecast value of 99, and an alpha of .4, the exponential smoothing forecast for the next period would be

    • A.

      94.6

    • B.

      97.4

    • C.

      100.6

    • D.

      101.6

    • E.

      103.0

    Correct Answer
    C. 100.6
    Explanation
    The exponential smoothing forecast is calculated by taking a weighted average of the actual demand and the previous forecast value. The weight given to the actual demand is determined by the alpha value. In this case, with an alpha of .4, the weight given to the actual demand is 40%, while the weight given to the previous forecast value is 60%. Therefore, the forecast for the next period is calculated as follows: (0.4 * 103) + (0.6 * 99) = 41.2 + 59.4 = 100.6.

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  • 25. 

    Given an actual demand of 61, a previous forecast of 58, and an of .3, what would the forecast for the next period be using simple exponential smoothing?

    • A.

      45.5

    • B.

      57.1

    • C.

      58.9

    • D.

      61.0

    • E.

      65.5

    Correct Answer
    C. 58.9
    Explanation
    The forecast for the next period using simple exponential smoothing can be calculated by adding the weighted average of the previous forecast and the actual demand. In this case, the previous forecast was 58 and the actual demand was 61. The smoothing factor, also known as the weight, is given as 0.3. Therefore, the forecast for the next period can be calculated as follows: Next forecast = (Previous forecast * Weight) + (Actual demand * (1 - Weight)) Next forecast = (58 * 0.3) + (61 * (1 - 0.3)) Next forecast = 17.4 + 42.7 Next forecast = 60.1 Therefore, the forecast for the next period would be 60.1, which is closest to the given answer of 58.9.

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  • 26. 

    Which of the following values of alpha would cause exponential smoothing to respond the most slowly to forecast errors?

    • A.

      0.10

    • B.

      0.20

    • C.

      0.40

    • D.

      0.80

    Correct Answer
    A. 0.10
    Explanation
    A smaller value of alpha would cause exponential smoothing to respond more slowly to forecast errors. In exponential smoothing, alpha represents the weight given to the most recent observation in the smoothing process. A smaller alpha value means less weight is given to the most recent observation, resulting in a slower response to changes in the data. Therefore, an alpha value of 0.10 would cause exponential smoothing to respond the most slowly to forecast errors.

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  • 27. 

    The primary purpose of the mean absolute deviation (MAD) in forecasting is to 

    • A.

      Estimate the trend line.

    • B.

      Eliminate forecast errors.

    • C.

      Measure forecast accuracy.

    • D.

      Seasonally adjust the forecast.

    Correct Answer
    C. Measure forecast accuracy.
    Explanation
    The primary purpose of the mean absolute deviation (MAD) in forecasting is to measure forecast accuracy. MAD calculates the average absolute difference between the forecasted values and the actual values. It provides a quantitative measure of how well the forecasted values match the actual values. By measuring forecast accuracy, organizations can assess the reliability of their forecasting methods and make necessary adjustments to improve future predictions.

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  • 28. 

    Given the forecast errors of  -1, 4, 8, and -3, what is the mean absolute deviation (MAD)?             [Use formula: MAD = Σ | Actual – Forecast | / n ]

    • A.

      2

    • B.

      3

    • C.

      4

    • D.

      8

    • E.

      None of the above

    Correct Answer
    C. 4
    Explanation
    The mean absolute deviation (MAD) is calculated by finding the absolute value of the difference between each actual value and its corresponding forecast value, summing these absolute differences, and then dividing by the number of values. In this case, the absolute differences between the actual values and the forecast values are 3, 1, 4, and 7. The sum of these absolute differences is 15. Dividing this sum by the number of values (4) gives a MAD of 3.75. Therefore, the correct answer is not available.

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  • 29. 

    When using a weighted moving average to forecast demand, one would:

    • A.

      Use an alpha (α) between 0 and 1.

    • B.

      Assign more weight to the more current data.

    • C.

      Give an equal weight to all data.

    • D.

      Include new data to the average without discarding old one.

    Correct Answer
    C. Give an equal weight to all data.
    Explanation
    When using a weighted moving average to forecast demand, giving an equal weight to all data means that each data point has the same importance in the calculation of the average. This approach assumes that all historical data points are equally relevant and should be considered equally when making the forecast. It does not prioritize more recent data or discard old data, but rather treats all data points equally in the calculation.

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  • 30. 

    Given actual sales volume below, what is the forecast for July using a 3- month weighted moving average with weights of 1, 2, and 3?                             Month (t):         Jan.        Feb.        Mar.       Apr.        May       June                         Sales:                  39           36           40           38           48          46

    • A.

      38.17

    • B.

      38.50

    • C.

      42.67

    • D.

      45.33

    • E.

      None of the above

    Correct Answer
    D. 45.33
    Explanation
    The forecast for July using a 3-month weighted moving average with weights of 1, 2, and 3 is calculated by multiplying the sales volume of the three previous months (May, June, and April) by their respective weights and summing them up. The calculation would be: (48*3) + (46*2) + (38*1) = 144 + 92 + 38 = 274. Then, divide the sum by the total weight (6 in this case) to get the forecast: 274/6 = 45.33. Therefore, the forecast for July is 45.33.

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  • 31. 

    Given an actual current demand of 64, a current period forecast of 59, and a smoothing constant (α) of 0.3, what is the forecast for the next period by using simple exponential smoothing?      [Use formula: Ft =  F t-1  +   (A t-1   - F t-1)]

    • A.

      36.9

    • B.

      57.5

    • C.

      60.5

    • D.

      62.5

    • E.

      None of the above

    Correct Answer
    D. 62.5
    Explanation
    The formula for simple exponential smoothing is Ft = Ft-1 + α(A t-1 - Ft-1). In this case, the actual current demand (A t-1) is 64, the current period forecast (F t-1) is 59, and the smoothing constant (α) is 0.3. Plugging these values into the formula, we get F t = 59 + 0.3(64 - 59) = 59 + 0.3(5) = 59 + 1.5 = 60.5. Therefore, the forecast for the next period is 60.5.

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  • 32. 

    Given the time series equation of  Yt = 40,000 + 150 t, what is the estimated demand for June  if t = 1 in April?

    • A.

      40450

    • B.

      40600

    • C.

      42400

    • D.

      42250

    • E.

      None of the above

    Correct Answer
    A. 40450
    Explanation
    The given time series equation is Yt = 40,000 + 150t, where t represents the time period. In this equation, Yt represents the estimated demand at time period t.

    Given that t = 1 in April, we can substitute this value into the equation to find the estimated demand for April.

    Y1 = 40,000 + 150(1) = 40,000 + 150 = 40,150

    Therefore, the estimated demand for June would be the value of Yt when t = 3 (since June is two time periods after April).

    Y3 = 40,000 + 150(3) = 40,000 + 450 = 40,450

    Since none of the answer choices match the calculated value of 40,450, the correct answer is None of the above.

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  • 33. 

    Which of the following methods is closely related to the opinion / judgmental forecasting?

    • A.

      Regression analysis

    • B.

      Exponential Smoothing

    • C.

      Delphi technique

    • D.

      Least square method

    Correct Answer
    C. Delphi technique
    Explanation
    The Delphi technique is closely related to opinion/judgmental forecasting because it involves gathering opinions and judgments from a panel of experts or stakeholders. In this method, the experts provide their individual forecasts, which are then compiled and analyzed to reach a consensus or a more accurate prediction. This technique is particularly useful when there is a lack of historical data or when the future is uncertain and subjective opinions are valuable.

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  • 34. 

    Which of the following is used to obtain the best linear trend (or linear regression) line in a linear regression / correlation analysis? 

    • A.

      Scatter diagram

    • B.

      Correlation of coefficient (r)

    • C.

      Least square method

    • D.

      Coefficient of determination ( r2 )

    Correct Answer
    A. Scatter diagram
    Explanation
    A scatter diagram is used to obtain the best linear trend (or linear regression) line in a linear regression / correlation analysis. A scatter diagram is a graph that displays the relationship between two variables, with one variable plotted on the x-axis and the other variable plotted on the y-axis. By visually examining the scatter diagram, it is possible to identify the general pattern or trend in the data. The best linear trend line can then be drawn to represent this trend.

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  • 35. 

    In a simple linear regression model, Y = α + β X, which one is the predictor variable?

    • A.

      Y

    • B.

      X

    • C.

      α

    • D.

      β

    Correct Answer
    A. Y
    Explanation
    In a simple linear regression model, the predictor variable is represented by the variable X. In this equation, Y is the dependent variable, which means it is the variable being predicted or explained by the predictor variable X. The value of Y is determined by the values of X, α (the intercept), and β (the coefficient of X). Therefore, X is the predictor variable in this equation.

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  • 36. 

    Regression analysis was applied between sales (in $1000, Y) and advertising (in $100, X), and the following regression function was obtained:  Y = 20 + 2.1X.  Based on this estimated regression line, if advertising is $10,000, then the estimate for sales (in dollars) is:

    • A.

      $21,020

    • B.

      $22,100

    • C.

      $230

    • D.

      $230,000

    • E.

      None of the above

    Correct Answer
    A. $21,020
    Explanation
    The estimated regression line is given as Y = 20 + 2.1X, where Y represents sales and X represents advertising. To find the estimate for sales when advertising is $10,000, we substitute X = 10,000 into the regression line equation. Therefore, Y = 20 + 2.1(10,000) = 20 + 21,000 = $21,020.

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  • 37. 

    Which of the following statements regarding Amazon.com is false? 

    • A.

      The company was opened by Jeff Bezos in 1995.

    • B.

      The company was founded as, and still is, a "virtual retailer" with no inventory.

    • C.

      The company is now a world-class leader in warehouse management and automation.

    • D.

      The company uses both United Parcel Service and the U.S. Postal Service as shippers.

    • E.

      Amazon obtains its competitive advantage through inventory management.

    Correct Answer
    B. The company was founded as, and still is, a "virtual retailer" with no inventory.
    Explanation
    The statement that is false is "The company was founded as, and still is, a 'virtual retailer' with no inventory." This statement is false because Amazon started as an online bookstore but has since expanded its inventory to include a wide range of products. Amazon now sells physical goods and has a vast network of warehouses to store and ship these products. Therefore, the company does have inventory.

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  • 38. 

    Which of the following is a function of inventory? 

    • A.

      To decouple or separate parts of the production process

    • B.

      Decouple the firm from fluctuations in demand and provide a stock of goods that will provide a selection for customers

    • C.

      To take advantage of quantity discounts

    • D.

      To hedge against inflation

    • E.

      All of the above are functions of inventory.

    Correct Answer
    E. All of the above are functions of inventory.
    Explanation
    Inventory serves multiple functions in a business. It helps to decouple or separate different parts of the production process, ensuring that one stage can continue even if another is delayed. Additionally, inventory allows firms to decouple from fluctuations in demand by providing a stock of goods that can meet customer needs even during peak periods. It also enables businesses to take advantage of quantity discounts by purchasing larger quantities at lower prices. Lastly, inventory can act as a hedge against inflation, as goods purchased at lower prices can be sold at higher prices in the future. Therefore, all of the given options are valid functions of inventory.

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  • 39. 

    Which of the following would not generally be a motive for a firm to hold inventories? 

    • A.

      To decouple or separate parts of the production process

    • B.

      To provide a stock of goods that will provide a selection for customers

    • C.

      To take advantage of quantity discounts

    • D.

      To minimize holding costs

    • E.

      All of the above are functions of inventory.

    Correct Answer
    D. To minimize holding costs
    Explanation
    Holding inventory generally incurs costs such as storage, insurance, and obsolescence. Therefore, minimizing holding costs would not be a motive for a firm to hold inventories. Instead, firms typically hold inventories for reasons such as decoupling parts of the production process, providing a selection for customers, and taking advantage of quantity discounts.

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  • 40. 

    Which of the following is not one of the four main types of inventory? 

    • A.

      raw material inventory

    • B.

      Work-in-process inventory

    • C.

      Maintenance/repair/operating supply inventory

    • D.

      Safety stock inventory

    • E.

      All of these are main types of inventory.

    Correct Answer
    D. Safety stock inventory
    Explanation
    The correct answer is safety stock inventory. Safety stock inventory is not one of the four main types of inventory. The four main types of inventory are raw material inventory, work-in-process inventory, maintenance/repair/operating supply inventory, and finished goods inventory. Safety stock inventory is an additional inventory that is held as a buffer to protect against unexpected fluctuations in demand or supply. It is not considered one of the main types of inventory because it is not directly involved in the production or sale of goods.

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  • 41. 

    Which of the following statements about ABC analysis is false? 

    • A.

      ABC analysis is based on the presumption that controlling the few most important items produces the vast majority of inventory savings. ABC analysis is based on the presumption that controlling the few most important items produces the vast majority of inventory savings.

    • B.

      In ABC analysis, "A" Items are tightly controlled, have accurate records, and receive regular review by major decision makers. In ABC analysis, "A" Items are tightly controlled, have accurate records, and receive regular review by major decision makers.

    • C.

      In ABC analysis, "C" Items have minimal records, periodic review, and simple controls. In ABC analysis, "C" Items have minimal records, periodic review, and simple controls.

    • D.

      ABC analysis is based on the presumption that all items must be tightly controlled to produce important cost savings.

    • E.

      All of the above statements are true.

    Correct Answer
    D. ABC analysis is based on the presumption that all items must be tightly controlled to produce important cost savings.
    Explanation
    ABC analysis is not based on the presumption that all items must be tightly controlled to produce important cost savings. Instead, it is based on the presumption that controlling the few most important items produces the vast majority of inventory savings. Therefore, the statement that ABC analysis is based on the presumption that all items must be tightly controlled to produce important cost savings is false.

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  • 42. 

    All of the following statements about ABC analysis are true except

    • A.

      Inventory may be categorized by measures other than dollar volume

    • B.

      It categorizes on-hand inventory into three groups based on annual dollar volume

    • C.

      It is an application of the Pareto principle

    • D.

      It states that all items require the same degree of control

    • E.

      It states that there are the critical few and the trivial many inventory items

    Correct Answer
    D. It states that all items require the same degree of control
    Explanation
    ABC analysis categorizes on-hand inventory into three groups based on annual dollar volume and is an application of the Pareto principle. It states that there are the critical few and the trivial many inventory items. However, it does not state that all items require the same degree of control. This means that some items, such as high-value or high-demand items, may require more control and attention compared to low-value or low-demand items.

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  • 43. 

    The two most basic inventory questions answered by the typical inventory model are 

    • A.

      Timing and cost of orders

    • B.

      Quantity and cost of orders

    • C.

      Timing and quantity of orders

    • D.

      Order quantity and service level

    • E.

      Ordering cost and carrying cost

    Correct Answer
    C. Timing and quantity of orders
    Explanation
    The typical inventory model aims to answer two fundamental questions: when to place an order (timing) and how much to order (quantity). By determining the optimal timing and quantity of orders, a business can effectively manage its inventory levels and balance the costs associated with ordering and carrying inventory. Therefore, the correct answer is timing and quantity of orders.

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  • 44. 

    Among the advantages of cycle counting is that it 

    • A.

      Makes the annual physical inventory more acceptable to management

    • B.

      Does not require the detailed records necessary when annual physical inventory is used

    • C.

      Does not require highly trained people

    • D.

      Allows more rapid identification of errors and consequent remedial action than is possible with annual physical inventory

    • E.

      Does not need to be performed for less expensive items

    Correct Answer
    D. Allows more rapid identification of errors and consequent remedial action than is possible with annual physical inventory
    Explanation
    Cycle counting allows for more rapid identification of errors and consequent remedial action compared to annual physical inventory. This is because cycle counting involves counting a small portion of inventory on a regular basis throughout the year, allowing errors to be identified and corrected more quickly. In contrast, annual physical inventory involves counting the entire inventory once a year, which can be time-consuming and delays the identification and remediation of errors.

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  • 45. 

    A certain type of computer costs $1,000, and the annual holding cost is 25%. Annual demand is 10,000 units, and the order cost is $150 per order. What is the approximate economic order quantity? 

    • A.

      16

    • B.

      70

    • C.

      110

    • D.

      183

    • E.

      600

    Correct Answer
    C. 110
    Explanation
    The economic order quantity (EOQ) is a formula used to determine the optimal order quantity that minimizes the total cost of inventory. It is calculated by taking the square root of (2 times the annual demand multiplied by the order cost divided by the holding cost). In this case, the annual demand is 10,000 units, the order cost is $150, and the holding cost is 25% of the cost of the computer, which is $250. Plugging these values into the formula, we get the approximate EOQ of 110 units.

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  • 46. 

    In the basic EOQ model, if the cost of placing an order doubles, and all other values remain constant, the EOQ will 

    • A.

      Increase by about 41%

    • B.

      Increase by 100%

    • C.

      Increase by 200%

    • D.

      Increase, but more data is needed to say by how much

    • E.

      Either increase or decrease

    Correct Answer
    B. Increase by 100%
    Explanation
    If the cost of placing an order doubles in the basic EOQ model, the EOQ (Economic Order Quantity) will increase by 100%. This is because the EOQ is inversely proportional to the square root of the ordering cost. When the ordering cost doubles, the square root of the ordering cost also doubles, resulting in a doubling of the EOQ.

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  • 47. 

    In the basic EOQ model, if D=6000 per year, S=$100, H=$5 per unit per month, the economic order quantity is approximately 

    • A.

      24

    • B.

      100

    • C.

      141

    • D.

      490

    • E.

      600

    Correct Answer
    D. 490
    Explanation
    The economic order quantity (EOQ) formula is used to determine the optimal order quantity that minimizes total inventory costs. In this case, the formula is EOQ = sqrt((2DS)/H), where D is the annual demand, S is the setup cost per order, and H is the holding cost per unit per month. Plugging in the given values, we get EOQ = sqrt((2 * 6000 * 100) / 5) ≈ 490. Therefore, the economic order quantity is approximately 490.

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  • 48. 

    A product whose EOQ is 40 experiences a decrease in ordering cost from $90 per order to $10. The revised EOQ is 

    • A.

      Three times as large

    • B.

      One-third as large

    • C.

      Nine times as large

    • D.

      One-ninth as large

    • E.

      Cannot be determined

    Correct Answer
    B. One-third as large
    Explanation
    When the ordering cost decreases from $90 per order to $10, the EOQ (Economic Order Quantity) will increase. The EOQ is inversely proportional to the square root of the ordering cost. Therefore, when the ordering cost decreases by a factor of 9 (from $90 to $10), the EOQ will increase by a factor of the square root of 9, which is 3. Therefore, the revised EOQ will be one-third as large as the original EOQ.

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  • 49. 

    A product whose EOQ is 400 experiences a 50% increase in demand. The new EOQ is 

    • A.

      Unchanged

    • B.

      Increased by less than 50%

    • C.

      Increased by 50%

    • D.

      Increased by more than 50%

    • E.

      Cannot be determined

    Correct Answer
    B. Increased by less than 50%
    Explanation
    When the demand for a product increases by 50%, the EOQ (Economic Order Quantity) does not increase by the same percentage. The EOQ is calculated based on factors such as holding costs, ordering costs, and demand rate. Since the demand rate is only one of the factors, a 50% increase in demand will result in a less than 50% increase in the EOQ. Therefore, the correct answer is "increased by less than 50%".

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  • 50. 

    For a certain item, the cost-minimizing order quantity obtained with the basic EOQ model was 200 units and the total annual inventory (carrying and setup) cost was $600. The inventory carrying cost per unit per year for this item is 

    • A.

      $1.50

    • B.

      $2.00

    • C.

      $3.00

    • D.

      $150.00

    Correct Answer
    C. $3.00
    Explanation
    The EOQ model is used to determine the optimal order quantity that minimizes both carrying and setup costs. In this case, the cost-minimizing order quantity is 200 units and the total annual inventory cost is $600. To find the carrying cost per unit per year, we divide the total annual inventory cost by the order quantity. Therefore, the carrying cost per unit per year for this item is $600/200 = $3.00.

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