Production and Operations Management
Fall 2005
Final KEY
DQuiz #3
Date: 12/302/2005
Student no: name:
A. Multiple Choices (30%)
1. Which one of the following statements about quantity discounts is best?
a. The minimum cost point on each price curve is always feasible.
b. A price break is the maximum quantity needed to get a discount.
c. If the EOQ for the lowest price is feasible, this is the best lot size.
d. Either price or quantity is sufficient for the search for the best lot size.
Answer: c
2. Jerry Allison is in charge of production for a small producer of plumbing supplies. The cricket model has an estimated annual demand of 12,000 units and can be produced at a production rate of 90 units per day. The company produces (and sells) the cricket 300 days per year. Setup cost to produce this model averages $22 and the item has a holding cost of $3 per unit per year. What is the economic production lot size (ELS)?
a. Fewer than or equal to 400 units
b. Greater than 400 units but fewer than or equal to 480 units
c. Greater than 480 units but fewer than or equal to 500 units
d. Greater than 500 units
Answer: d
Use the information in Table E.2. What is the payoff when 40 units are ordered but a demand of 30 materializes?
a. $0
b. $100
c. $350
d. $450
Answer: c
3. Which one of the following statements about aggregate planning is best?
a. A production plan generally focuses on production rates and inventory holdings, whereas a staffing plan focuses on staffing and other labor-related factors.
b. Reactive alternatives are actions that adjust demand patterns.
c. Operations and marketing are the only two functional areas that supply inputs for developing production and staffing plans.
d. A level strategy stabilizes inventory levels by adjusting production rates or staff levels to match demand levels over the planning horizon.
Answer: a
5. The meaning of undertime is:
a. employees work as usual, but they are paid at a lower rate.
b. employees don’t work productively for the number of hours that they normally do.
c. employees work more than normal hours, but they are not compensated.
d. the workweek of some employees is permanently reduced.
Answer: bMcKenna 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
Consider the location of four distribution centers, A, B, C, and D, with the following location coordinates and shipping requirements per week.
Management is considering locating a new plant at the site of one of the four distribution centers. What is the load–distance score if the plant is located at distribution center A? (Use rectilinear distance.)
a. Less than or equal to 4500
b. Greater than 4500 but less than or equal to 5000
c. Greater than 5000 but less than or equal to 5500
d. Greater than 5500
2. A rule of thumb, or guideline, is also known as a(n):
a. heuristic.
b. simulation.
c. optimization.
d. model.
3. Which of the following statements about linear break-even analysis is incorrect?
a. No start-up costs exist.
b. No economies of scale can be achieved.
c. Variable costs vary as output changes.
d. Fixed costs vary as output changes.
A kanban system is an important mechanism for JIT management. Which one of the following statements regarding the operation of a kanban system is TRUE?
a. A typical kanban used in the JIT system includes information such as item number, unit price, competitor’s product name, and its price.
b. A kanban can be used to set the order quantity but not the inventory level.
c. A kanban and a container move as a pair once production begins at the fabrication process.
d. An empty container can be exchanged for a full container at the storage location even though no kanban is on the full container.
4. Which of the following actions would decrease the number of containers in use in a kanban system?
a. Smaller containers that can hold fewer parts than before
b. Higher demand for the part held by the container
c. Reduced waiting time for the container
d. Slower processing times for the part held by the container
5. The final assembly schedule in a JIT system:
a. should be developed for each product independent of the process requirements for the other products.
b. strives to create a uniform flow at the work centers in the plant.
c. avoids the use of small lot sizes because they create many production orders and cause confusion.
d. allows daily changes in demand levels, regardless of size, to be incorporated immediately into the work center schedules.
6. Which of the following statements regarding time-series methods is FALSE?
a. A naïve forecast is identical to a simple moving average of one period.
b. Exponential smoothing with an alpha equal to 1.00 is identical to a naïve forecast.
c. A weighted moving average with weights of 0.5 and 0.5 is identical to a simple moving average of two periods.
d. A simple moving average of three periods is identical to exponential smoothing with an alpha equal to 0.33.
A tracking signal greater than zero and a mean absolute deviation greater than zero imply that the forecast has:
a. no bias and no variability of forecast error.
b. a nonzero amount of bias and a nonzero amount of forecast error variability.
c. no bias and a nonzero amount of forecast error variability.
d. a nonzero amount of bias and no variability of forecast error.
7. It is now near the end of May and you must prepare a forecast for June for a certain product. The forecast for May was 900 units. The actual demand for May was 1000 units. You are using the exponential smoothing method with = 0.20. The forecast for June is:
a. fewer than 925 units.
b. greater than or equal to 925 units but fewer than 950 units.
c. greater than or equal to 950 units but fewer than 1000 units.
d. greater than or equal to 1000 units.
8. The Classical Consultant Company provides forecasting research for clients such as a group of five doctors associated with a new hospital health-maintenance program. The company has been asked to forecast the number of patients requesting blood analysis per week. The past weekly average is 38 and, for the trend, is 2 per week. This week’s demand was 42 blood tests. How many patients will come next week? (Suppose α= 0.10 and β= 0.30.)
a. Fewer than or equal to 39
b. Greater than 39 but fewer than or equal to 41
c. Greater than 41 but fewer than or equal to 43
d. Greater than 43
6. Which of the following is the best example of a physical constraint on the aggregate plan?
a. Inventory storage space
b. Level of backorders
c. Use of overtime
d. Safety stock levels
Answer: a
MRP can be used to best advantage under which one of the following circumstances?
a. When the item’s demand depends only on customer demand
b. When the item’s demand is uniform
c. When the item’s demand is constant
d. When the item’s demand depends on its parent’s demand
Answer: d
7. Which one of the following systems is an input to the MRP system?
Shop-floor scheduling system
a. Financial reporting system
b. Master production-scheduling system
c. Purchasing system
Answer: c
Which one of the following is an MRP lot-sizing rule that attempts to minimize the amount of average inventory?
Periodic order quantity (POQ), with P = 2
d. Fixed order quantity (FOQ)
e. Economic order quantity (EOQ)
f. Lot for lot (L4L)
Answer: d
8. Which one of the following is a feature of MRP II, but not available in basic MRP systems?
Financial reporting
a. Action notices
b. Dispatch lists
c. Capacity reporting
Answer: a
9. The Big Mistake Company uses an MRP system. However, the company’s database contains many inaccuracies. Which type of inaccuracy is most likely to result in incorrect planned order release quantities for its dependent demand items?
Incorrect routings
a. Incorrect bills of materials
b. Incorrect cost and pricing data
c. Incorrect machine capacity data
Answer: b
12. Compared with workforce scheduling, operations scheduling:
a. assigns people to on-duty and off-duty periods of time during some planning horizon.
b. determines available labor capacity for each time period.
c. deals with a myriad of legal, behavioral, and psychological considerations.
d. determines the tasks that workers are to do while on duty.
Answer: d
13. Makespan is the same as flow time for:
the first job that is late out of a sequence of jobs to be processed.
the first job in a sequence of jobs to be processed.
a. the last job in a sequence of jobs to be processed.
b. Makespan and flow time are never the same.
Answer: c
14. When using the critical ratio (CR) priority sequencing rule:
a ratio of less than 1.0 implies that the job is ahead of schedule.
a. a ratio of less than 1.0 implies the job is behind schedule.
b. the job with the earliest due date is scheduled next.
the job with the highest CR is scheduled next.
Answer: b
Moving from the aggregate plan to a master production schedule requires:
rough cut capacity planning
a. disaggregation
b. strategy formulation
c. chase strategies
Answer: b
9. Which one of the following statements concerning the economic order quantity (EOQ) is TRUE?
a. The EOQ is the order quantity that minimizes annual inventory holding costs.
b. An increase in demand will increase the EOQ value.
c. The time between orders (TBO) will increase with an increase in holding costs.
d. The EOQ formula assumes that there are only three relevant costs: holding, transportation, and setup.
10. Which one of the following statements concerning a continuous review system is best?
a. The inventory position (IP) of an item measures the item’s ability to satisfy future demand, relying only on the on-hand inventory.
b. An item’s inventory position under a continuous review system increases by Q units as soon as an order is received.
c. An item’s on-hand inventory increases by Q units as soon as an order is placed.
d. Under a continuous review system, an item’s inventory position corresponds to the on-hand inventory unless there are backorders or one or more scheduled receipts.
11. Which one of the following statements about inventory control systems is true?
a. A two-bin inventory system is essentially a P system because the inventory is reviewed only on a periodic basis.
b. An optional replenishment system is particularly attractive when both review and ordering costs are significant.
c. Visual systems are difficult to administer because records on current inventory position have to be kept for every item.
d. Overstocking is quite common for those items that are managed by using the base-stock system.
12. What is generally true about the class C items in ABC analysis? They represent:
a. about 20 percent of all items.
b. about 50 percent of all items.
c. about 15 percent of the dollar usage.
d. about 50 percent of the dollar usage.
B. Open questions
1. (46%) As an inventory manager, you must decide on the order quantity for an item. Its annual demand is 1,000 units. Ordering costs are $50 each time an order is placed, and the holding cost is 25 percent of the per-unit price. Your supplier provided the following price schedule.
Quantity / Price per Unit1–199 / $10.00
200–499 / $ 9.80
500 or more / $ 9.60
What ordering-quantity policy do you recommend?
Answer:
, not feasible
, feasible
, not feasible
Therefore, the best order size is 202, with a cost of $10,295.
2.
4. (%) The operations manager has narrowed down the search for a new plant to three locations. Fixed and variable costs follow.
5.
6. / 7. Fixed Costs / 8. Variable Costs9. Location / 10. Per Year / 11. Per Unit
12. A / 13. 70,000 / 14. 25
15. B / 16. 120,000 / 17. 22
18. C / 19. 250,000 / 20. 17
21.
22. Plot the total cost curves in the chart provided and identify the range over which each location would be best. Then use break-even analysis to calculate exactly the break-even quantity that defines each range.
23.
24.
a. What is the break-even quantity between A and B?
b. What is the break-even quantity between B and C?
25.
26. (%) A company uses a kanban system. The daily demand for the most critical part, the smylie, is 400 units over an eight-hour production period. The average waiting time for a container of smylies is 30 minutes. The processing time for a bin filled with smylies is 6 minutes, and a container holds 5 units. If the company wishes to use a 5% policy variable, how many containers are needed?
27. (%) 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?
28.
29. Month / 30. Demand31. 1 / 32. 120
33. 2 / 34. 115
35. 3 / 36. 125
37. 4 / 38. 119
39. 5 / 40. 127
41. 6 / 42. 114
43. 7 / 44. 120
45. 8 / 46. 124
47. 9 / 48. 116
49. 10 / 50. 137
51.