Operation and Management Quiz

1. Which of the following is NOT a condition that must be satisfied for an occurrence to be an event?

		All the alternatives must be available in the occurrence.
		The occurrence involves uncertainty
		The decision maker has little control over the uncertainty in the situation.
		The uncertainty in the situation has an impact on the outcome.

2. Which of the following location decision method is able to take factors such as political stability and currency risks into account?

		Transportation model
		Locational breakeven method
		Factor-rating method
		Center-of-Gravity method

3. Suppose a supplier offers an incremental quantity discount for a product. The supplier charges $10 per unit for the first 2,000 units in an order, $9 per unit for the next 2,000 units, and $7 per unit for any additional units in the order. What is the average cost per unit of an order of 3,000 units? Find the closest value.

		$7.00
		$8.50
		$9.00
		$9.67

4. Suppose the EVwPI of a decision making situation is $15,000 and the maximum EMV is $10,000. What is the EVPI in this case?

		$5,000
		$25,000
		-$5,000
		$2,000

5. Which of the following alternatives will you choose using the Maximin criterion?

States of Nature

	H	M	L
Alternative A	50	55	60
Alternative B	30	50	80
Alternative C	70	60	40
		Alternative A
		Alternative B
		Alternative C
		Cannot be determined

6. Suppose there are two possible states in a decision making situation. State 1 has a 30% of probability to occur and State 2 has a 70% of probability to occur. Each alternative has different payoffs in the two states. Which of the following statements is INCORRECT regarding the situation?

		The best alternative under the Maximin rule can be different from the best alternative under the Maximax rule.
		The best alternative under the Equally Likely criterion can be the one with the highest EMV.
		The alternative with the highest EMV must be the best alternative under the Equally Likely criterion in this situation.
		The best alternative under the Equally likely criterion can be different from the best alternative under the Maximax criterion.

7. There are three equally likely states of nature (High, Medium, and Low demand). Suppose the "Build a large factory" option will post profits of $50,000, $20,000, and - $10,000, respectively, in the three states of nature. What is the EMV of the "Build a large factory" option? Find the closest value.

		$50,000
		$30,000
		$20,000
		$28,666

8. Which of these factors would be considered when making a location decision at the site level?

		government incentives
		cultural and economic issues
		zoning regulations
		political stability

9. An inventory decision rule states "when the inventory level goes down to 30 gearboxes, 80 gearboxes will be ordered." Which of the following statements is TRUE?

		80 is the reorder point, and 30 is the order quantity.
		30 is the reorder point, and 80 is the order quantity.
		The safety stock is 50.
		30 is the safety stock, and 80 is the reorder point.

10. Which of the following is NOT a benefit of Vertical Integration?

		Quality adherence
		Shared business risks
		Timely delivery
		Reduction in purchasing costs

11. Jack's Outlet had total end-of-year assets of $5 million last year. The inventory was worth $1 million on average. The annual cost of goods sold was $6 million. What was the outlet's inventory turnover last year?

		6
		5
		1.2
		1.6

12. Plant A is located at the (X, Y) coordinates of (100, 200) and has a shipment volume of 100 units a day. Plant B is located at the (X, Y) coordinates of (400, 100) and has a shipment volume of 300 units a day. Using the Center-of-Gravity method, which of the following is the X coordinate of the new plant location?  Find the closest value.

		125
		325
		137.5
		275

13. Bank One terminated its outsourcing agreements with IBM and AT&T and hired more than 600 IT employees to rebuild its internal IT capabilities. This is an example of:

		Vertical integration
		Near-shoring
		Offshoring
		Back-sourcing

14. Barbara Flynn is in charge of maintaining hospital supplies at General Hospital. During the past year, the mean daily demand for bandage BX-5 was 80 and was normally distributed. The standard deviation of the daily demand was 6. Ms. Flynn reviews the inventory levels once every 2 days. It takes another 2 days to receive the deliveries of the bandage after an order is placed. Suppose the required "z" value is 1.65 to ensure a satisfactory service level. Then how many bandages should Ms. Flynn order each time? Find the closest value.

		400
		340
		426
		456

15. Suppose the standard deviation of demand is 6 units per week and demand is 30 units per week on average. If the order lead time is 1 week and the desired service level is 97%, how much safety stock should we hold using the continuous review model? Find the closest value.

		11
		10
		36
		20

16. Which of the following statements is INCORRECT regarding the continuous-review and periodic-review inventory control models?

		It takes time to deliver an order in both models.
		Demand is assumed uncertain in both models.
		Orders are placed when the inventory position drops to zero in a periodic-review model.
		There is no re-order point in the periodic-review model

17. A company decides to establish a new facility and has selected three sites for further evaluation. The three sites are rated against three criteria based on a 1-10 scale with 10 being the most satisfactory. Details are presented in the following table.

Criterion	Weight	Site 1	Site 2	Site 3
Labor Cost	0.5	8	8	9
Transportation	0.2	9	9	7
Expertise	0.3	8	7	8

Which site should the company choose using the factor-rating method?

		Site 1
		Site 2
		Site 3
		Site 2 or Site 3

18. Which of the following statements is INCORRECT about the EOQ model?

		EOQ increases as setup cost per order increases.
		EOQ decreases as annual demand decreases.
		EOQ decreases as inventory holding cost per unit per year decreases.
		When setup cost per order increases, the number of orders to be placed in a year decreases

19. Which of the following is NOT a major cause of Bull-whip effect?

		Vendor Managed Inventory
		Order batching
		Price fluctuation
		Shortage gaming

20. A firm is considering two location alternatives. The fixed cost at location A would be $5 million per year, and the variable cost would be $3 per unit. At location B, fixed costs would be $3 million per year, with a variable cost of $3.50 per unit. If annual demand is expected to be 5 million units, which location offers a lower total cost?

		Location A
		Location B
		The total cost at location A equals the total cost at location B.
		Not enough information available

21. The respective weeks-of-supply of company A, company B, and company C were 5 weeks, 6 weeks, and 8 weeks. Then which company (or companies) had the best performance in terms of weeks-of-supply?

		Company A
		Company B
		Company C
		Company A and Company C

22. Demand for dishwasher water pumps is 10 per day. The standard deviation of demand is 2 per day, and the order lead time is 4 days. The service level is 95%. What is the reorder point? Find the closest value.

		8
		48
		41
		47

23. A certain type of computer costs $500 per unit to build and the annual inventory holding cost is 10% of the unit cost. Annual demand is 20,000 units and the setup cost is $60 per order. What is the economic order quantity (EOQ)? Find the closest value.

		156
		173
		219
		283

24. The phenomenon in which demand variations increase as orders move upstream in a supply chain is referred to as :

		Control risk
		Bullwhip effect
		Vendor managed inventory
		Computer integrated manufacturing

25. Companies hold inventory to:

		Hedge against wage increases
		Provide a feeling of security for the workers
		Maintain dependence of operations
		Protect a company from demand uncertainties

26. A plant manager needs to decide whether to expand the capacity of the plant. There are two states of nature: favorable and unfavorable. In favorable market conditions the plant would make an additional $60,000 when expanded. In unfavorable market conditions the plant would lose an additional $20,000 when expanded. Of course, the manager can choose not to expand and make $0 additional profit in favorable market conditions and lose $0 additional profit in unfavorable market conditions. If the two states of nature are equally likely to occur, what is the Expected Value with Perfect Information (EVwPI) in this case?

		$0
		$25,000
		$30,000
		$15,000

27. Suppose a manufacturer needs to place a one-time order of 5,000 units of a component. Supplier A offers an all-unit discount for the component and charges $10 per unit for orders of no more than 1,000 units and $9 per unit for any larger orders. What is the average cost per unit for the order of 5,000 units?

		$9
		$8
		$8.5
		$9

28. Jack's Outlet had end-of-year assets of $5 million last year. The inventory was worth $1 million on average. The annual cost of goods sold was $6 million. What was the outlet's weeks-of-supply last year? Assume that there are 52 weeks a year. Find the closest value.

		3.5 weeks
		4.3 weeks
		8.7 weeks
		10.4 weeks

29. Which of the following alternatives will you choose using the Maximax criterion?

States of Nature

	H	M	L
Alternative A	50	55	60
Alternative B	30	50	80
Alternative C	70	60	40
		Alternative A
		Alternative B
		Alternative C
		Cannot be determined