PAPER II

MANAGEMENT THERY, JUNE 2002 Attempt 5questions

Section A (select at least 2 questions)
1. Assume that you are at present a provider of Internet facilities and (a) locate
your particular offering in the Product Life Cycle (PLC) and clearly indicate
your reasons for doing so; (b) Outline the key marketing-mix strategies you
adopt at present, and (c) explain how will the strategies described in (b) above
differ from those that will be applicable, if your offering is located in another
phase of the PLC?
2. Take a product or service example of your choice and comprehensively
describe the application of a perceived pricing strategy that is consistent with
the over riding positioning strategy of the product.
3. The data for a short project is shown in the table below:
a. Construct a PERT diagram. Calculate the critical path time, and clearly
designate the critical path.
b. Calculate the earliest beginning time, the latest beginning time, and
slack time at each event. Why is slack time always zero at each event
on the critical path?
c. If you choose ton expedite only one activity, which one would you
choose? Why?
activity

Required
Expected
Predecessors Time(days)

Variance

Cost to
expedite(in
$/day)

A
B
C
D
E
F
G

A
C,F,G
D
B

2
9
9
4
4
1
3

100
50
200
300
150
200

6
11
13
6
4
4
7

Maximum
times that
expediting
can reduce
3
1
2
1
1
2

4. (a). Outline the purposes of MRP and explain how MRP system can achieve
these purposes.
(b). explain the use of MRP in an integrated system for Planning and Control
by using a flow chart incorporating: Business plan, Production plan, Master
Production schedule: capacity plan and shop floor control plan.

SECTION B
(select at least two questions)
1. (a). What conclusions (from the findings) were drawn by Joan Woodward
and Charles Perrow from their studies about technology and organization?
(b). Why did their studies result in those conclusions?
(c ). What would you learn from a comparison of findings?
2. Suppose that you are the person the person responsible for the human resource
management function of a commercial bank. You are planning to recruit ten
graduates for management trainee positions with a view to developing them
later for responsible managerial positions of the bank. In your process of
selection,

What guidance would you draw from the Big Five Model of personality?

What type of tests would you administer on suitable applicants? What

factors would you take in to account in interpreting test results

3.
o Draw the relationship between utility theory and consumer surplus.
o Discuss, with illustrative examples, the implications of A) above for
business decisions.
4. Describe the basic model of determination of GDP and discuss how the
equilibrium GDP is reached in an economy.
Section A Question 3
a. Construct a PERT diagram.
designate the critical path
Start:
Day 0
ID: 2

A.
Start: Day 0; ID : 3
Finish: Day 7; Dur 6d

Calculate the critical path time, and clearly

D
Start: Day 10; ID : 6
Finish: Day17; Dur 6d

F
Start Day 18; ID : 8
Finish Day 21; Dur 4d

G
Start: Day 17; ID : 9
Finish: Day 20; Dur 4d

B
Start: Day 0; ID: 4
Finish: Day 14; Dur 11d

C
Start: Day 0; ID: 5
Finish: Day 18; Dur 13d

The critical path is- START A-D-F-E- FINISH, shown as shaded

E
Start: Day 24; ID: 7
Finish: Day 27; Dur 4d

Finish:
Day 27
ID: 10

b. Calculate the earlier beginning time, the latest beginning time, and slack time at
each event. Why is slack time zero at each event on the critical path? _
ID

Task

1
2
3
4
5
6
7
8
9

Start
A
B
C
D
E
F
G
Finish

Earliest
Start (day)
0
0
0
0
10
17
18
24
27

Finish
day
0
7
14
18
17
20
21
27
27

Late Start
day
0
0
3
5
10
18
18
24
27

Late
Finish day
0
7
17
21
17
21
21
27
27

Free Slack
days
0
0
0
3
0
0
0
0
0

Total
Slack days
0
0
1
3
0
0
0
0
0

b. Explain the use of MRP in an integrated system for planning and control by
using a flow chart incorporating: Business plan, Master production schedule,
capacity plan and shop-floor control plan.
Business Plan

Production Plan
Output planning

Capacity planning

Aggregate Output
Planning

Aggregate Capacity
Planning

Master Production
Scheduling

Rough-cut Capacity
Planning

Material Requirements
Planning

Detailed Capacity
Planning

Loading
Sequencing
Detailed
Scheduling
Expediting

Shop-floor
Control
plan

Short-term
Capacity Control

The slack time is zero at each event of the critical path since the entire project is at the
maximum limit.
c. If you chose to expedite only one activity, which one would you chose? Why?
I would chose activity E, since it is on the critical path as well as the most costly to
expedite ($300/day)
Section A Question 4
a. Outline the purpose of MRP and explain how an MRP system can achieve
these purpose
The purpose of a Material Requirements Planning (MRP) System are to provide the
following to the operations system: (a) Inventory reduction, (b) Reduction in
production and delivery lead times, (c) Making realistic commitments to customers,
and (d) Increasing efficiency and effectiveness to the production flow. The MRP
system does this by:
1. Reducing inventory: MRP determines the quantity of components needed at
any time of flow and when, in order to meet the master schedule. The MRP
enables the manager to procure those components at the rate they are needed,
thereby controlling the cost of excessive inventory.
2. Reducing production and delivery lead times: MRP identifies materials and
components quantities, timings, availabilities, and procurement and production
actions required to meet delivery deadlines. By coordinating inventories,
procurement, and production decisions, MRP helps avoid delays in
production. I prioritizes production activities by putting due dates on
customer job order.
3. Making realistic commitments to customers: Realistic delivery promises can
enhance customer satisfaction. By using MRP, production can give marketing
timely information about likely delivery times to prospective customers.
Potential new customer orders can be added to the system to show the
manager how the revised total load can be handled with existing capacity. The
result can be a more realistic delivery date.
4. Increasing efficiency and effectiveness: MRP provides close coordination
among various work centers as production progress through them.
Consequently, production can proceed with fewer indirect personnel, such as
material expeditors, and with fewer unplanned interruptions because MRP
focuses on having all components available at approximately scheduled times.
The information provided by MRP encourages production efficiencies as a
result.

SECTION B
Q3

a) Draw the relationship between utility theory and consumers surplus. (60%)
b) Discuss with illustrative examples, the implications of (a) above for
business decisions (40%)

A3

a) Required level of abilities and skills level 1 & 2

i) Student to provide a clear statement of the concept of utility and the
law of diminishing marginal utility (20 marks)
ii) To clear state the concept of consumers surplus in Economics (20
marks)
iii) To illustrate the relationships by means of a statistical table and a
diagram (20 marks)

(i) A consumer buys a commodity because it has utility (i.e ability to satisfy his
want). Generally, the first unit is the most desired and gives the highest utility. Each
additional (or marginal) unit, when consumed yields less and less satisfaction. A
consumer will be willing to pay a high price for the first unit but progressively less for
any additional units as part of his desire has now been satisfied. With each extra unit
consumed, the utility gained will go on diminishing. This is the law of diminishing
marginal utility. Economists of the 19th century created an artificial measure termed
utils to measure the units of satisfaction obtained by a consumer (Table 1)
Table 1 Diminishing Marginal Utility (MU = TUn TUn 1)
No of units consumed
0
1
2
3

Total utility TU (utils)

0
10
17
22

Marginal utility MU (utils)

10
07
05

A major shortcoming in this theory is that utility (or satisfaction) is subjective

(internal) and cannot be measure. To measure satisfaction, a proxy variable was
created viz. to look at the price that the consumer is willing to pay. For the first cool
drink he is willing to pay Rs. 10, but only Rs. 7 for the second, and Rs. 5 for the third.
This information can be re-arranged as follows:
If the price of a cool drink is Rs. 10, he will buy only 1 glass
If the price of a cool drink is Rs. 7, he will buy 2 glasses
If the price of a cool drink is Rs. 5, he will buy 3 glasses
A rational consumer tries to equate the marginal utility he gets from an additional
unit, with the price he has to pay. The consumer will buy only upto the point where
the marginal utility gained just equals the price he has to pay (MU + P). if the price of
a cool drink is Rs. 5, he will buy 3 units. The downward sloping demand curve is the
same as the MU curve of the consumer.
Consumers Surplus

The above example showed that when the price of a cold drink was Rs. 5, the
consumer was willing to buy 3 glasses of cool drink. The means that from the first
and second units, the consumer got a higher amount of satisfaction than from the
third. Consumer surplus is the difference between the price the consumer was willing
to pay and the price that he actually paid for the units purchased of that commodity.
Thus:
The consumer was willing to pay for the 3 units
Consumer actually paid
Consumers surplus

Rs. 10 + 7 + 5 = 22
Rs. 5 + 5+ 5 = 15
Rs.
7

Utils

Price

MU1

P1

MU2

P2

MU3

P3
MU

0
1

Units

DE

0
1

Units

Consumers Surplus

b) Practical implications (ability and skill level needed = level 3)

A consumer has many wants, but a limited income. A rational consumer is assumed to
spend his income in such a way as to obtain the maximum satisfaction. If MU A . PA,
he will buy a unit of good A. he will buy x number of units of good A up to the pint
where MUA = PA. When the consumer buys several other goods during the month
such a Good B & C, he will likewise try to equate the marginal utilizes obtained from
each unit of these products with the prices he has to pay for the. He will buy each
good (A, B, C, . N) upto the point where MU = P for each of these products. He
will reach equilibrium when he has distributed his income such that
MUA = MUB =
PA
PB

.. = MUN
PN

He will distribute his income in such a way that the last cent spent on good A gives
him the same satisfaction as the last cent spent on any other good. At this stage, he
cannot improve his utility by re-arranging his purchases. This is called the law of
equi marginal utility
Practical advice to seller
MUA = MUB
PA
PB

The seller of good A can disturb the equilibrium and increase his sales by reducing the
price of good A (20 marks)
A better alternative for the seller would be to improve the quality/features of good A,
because lowering of price could be interpreted as a lowering of its quality. By adding
features, the consumer can be induced to pay a higher value for the product.
Practical examples are:
Automatic washing machine with dryer
Frost-free refrigerator
Car with automatic gears, central locking & power mirrors
Chocolate, nut and raising ice cream (20 marks)
Q 4 Describe the basic model of the determination of GDP and discuss how the
equilibrium GDP is reached in an economy.
A 4) Required level of abilities and skills: Levels 2 & 3
i.
Explain and describe how the GDP is determined by the level of aggregate
monetary demand (AMD) in an economy.
A high level of AMD stimulates a high level of output: A low level of AMD
tends to contract GDP (50marks)
ii.
A hypothetical schedule indicating the different components of AMD viz.
consumption and investment (10 marks)
iii.
The 45o Keynesian diagram with an explanation of same (40 marks)
Gross domestic product (GDP) refers to the monetary value of the real output
produced in an economy during a specified period usually one year. In a market
economy, producers have to forecast demand and produce for a future market. Hence,
the actual output produced in the current time period (t) will be bought up by
demanders in the next time (t+1). If expenditure is inadequate to buy the output
produced the suppliers will be left with unsold stock. Hence, in the next time there
will be less investment and employment leading to a contraction of output (GDP). On
the other hand, if planned expenditure exceeds the actual output produced, there is
unsatisfied demand. This would induce new investment and employment and to a
higher level of (GDP)

TABLE 2 : Relationship between planned Expenditure and Actual Output and Impact
of GDP
Planned
Consumption
(C)

Actual Output
(Y)
0
400
800
1200
1600
2000
2400
2800
3200

Planned
Investment (I)

300
600
900
1200
1500
1800
2100
2400
2700

Planned
Expenditure
(E=C+I)

300
300
300
300
300
300
300
300
300

600
900
1200
1500
1800
2100
2400
2700
3000

Impact on
output (GDP)
Expansion
do
do
do
do
do
Equilibrium
Contraction
do

All figures are in Rs. Million.

Planned E
(C + I)
E=Y
E<Y
E=Y

E<Y

45 O
2400

Real GDP
Rs. M

If planned E > Y, it leads to an expansion of GDP (National income)

If planned E < Y, it leads to a contraction of GDP
If E = Y, it is equilibrium National Income.
Paper II, Management Theory (Dec.2002) PDM batch ?
Part 1( 40 marks)
Attempt two questions from this section. All questions carry equal marks.

1. Give professional advice to the CEO of a group of Companies employing over

1200 employees and manufacturing and marketing a range of consumer food
products how to go about recruiting and selecting a Group Marketing
Manager.
2. In a consultancy assignment for a company you are informed that the company
wishes to transform its workforce to a team based and innovative work
culture, so that the company would be competitive in manufacturing and
marketing its range of pharmaceutical products. What initial steps would you
take as a consultant to analyze the current situation?
3. Illustrate a PERT application for a project of your choice and show the likely
gains. What are the common obstacles to application of PERT in practice in
projects in Sri Lankan organizations?
PART II ( 60 Marks)
Analyse the Rug Bug Corp . and
a) Make recommendations to Young based on his questions(30 marks)
b) Prepare (pro forma) forecast income statement for the second year, by quarter
(1988/89). Forecast year net profit at the end of last quarter is assumed $
2,890,000; quantity sold direct=3,900
Retail = 1,500;price (direct)=1850;price (retail)=1295;total direct sales = $
7,215,000; Total Sales= $9150,000; total operating expenses $603,000.Tax
rate = 30%. (30 marks)