Section 1

Each question from 1 to 10 carries 0.5 marks. First two wrong answers do not
carry any penalty. For each wrong selection thereafter, 1/4th of a mark is deducted
as a penalty.
1. In a continuous review, reorder point system, a 99% Cycle Service Level means
A. There is only 1% chance of stock-out during the year
B. There is 99% chance that 100% of annual demand is met
C. There is 100% chance that 99% of units demanded during each order are
fulfilled
D. There is 99% chance that 99% of demand is met during the lead time
E. There is only 1% chance of stock-out during the lead time

2. Which of the following is NOT a lever to reduce Safety inventory?

A. Demand aggregation through pooling
B. Reduction in variability of demand
C. Reduction in variability of lead time
D. Increasing Cycle Service Level
E. None of the above

3. An over-enthusiastic PGP student wanted to apply one of the forecasting

techniques she/he studied in the course (read as DCP!) on what her/his grade
point would be in Term 3 for all the five courses she/he has taken. Once the
grades were released at the end of the Term 3 she/he found that the error (Actual
Grade Point – Forecasted Grade Point) values were -1, -0.3, -0.4, 0.5, and 1.2.
The MAD (Mean Absolute Deviation) for this forecast is
A. 0.34 B. 0 C. 0.68 D. 0.85 E. 3.4

4. For a Job Shop kind of setup, which of these will not be an ideal characteristic?
A. Highly efficient automation
B. High setup cost and Low variable cost
C. Low resource flexibility
D. All of the above are ideal characteristics
E. None of the above are ideal characteristics

5. Trivia: Did you know that Henry Ford’s idea of an assembly line was inspired
by the meat packing process done at Armour and Swift meat packing plants?
Assume that this meat packing plant was using a line balancing approach. There
were eight tasks involved in this process each with a task time of 7, 4, 7, 8, 9, 4,
3, and 6 minutes respectively. If the takt time was found to be 6 minutes, what is
the theoretical minimum number of workstations required for the job?
A. 6 B. 8 C. 3 D. 5 E. None of these
6. A company has recorded the last five days of daily demand on its only product.
Those values are 120, 125, 124, 128, and 133. The time from when an order is
placed to when it arrives at the company from its vendor is 5 days. Assuming
the basic continuous review inventory model fits this situation and no safety
stock is needed, which of the following is the reorder point (ROP)?
A. 120 B. 126 C. 630 D. 950 E. 1200

7. A product whose Production Order Quantity (POQ) is 40 units experiences a

decrease in ordering cost from $90 per order to $10 per order while other things
remain constant. The revised POQ 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

8. In the periodic review model, the expected order size during each period is
A. The same always
B. Equal to demand during lead time
C. Equal to the sum of safety stock and demand during lead time
D. Equal to the product of reorder interval and demand per unit time.
E. None of these

9. In a continuous review inventory management system, the re-order point will

decrease if
A. Holding costs decrease
B. Ordering costs decrease
C. Service level decreases
D. Service level increases
E. Ordering costs increases

10. Which of the following statement(s) is/are FALSE about forecasting?

i. If we are following monthly forecasts, a naive forecast for March sales
of a product would be equal to the forecast for April.
ii. To forecast a trend if we use regression, the trend component can be
identified by the intercept of the regression equation.
iii. The larger the number of periods in the simple moving average
forecasting method, the greater the method’s responsiveness to
changes in demand.

A. (ii) and (iii)

B. (iii) only
C. (i) and (iii)
D. None of them are FALSE
E. All of them are FALSE
Section 2
Each question from 11 to 20 carries 1 mark. First (two) wrong answer does not
carry any penalty. For each wrong selection thereafter, 1/2 of a mark is deducted
as a penalty.

11. The Tea shop outside the main gate (where apparently the lemon tea is
famous, according to your senior Arun) sells freshly made coconut cookies
every day. The cost of making each cookie is ₹1.50 and it is sold at a price of
₹5. All leftover cookies at the end of the day are sold to another tea shop in the
village at ₹1. If the tea shop used the newsvendor model to decide its stocking
level of cookies, what is the probability that all the freshly made cookies will
be consumed in a day?
A. 0.2 B. 0.8 C. 0.125 D. 0.875 E. None of these

12. Using the fixed-time-period (periodic review) inventory model, and given an
average daily demand of 75 units, 10 days between inventory reviews, 2 days
for lead time, 50 units of inventory on hand, a service level of 95 percent
(assuming normal distribution and 𝒛𝜶=𝟎.𝟎𝟓 = 𝟏. 𝟔𝟒𝟓, 𝒛𝜶=𝟎.𝟏 = 𝟏. 𝟐𝟖), and a
standard deviation of daily demand of 8 units, which of the following is the
order quantity?
A. 863 B. 895 C. 1044 D. 1178 E. 4510

13. JimmikiKamal fish shop in Thrissur district purchases fresh fish each evening
from Chavakkad beach at a price of ₹1000 per box every evening. During the
next day, the shop sells fish to restaurants and retail shops across Kerala at a
price of ₹3500 per box. As JimmikiKamal do not have any formal cold storage
facility, if the boxes that they purchased from Chavakkad beach did not get
sold at the end of the next day, they are disposed safely at a cost of ₹100 per
each box (because nobody wants to handle rotten fish!). What is the optimal
service level that should be provided by JimmikiKamal?
A. 71.42% B. 69.44% C. 73.52% D. 27.77% E. None of the above

14. As one of you pointed out in the class, the demand for Dermicool is seasonal
in pattern. Assume that this data has a quarterly seasonality in the demand data
and one of you had been placed in Reckitt Benckiser (The company which
markets brands like Dettol, Dermicool, Strepsils and Harpic). You ran a
regression with the Dermicool data (with a very good fit) and found the
regression equation to be 𝐷𝑒𝑚𝑎𝑛𝑑 (𝑖𝑛 𝑚𝑖𝑙𝑙𝑖𝑜𝑛 𝑢𝑛𝑖𝑡𝑠) = 589.2 +
126.7𝑄1 + 2.8𝑄2 − 587.6𝑄3 where 𝑄𝑖 represents the dummy variable
corresponding to quarter i. The Forecasted Demand for 𝑄3 is (in million
units)
A.131.1 B. 4.4 C. 589.2 D. 1.6 E. None of these
15. Every year during Sangram, Sportscom (IIMT) buys sports equipment (for
practice and excellent performance like the last year) from a verified dealer. In
the last five years, the data on demand for shuttlecocks from Sportscom and
the amount fulfilled by the dealer is given below. What are the Cycle Service
Level (CSL) and Average fill rate respectively of the dealer for IIMT?

Year 1 2 3 4 5
Sportscom 100 150 170 200 220
Requirement
(in units)
Fulfilled 100 120 170 190 220
Demand
(in units)

A. 40%, 80% B. 60%, 88.5% C. 60%, 87.5% D. 40%, 95% E. None of

these

16. Consider the following statements and indicate which of these statements are
TRUE
i. In Time series data patterns, the word “seasonal” is associated with
repetitive activities that happen only in an annual cycle.
ii. In Exponential Smoothing, if 𝛼 value is set to zero, it becomes a
Naïve forecast.
iii. Among all the forecasting techniques, Regression always provides the
most accurate forecast.
iv. If a time series data has an increasing trend pattern, the same can be
represented in regression using dummy variables
A. (i) and (iv)
B. (ii) and (iii)
C. (i) and (ii)
D. (iii) only
E. None of the above statements are True

17. Based on the advice of Swami Nithyananda, an Indian startup in Silicon

Valley started to source Ganga Maati (sand from the banks of river Ganga) to
sell it to several companies in the Bay area. Given its popularity, the demand
was 4000 bags of sand per week. The startup pays $10 per bag per week as a
carrying cost, while the total cost of shipment from Ganga to Silicon Valley
was dependent on the number of units ordered. If X units were ordered, the
total shipment cost was $(5000+2X). Given that the demand for these bags is
assumed to be constant, what is the optimal shipment size for this startup?
A. 14451 B. 14422 C. 1044 D. 2000 E. None of these
18. After getting famous (by running the serial non-stop on Sony Sab), Jethalal
now owns three electronic shops in Baroda, Ahmedabad and Surat
respectively. He is now taking help of Tapu and his friends who have
completed their MBA from International Institute of Management Timbuktu
to analyse his inventory. After digging through past data, he found the average
weekly demand for mobile phones and corresponding coefficient of variation
for the three stores which are given below

Store Mean Demand Coefficient of Variation

Store 1 1500 0.45
Store 2 1240 0.35
Store 3 560 1.05

The average lead time for procuring mobile phones was 1 week and Jethalal
uses a periodic review policy with a review period of 3 weeks. Assuming the
demand in all the three stores are independent of each other and if each store
wanted to maintain a service level of 95% (𝑧𝛼=0.05 = 1.645), what is the
approximate reduction in the safety stock by going for demand consolidation?
A. No reduction
B. 5583 units
C. 3273 units
D. 2310 units
E. Cannot be determined with the data provided

19. Consider the following statements and indicate which of these statements are
FALSE
i. If the batch size of each production order increases, the Turnaround time
decreases as the WIP inventory decreases.
ii. The Reorder point (on a number of units’ scale) is always greater than the
Mean Lead Time Demand
iii. In Production order quantity model, optimal order quantity increases with
decreasing holding cost, while in EOQ model, optimal order quantity
decreases with increasing holding cost.
iv. When the safety stock is zero, reorder point is independent of service level
A. (i) and (iv)
B. (ii) and (iii)
C. (i) and (ii)
D. (iii) only
E. None of the above statements are false
 20. Drumpf Airlines runs flights from Moscow to New York (for obvious reasons!).
They face a fixed cost for each flight independent of the actual number of
passengers on the plane. There are 853 seats (Airbus A380) available on a
plane. One-way tickets generate revenues of $800 apiece when used but are
fully refundable if not used. On a typical weekday, the airline estimates the
number of no-shows will range between 0 and 20 following a uniform
distribution. By law, an airline is allowed to overbook flights, but must give
compensation of $450 to all ticketed passengers not allowed to board. In
addition, it must provide those passengers with alternative transportation on
another carrier (the cost of providing the alternative transportation just wipes
out the $800 revenue that they got earlier). Approximately how many tickets
should Drumpf airlines book on its flight from Moscow to New York?

A. 853 B. 840 C. 866 D. 870 E. None of these

Section 3:
Please answer the following questions (21 to 23) independently by using the space
provided below the questions to show the steps used to arrive at the answer.
21. One of the commonly used currency in the seven kingdoms was Gold dragon
coins. Given his consumption, Tyrion lannister wanted to buy wine bottles
economically. Wine was supplied in bottles by a supplier in Riverland
(nearest to Casterly Rock). Tyrion estimated that his annual requirement
would be 5000 bottles. The normal cost of a wine bottle is 5 gold coins. For
orders between 1000 to 1499, the cost dropped to 4 gold coins and for 1500
and above, it was 3 gold coins. The ordering cost was set at 49 gold coins and
the inventory carrying cost is 20% of the unit cost. Find the order quantity that
will minimize Tyrion’s total cost? (5 marks)
 22. The Cultural Committee (CulCom) team after understanding the principles of
inventory management is now more careful of procuring T-shirts for Dhruva.
Assume that there is only one type of design that is decided for Dhruva 2019.
Based on the data from previous years (and experiences) and with the help of
SigmaEta team they have come up with the demand forecast which is given in
Table 1.

Q 50 75 100 125 150 175 200

Probability 0.0183 0.0733 0.1465 0.1954 0.1954 0.1563 0.1042
(Demand = Q)
Q 225 250 275 300 325 350 >350
Probability 0.0595 0.0298 0.0132 0.0053 0.0019 0.0006 0.0003
(Demand = Q)

Dhruva T-shirts are usually priced at ₹ 300, while their production cost is around
₹ 150. Left over inventory is sold to next batch juniors at a discounted rate of
₹100.

(a) If the CulCom team orders 350 T-shirts, what is the probability that they have
to sell 100 or more T-shirts at a discounted rate? (1 mark)
(b) What order quantity maximizes CulCom team’s expected profit? (2 marks)
(c) If the CulCom team wanted to have at least 90 percent in-stock probability,
approximately how many T-shirts should they order? (1 mark)
(d) What would be the service level of the CC team if the left over inventory is
sold to next batch juniors at a discounted rate of ₹ 125 ? (1 mark)
23. As discussed in the class, for FMCG products displayed in large retail stores,
the demand for a product is also dependent on inventory maintained which in
turn depends on the quantity ordered by the retailer. The average annual
demand for a product is given by
𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑨𝒏𝒏𝒖𝒂𝒍 𝑫𝒆𝒎𝒂𝒏𝒅 = 𝟓𝟎𝟎 ∗ 𝑸 + 𝟐 ∗ √𝑸 where Q is the order
quantity.
It was found that the Annual demand for the product also approximately
follows normal distribution with a standard deviation of 10 units. The lead
time for this product is constant and at 4 weeks. The ordering cost for the
retailer is $500 and the annual holding cost is $10 per unit. Given that the
retail firm is operational for 50 weeks and follows a continuous review
inventory model with a 95% service level (𝒛𝜶=𝟎.𝟎𝟓 = 𝟏. 𝟔𝟒𝟓, 𝒛𝜶=𝟎.𝟏 = 𝟏. 𝟐𝟖),
find the following

(a) Reorder point (ROP) (3 marks)

(b) Inventory Turns (2 marks)
SPACE FOR ADDITIONAL/ROUGH WORK
SPACE FOR ADDITIONAL/ROUGH WORK