Question: 1 Internal auditors frequently recommend that formal policies be written.

However, the presence of

certain conditions in an organization minimizes the need for written policies. One condition that
minimizes the need for written policies is
A. A high division of labor.
B. A strong organizational culture.
Answer (B) is correct.
If the culture is strong, the organization’s key values are intensely held and widely
shared. Substantial training has been expended to achieve this high degree of
acceptance, minimizing the need for formal, written policies.
C. A large span of control.
D. A strict unity of command.
 

Question: 2 The optimal span of control of a manager is contingent upon several situational variables. For
instance, a manager supervising workers within the same work area who are performing identical
tasks that are simple and repetitive would best be able to supervise
A. An unlimited number of employees.
B. Only a few workers (a narrow span of control).
C. A relatively large number of employees (a wide span of control).
Answer (C) is correct.
In any situation, underlying variables influence the number of subordinates a manager
can supervise. In general, if jobs are similar, procedures are standardized, and
physical dispersion is minimized, a wide span of control is most effective.
D. Fewer workers than if the workers were geographically dispersed.
 

Question: 3 Which of the following factors is least likely to affect a manager’s optimal span of control?
A. Frequency of supervisor-subordinate contact.
B. The manager’s willingness to delegate authority.
C. The manager’s training and communication skills.
D. Number of people in the organization.
Answer (D) is correct.
The optimal span of control is the number of subordinates a manager can effectively
supervise. It is a function of many situational factors. However, the total number of
people in an organization has no bearing on the optimal span of control of a particular
manager.
 

Question: 4 Which of the following is a likely effect of a narrow span of control?

A. The manager closely supervises employees.
Answer (A) is correct.
The span of control is the number of subordinates for which a manager or supervisor
is responsible. When the span of control is narrow, a few subordinates are tightly
controlled. A narrow span of control is typical of tall organizational structures.
B. Each employee is given more responsibility.
C. The organizational structure is flexible.
 D. The manager’s control over employees is limited.
 

Question: 5 When determining the appropriate span of control, the most important consideration is
A. The set of policies and procedures currently in effect.
Answer (A) is correct.
The most important factors to consider are the employees’ and manager’s preferences
and skills, the organization’s culture, the tasks involved, physical location of the
department, and established policies and procedures.
B. The typical span of control used by other organizations.
C. The preference of the organization’s creditors.
D. That all departments will be evaluated, whether or not they will be affected.
 

Question: 6 As an organization increases the number of employees, its structure becomes more complex.
Rules become more formalized, and more supervisors are hired to direct the increased numbers
of subordinates. What is the nature of the size-structure relationship?
A. The size-structure relationship is linear.
B. The structure becomes fixed once an organization attains a level of about 200
employees.
C. The size-structure relationship is concave.
D. None of the answers are correct.
Answer (D) is correct.
As an organization increases in size, its structure tends to become more formal and
mechanistic. More policies and procedures are necessary to coordinate the increased
number of employees, and more managers must be hired. However, the relationship
between size and changes in structure is linear only within a certain range. For
example, adding 100 employees to a company with 100 employees is likely to cause
significant structural change, but adding the same number to a workforce of 10,000 is
likely to have little impact. By the time a company reaches a certain size (1,500 to
2,000 or more), it usually has most of the qualities of a mechanistic structure.
 

Question: 7 Which of the following is a disadvantage of a flat organizational structure?

A. Employees are not encouraged to be creative.
B. The input of fresh ideas from outside the organization is limited because employee
turnover is low.
C. Managers spend too much time training individuals and not enough time supervising.
D. Employees may not be performing work tasks properly.
Answer (D) is correct.
A flat organizational structure concentrates decision-making authority at one level.
Tasks and performance objectives may be unclear to employees because of a lack of
supervision.
 

Question: 8 An organization that combines strict adherence to the unity of command with high division of
labor may cause problems for customers trying to obtain information. Of the following, which is
the most probable type of internal environment this structure creates?
A. Networked and formal.
 B. Compartmentalized and informal.
C. Networked and informal.
D. Compartmentalized and formal.
Answer (D) is correct.
A high division of labor results in specialization. Unity of command clarifies
authority and responsibility relationships. An organizational structure with a high
division of labor and a strict unity of command is a classic bureaucracy. Thus, it is
compartmentalized and formal
 

Question: 9 In organizations in which new product groups are often created, a structure that combines
functional and product departmentation and creates dual lines of authority would be optimal. The
best structure for this organization is
A. Professional bureaucracy.
B. Mechanistic.
C. Matrix.
Answer (C) is correct.
A matrix organization has vertical and horizontal lines of authority because the
product manager borrows specialists from various functions who continue to report to
their functional managers. Thus, the resulting arrangement is a hybrid of functional
and product departmentation. The advantage is flexibility and rapidity of response to
new conditions. The disadvantage is violation of the unity-of-command concept.
D. Machine bureaucracy.
 

Question: 10 Which of the following is not true with regard to matrix structures for organizations?
A. It is akin to functional structures in that it fosters specialization.
B. It is akin to divisional structures in that it has an explicit focus on results.
C. It only works well when the organization’s projects or products have a short life cycle.
Answer (C) is correct.
A matrix organization creates dual lines of authority by compromising between
functional and product departmentation. For example, a manager may be appointed
for each product who then draws on personnel organized by function. These
individuals simultaneously report to a manager for each function. This form is used in
research and development and in project management. No limitation on the length of
the life cycle exists. Hence, research does not suggest that matrix structures work well
only in short life cycles.
D. The major disadvantage of matrix structures is their potential for creating confusion and
power struggles.
 

Question: 11 A small furniture manufacturer with 100 employees is located in a two-story building and does not
plan to expand. The furniture manufactured is not special-ordered or custom-made. Its most likely
organization structure is
A. Functional departmentation.
Answer (A) is correct.
Organizing by function categorizes jobs according to the activity performed. It avoids
duplication of effort and allows for specialization. It permits workers with similar
expertise to work in a coordinated subunit. If the same activities are required for the
 manufacture of all items produced, organizing production in accordance with those
activities (functions) is efficient.
B. Product departmentation.
C. Matrix organization.
D. Divisional organization.
 

Question: 12 Which organizational structure will likely have unity-of-command problems unless frequent and
comprehensive communication occurs among the various functional and project managers?
A. Line-and-staff.
B. Strategic business unit.
C. Centralized.
D. Matrix.
Answer (D) is correct.
The matrix organizational structure allows authority to flow both vertically and
horizontally. A manager is appointed for each project. This manager draws on
personnel who are organized by function and report to a manager for each function.
This structure violates the principle of unity of command, which states that each
subordinate should have only one superior. Hence, frequent and comprehensive
communication is necessary to prevent power struggles and conflicts of interest.
 

Question: 13 Which management principle is violated when an employee answers to several bosses?
A. Authority.
B. Division of work.
C. Span of control.
D. Unity of command.
Answer (D) is correct.
Under the unity-of-command principle, each subordinate should have only one
superior (although a superior may have as many subordinates as allowed by the
superior’s span of control). Violation of the principle of unity of command leads to
confusion and frustration for the subordinate.
 

Question: 14 When an organization depends to a great extent on its environment, which of the following
statements best characterizes the relationship among an organization’s environment, the level of
uncertainty it faces, and its structure? The more dynamic and complex the environment, the
A. More uncertainty the organization will face and the more organic the structure should
be.
Answer (A) is correct.
A dynamic and complex organizational environment faces constant change, so the
level of uncertainty increases. The more uncertainty an organization faces, the more
organic the structure should be. Organic organizations tend to be flexible and adaptive
to change.
B. More uncertainty the organization will face and the more mechanistic the structure
should be.
C. Less uncertainty the organization will face and the more autocratic the structure should
be.
 D. Less uncertainty the organization will face and the more organic the structure should be.
 

Question: 15 The relationship between organizational structure and technology suggests that, in an
organization using mass production technology (for example, automobile manufacturing), the
best structure is
A. Organic, emphasizing loose controls and flexibility.
B. Matrix, in which individuals report to both product and functional area managers.
C. Mechanistic, that is, highly formalized with tight controls.
Answer (C) is correct.
Manufacturers have been categorized as engaged in unit production (units or small
batches), mass production (large batches), or process production (continuous
processing). Mass production is most effective if the organization has a mechanistic
structure characterized by moderate vertical differentiation, high horizontal
differentiation, and high formalization. This structure is one in which tasks are well
defined, most communication is downward, and control is tight.
D. Integrated, emphasizing cooperation among departments.
 

Question: 16 How an organization’s structure relates to the environment in which it operates is important to its
success. The structure of the organization can be mechanistic (a rigid pyramid-shaped
organization) or organic (a flexible and adaptive organization). Which of the following items
is not characteristic of the interaction between an organization’s environment and its structure?
A. The more dynamic the environment, the more the organization’s structure should be
organic.
B. The more complex the environment, the more the organization’s structure should be
mechanistic.
Answer (B) is correct.
The complexity of an environment is a function of the heterogeneity and
concentration of its elements. For example, an organization with numerous and
constantly changing competitors faces a complex environment. Such an environment
requires the flexibility and adaptability of an organic structure.
C. The more stable the environment, the more the organization’s structure should be
mechanistic.
D. The more scarce the environment, the more the organization’s structure should be
organic.
 

Question: 17 A divisional arrangement organizational structure is most likely to be found in what kind of
organizational structure?
A. Mechanistic.
B. Organic.
Answer (B) is correct.
The organic structure is at the opposite end of the design continuum from a
mechanistic organization. An organic structure has groupings of similar persons
and resources in subunits (horizontal specialization); relatively few policies,
procedures, and rules; less stringent formal controls; decentralized staff; and
matrix or divisional departmentation.
 C. Bureaucratic.
D. Classical.
 

Question: 18 The term for the organizational design strategy favored by the classical school of management is
A. Mechanistic.
Answer (A) is correct.
The traditional approach to organizing the structure of roles to facilitate the
achievement of goals emphasizes authority, responsibility, tasks, hierarchy, etc.
Because this approach tends to set up prescribed or dictated relationships, it has been
called mechanistic.
B. Organic.
C. Project management.
D. Contingency.
 

Question: 19 A large organization uses assembly line techniques to manufacture a single product. Its choice of
relatively mechanistic organizational design was most likely based on its
A. Need for rapid response to environmental change.
B. Primary concern for operational efficiency.
Answer (B) is correct.
Mechanistic organizations have vertical structures with duties and authority clearly
defined by position in the hierarchy, a stringent set of formal controls, and a
centralized staff. Such organizations tend to emphasize efficiency and operate in a
stable environment with well-established technology. Large firms in basic industries
(autos, utilities) often adopt this structure.
C. Low fixed technology requirement.
D. Project management emphasis.
 

Question: 20 The organizational structure most appropriate for product development activity is
A. Organic.
Answer (A) is correct.
Organic organizations tend to be flexible and highly adaptive to change. They allow
for participative lateral communication and informal interaction among departments
and personnel. These characteristics are favorable for product development, a process
requiring creativity, cooperation, and a rapid response to change. Organic
organizations are the opposite of mechanistic organizations.
B. Geographic.
C. Centralized.
D. Mechanistic.
 

Question: 21 Environmental factors that are important to the organization include all of the following except
A. Competitors.
B. Physical resources.
C. The economy.
D. Uncertainty.
 Answer (D) is correct.
Every organization’s environment has three key dimensions: capacity, volatility, and
complexity. Capacity is the degree of growth an environment can support. Volatility
concerns the relative instability in the environment. Complexity refers to the amount
of heterogeneity and concentration; e.g., an industry with a few very large firms is
homogeneous and concentrated. Uncertainty is not a specific environmental factor.
Rather, the foregoing factors determine the level of uncertainty present in the
environmen
 

Question: 22 Although bureaucracy is often perceived negatively by the public, it is a feature of nearly every
large company. Which of the following is a sign that a bureaucracy is dysfunctional?
A. A diversity of jobs.
B. Rules that obscure responsibility.
Answer (B) is correct.
A sign that a bureaucracy is dysfunctional is the development of rules that are
meaningless or that obscure accountability. A lack of accountability shows that the
bureaucracy is ineffective at identifying the source problems and creating solutions to
solve the problems.
C. A large number of rules necessary for day-to-day operations.
D. Obedience to authority.
 

Question: 23 A characteristic of a bureaucratic organizational structure is that

A. It is small and simple.
B. Work assignments are rarely delegated.
C. No hierarchy must be followed for communications purposes.
D. The divisions of labor are distinct.
Answer (D) is correct.
Organizational structure is the order and disposition of lines of responsibility. A
bureaucracy is an organizational structure in which tasks are specialized under a
given set of rules and a hierarchy of authority. Division of labor is the separation of
work loads into small segments to be performed by one or more people.
 

Question: 24 Which of the following is an advantage of bureaucratic organizational structures?

A. The routine activities and performance methods related to a particular task are invariable
and clearly defined to the employee.
Answer (A) is correct.
Each employee’s job description defines the related activities and procedures, which
do not vary over time. The result is certainty and consistency with regard to the
routines and procedures of a job function.
B. Open positions are filled by individuals recruited from outside the organization to bring
in new perspectives and backgrounds.
C. The organizations are typically decentralized to allow a subunit manager to make more
timely decisions.
D. The minimization of the opportunity for social interaction enhances efficiency.
 
Question: 25 A likely effect of a bureaucratic structure on employee motivation is that
A. Employee performance will be mediocre because of inflexible standards and impersonal
surroundings.
Answer (A) is correct.
In a bureaucracy, standards for evaluating job performance do not fluctuate because
required tasks change slowly, if at all. The work environment is impersonal, which
limits individual growth of employees because no incentive for extraordinary
performance is present.
B. An employee will pursue organizational goals because of the employee’s participation
in establishing them.
C. Morale will be high because of each employee’s feeling of belonging and ownership.
D. Job enrichment will be high because of each employee’s involvement in developing and
adapting his/her job description and required tasks.
 

Question: 26 Which type of organization is based upon strategic long-term relationships based upon implicit
contracts and coordination through adaptation?
A. Hourglass organization.
B. Cluster organization.
C. Network organization.
Answer (C) is correct.
A network organization is a network based upon coordination through adaptation. It
also is based upon long-term relationships without specific legal ties.
D. Virtual organization.
 

Question: 27 Halo Corporation consists of 10 groups, each of which is composed of multi-skilled workers.
Workers are often transferred between teams as needed and communication between and within
groups is emphasized. Halo Corporation is best described as a(n)
A. Hourglass organization.
B. Cluster organization.
Answer (B) is correct.
A cluster organization is essentially a group of teams. The workers are often multi-
skilled and move among teams as needed. The workers undergo special training and
team-building exercises. The pay also is based upon knowledge.
C. Network organization.
D. Virtual organization.
 

Question: 28 To be successful, large companies must develop means to keep the organization focused in the
proper direction. Organizational control systems help keep companies focused. These control
systems consist of which three basic components?
A. Budgeting, financial ratio analysis, and cash management.
B. Objectives, standards, and an evaluation-reward system.
Answer (B) is correct.
An organizational control system must be based on a statement of what is to be
achieved and when (objectives). The accomplishment of objectives depends on the
establishment of standards that serve as feedforward controls. Adherence to
performance standards signifies that an organization is on course to attain its
 objectives. A well-developed evaluation-reward system that is clearly communicated
to employees should motivate them to improved performance.
C. Role analysis, team building, and survey feedback.
D. Setting goals, empowering employees, and job enrichment.
 

Question: 29 Which of the following is a characteristic of a mechanistic organization?

A. Knowledge by employees tends to be task-specific.
Answer (A) is correct.
A mechanistic organization designs tasks that are specifically designed and have little
flexibility. Therefore, the mechanistic organization focuses on task-specific
knowledge by its employees.
B. Self-control is preferred to hierarchical control.
C. Superiors usually have an informational and advisory role.
D. Communication is horizontal.
 

Question: 30 For the past several years, many organizations have attempted to reduce administrative costs
and respond more rapidly to customer and competitive demands. One method is to eliminate
layers of middle management. The element of organizational structure affected by such
reductions is
A. Spatial differentiation.
B. Formalization.
C. Vertical differentiation.
Answer (C) is correct.
Vertical differentiation concerns the depth of the organizational hierarchy. The greater
the number of levels, the more complex the organization, the greater the potential for
information distortion, the more difficult the coordination of management activities,
and the slower and less effective the response to changing conditions.
D. Formalization of jobs.
 

Question: 31 Routine tasks, which have few exceptions and problems that are easy to analyze, are conducive
to
A. Formalized structure, in which procedures manuals and job descriptions are common.
Answer (A) is correct.
Technology has been viewed in terms of two dimensions: task variability and problem
analyzability, or the exceptions encountered in work and the search procedures for
responding to the exceptions, respectively. Routine tasks have few exceptions, and the
search for solutions is well defined. Because routine tasks change little over time, they
are well suited to a mechanistic structure. One characteristic of such a structure is
high formalization.
B. Decentralized decision making, in which decisions are pushed downward in the
organization.
C. Organic structures that emphasize adaptability and flexibility to changing
circumstances.
D. High degrees of job satisfaction on the part of the employees performing them.
 
Question: 32 The structure of an organization generally follows its overall strategy. At one end are loosely
structured, organic organizations. At the other end are highly centralized, tightly controlled,
mechanistic organizations. Consider the overall strategy of a company that is a pioneer in the
combination of laser and robotic technologies. The company’s scientists and engineers hold
many patents. They are continually looking for ways to improve their products as well as to
introduce new ones. Identify the most appropriate structural option for this organization.
A. Mechanistic.
B. Imitative.
C. Organic.
Answer (C) is correct.
Organizational structure depends on the company’s overall strategy. This organization
has adopted an innovation strategy. It introduces major new products or services. The
structure that provides the flexibility required for major innovation is organic, a form
of organization characterized by a loose structure, low division of labor, low
formalization, and decentralization.
D. Bureaucratic
 

Question: 33 A small engineering consulting firm accepts special projects from customers in a variety of fields.
Its choice of an organic organizational design was most likely based on its
A. Lack of concern for self-fulfillment of employees.
B. Preference for formal communication.
C. Adoption of directive leadership style.
D. Participative decision-making processes.
Answer (D) is correct.
The organic structure is best suited to a company that emphasizes operational
efficiency less than the flexibility needed to respond quickly to changes in its
environment and the creativity to find solutions to new problems. Decision making in
this context tends to rely on input from many sources and requires multidirectional
communication. Hence, a horizontal or flat structure typified by project or matrix
management will be appropriate.
 

Question: 34 An adhocracy is most likely to be found in what kind of organizational structure?

A. Mechanistic.
B. Organic.
Answer (B) is correct.
The organic structure is at the opposite end of the design continuum from a
mechanistic organization. An organic structure has groupings of similar persons and
resources in subunits (horizontal specialization); relatively few policies, procedures,
and rules; less stringent formal controls; decentralized staff; and matrix or divisional
departmentation.
C. Bureaucratic.
D. Classical.
 

 
 

        

Question: 35 Which of the following is a staff position in the bank?

A. The manager of customer service-checking, the department that handles checking
account inquiries and transactions.
B. The director of personnel, the department that handles the hiring, firing, promotion, etc.,
of all employees.
Answer (B) is correct.
Staff positions in any organization advise and support the line positions. They
indirectly help to achieve the organization’s basic objective. Each staff position’s
authority is, at most, functional. Such authority is exercised only over activities
related to the staff’s function or specialty.
C. The chief loan officer, who is in charge of final approval of all loans.
D. The vice president in charge of the mortgage department, which handles mortgages on
business and residential property.
 

 
 

Question: 36 The manager of customer service checking at the bank is most likely to encounter conflict(s)
because of
A. The department’s reliance on the savings manager and the money market manager.
B. The manager of customer service checking providing services for customers who do not
have checking accounts.
C. The requirement that the manager of customer service checking must report directly to
both the president and the vice president for customer accounts.
D. A potential disagreement with the director of personnel about a subordinate’s
performance appraisal.
Answer (D) is correct.
The director of personnel (DP) must coordinate all employee evaluations. Although
the manager of checking services is in a line position that is not under the DP, (s)he
works with the DP when hiring, dismissing, transferring, or evaluating employees
 

Question: 37 A line position

A. Is indirectly responsible for achieving the organization’s basic objectives.
B. Makes administrative and operating decisions.
Answer (B) is correct.
A line position is in the direct chain of command and is responsible for administering
policy and making operating decisions. People in line positions have direct
responsibility for achieving the organization’s basic objectives and thus have formal
or legitimate authority.
C. Advises and assists staff positions.
D. Is indirectly involved with the organization’s product(s) and/or services.
 

Question: 38 Line and staff positions are most likely to be in conflict because
A. Line managers have no authority over staff employees.
Answer (A) is correct.
Line managers are directly responsible for achieving the organization’s objectives, but
staff managers are not directly accountable. However, line managers may have no
 authority to influence staff behavior when it is inconsistent with the achievement of
objectives.
B. Staff managers consider line managers’ functional authority threatening to staff
managers’ own authority.
C. Line managers believe that staff managers are resistant to line managers’ advice.
D. Staff managers dislike relying on line expertise.
 

Question: 39 Which of the following is generally true regarding a manager’s span of control?
A. Narrow spans of control are typically found in flat organizations, those with few
hierarchical levels.
B. An organization with narrow spans of control needs more managers than those with
wide spans.
Answer (B) is correct.
Span of control (span of management or span of authority) is an upper limit to the
number of people who can be effectively and efficiently supervised by one person.
Narrow spans of control mean that the ratio of those supervised (subordinates) to
those doing the supervision (managers) is lower. Hence, more managers are required.
C. Wider spans of control mean higher administrative expense and less self-management.
D. Wider spans of control help ensure good internal controls and policy compliance
throughout an organization.
 

Question: 40 The difference between a tall organization structure and a flat organization structure is that, in
the former,
A. The communication process takes longer and is of poorer quality.
Answer (A) is correct.
Flat organizational structures have relatively few levels from top to bottom. Tall
organizational structures have many levels between top and bottom. Flat structures
have the advantages of fast information flow from top to bottom of the organization
and increased employee satisfaction. Tall structures are faster and more effective at
problem resolution because of the increased frequency of interaction between superior
and subordinate and the greater order imposed by the hierarchy. Studies do not
indicate great advantages for either flat or tall structures.
B. Maintenance of the organization is less costly.
C. The morale of lower-level employees is generally higher.
D. A higher degree of coordination and cooperation is created.
 

Question: 41 The most likely span of control to apply over 14 data-entry clerks who do essentially the same job
and work in the same office would be
A. Close.
B. Narrow.
C. Moderate.
D. Wide.
Answer (D) is correct.
 Underlying variables influence the number of subordinates a manager can supervise.
In general, if jobs are similar, procedures are standardized, and physical dispersion is
minimized, a wide span of control is most effective.
 

Question: 42 In which of the following situations would a narrower span of control be more appropriate?
A. Managers do not spend a great deal of time on planning or strategic management.
B. Managers must spend a great deal of time coordinating with other managers.
Answer (B) is correct.
If substantial coordination is required, a manager benefits from reduced supervision
requirements. In addition, increased coordination implies that the work done by
subordinates is not standardized. As spans of control move from wider to narrower,
the work done becomes less similar and more complex.
C. Subordinates work in the same area rather than being geographically dispersed.
D. Work performed by subordinates is substantially identical.
 

Question: 43 Which of the following is an advantage of a tall organizational structure?

A. The flow of communications from top to bottom and bottom to top is improved.
B. The organization’s overall objectives are familiar to all employees.
C. More opportunity to advance.
Answer (C) is correct.
The organizational structure consists of the order, disposition, and relationships of
positions and lines of responsibility within an entity. In a tall organizational structure,
decision-making responsibility is shared by many levels.
D. Labor expenses are reduced
 

Question: 44 A flat organization structure is one with relatively few levels of hierarchy and is characterized by
wide spans of management control. A tall organization has many levels of hierarchy and narrow
spans of control. Which of the following situations is consistent with a flat organization structure?
A. Tasks require little direction and control of subordinates.
Answer (A) is correct.
Flat structures have the advantages of fast information flow from the top to the
bottom of the organization and increased employee satisfaction. Tall structures are
faster and more effective at problem resolution because of the increased frequency of
interaction between superior and subordinate and the greater order imposed by the
hierarchy. For a flat structure to be successful, employees must be able to work
without supervision much of the time because a manager with many employees has
little time for each one.
B. Work areas are geographically dispersed.
C. Tasks are highly complex and varied.
D. Subordinates perform distinctly different tasks.
 

Question: 45 Departmentation is the grouping of organizational subsystems. The greatest advantage of

functional departmentation is that it
A. Provides the benefits of specialization.
 Answer (A) is correct.
Departmentation by function is the most widely used method and is found in almost
every enterprise at some level. The most common departments are selling, production,
and finance (though other terms may be used). These often extend upward in the
organizational chart to the level below the chief executive. If persons within a
department have similar knowledge, skills, and interests, they can specialize in the
solution of particular problems. Thus, problem solving becomes more efficient.
B. Facilitates communication between primary functions.
C. Helps to focus on achievement of organizational goals.
D. Is appropriate for geographically dispersed companies.
 

Question: 46 Departmentation is a common form of business integration. Grouping together all related jobs,
activities, and processes for a given business objective into a major organizational subunit is an
example of
A. Product-service departmentation.
Answer (A) is correct.
Departmentation by product or service is growing in importance for multiline, large-
scale enterprises and is an outgrowth of functional departmentation. The result is that
product-service subunits may be treated as separate businesses with a high degree of
autonomy. Managers must therefore have a broad perspective, not a merely functional
orientation.
B. Functional departmentation.
C. Geographic location departmentation.
D. Customer classification departmentation.
 

Question: 47 Departmentation may be performed by

I. Function
II. Product
III. Geography
A. I only.
B. II only.
C. I and II only.
D. I, II and III.
Answer (D) is correct.
Departmentation may be performed by function, product, and geography.
Departmentation by function is found in almost every organization at some level,
whether for-profit or not-for-profit. The most common departments in for-profit
organizations are marketing, production, and finance (though other terms may be
used). These often extend upward in the organizational chart to the level below the
chief executive. Departmentation by product or service is growing in importance for
multiline, large-scale enterprises. It is often an outgrowth of functional
departmentation. The result is that product-service subunits may be treated as
separate businesses with a high degree of autonomy. Managers must therefore have a
broad perspective, not a merely functional orientation. Departmentation by territory
(geographic location) is favored by national or multinational firms and government
 agencies with scattered resources, offices, or plants
 

Question: 48 The form of departmentation that most readily lends itself to use of profit centers is
A. Project.
B. Functional.
C. Product.
Answer (C) is correct.
Departmentation by product is growing in importance for multiline, large-scale
enterprises. It is an outgrowth of functional departmentation and permits extensive
authority for a division executive over a given product or product line. Its advantages
include better use of specialized resources and skills, ease of coordination of the
activities for a given product, and simpler assignment of profit responsibility. It is
compatible with a decentralization strategy and provides, via product profit centers, a
basis for allocating capital more efficiently.
D. Matrix.
 

Question: 49 Which of the following elements of an organization requires people to be accountable to

superiors?
A. Coordination of effort.
B. Division of labor.
C. Common goal or purpose.
D. Hierarchy of authority.
Answer (D) is correct.
A hierarchy of authority requires people to be accountable to their superiors in the
hierarchy
 

Question: 50 A claimed advantage of decentralizing is

A. Concentration of authority.
B. Manager development.
Answer (B) is correct.
When an organization changes from a centralized to a decentralized structure, top
management is delegating more authority to middle and lower levels. Thus, managers
at these lower levels are usually hired and developed more rigorously than under the
centralized structure.
C. Elimination of duplication of effort.
D. Departmentation
 

Question: 51 Which of the following is a reason for delegating?

A. The manager wants to make more decisions.
B. Subordinates lack initiative.
Answer (B) is correct.
Delegation is the assignment of a manager’s authority and/or workload to the
manager’s subordinates. By increasing subordinates’ responsibilities, the manager
 gives them more opportunity to exercise judgment and become more confident.
C. The manager wants to remain the sole expert in the manager’s field.
D. Subordinates have too many responsibilities.
 

Question: 52 A network organizational structure is one in which

A. An employee reports to two bosses.
B. Authority and responsibility are concentrated at the top of the organization.
C. Labor is specialized.
D. Major business functions are subcontracted to third-party providers.
Answer (D) is correct.
The subcontracting of major business functions to others is a feature of network
structures
 

Question: 53 Which of the following is a benefit of decentralization?

A. The head of the company is aware of and can influence all decisions before they are
made.
B. The company is operated as one unit.
C. Specialists for a particular product have no authority but advise the company’s top
management.
D. Decisions are made on a more timely basis.
Answer (D) is correct.
Decentralization is the extent to which decision-making power is delegated within an
entity. When approval from upper-level management is not required, lower-level
managers can make more timely decisions because they are closer to the necessary
sources of information.
 

Question: 54 Which of the following is a reason that a manager may be reluctant to delegate?
A. The manager fears being held accountable for the subordinate’s performance.
Answer (A) is correct.
Managers fear delegating because of insecurity, mistrust, insufficient planning, and/or
aversion to the risk of being responsible for subordinates’ actions.
B. The manager fears failing because of some lack of knowledge.
C. The manager did not monitor the subordinate’s work.
D. The manager fears unknown goals.
 

Question: 55 Advantages of decentralization include all of the following except

A. Decisions are more easily made.
B. Managers’ motivation increases.
C. Greater uniformity in decisions.
Answer (C) is correct.
Organizational design should achieve a balance between centralization and
decentralization. The main benefits of centralization are more effective control and
 reduced costs through resource sharing. The main benefits of decentralization are
flexibility and adaptability that permit a rapid response to changes in circumstances.
Accordingly, increased uniformity in decision making is an advantage of
centralization. It reflects the benefit of more effective control.
D. Problems can be dealt with on the spot.
 

Question: 56 Which of the following is not a characteristic of decentralized organizations?

A. Decentralized organizations are usually more flexible.
B. Decentralized organizations have reduced costs through resource sharing.
Answer (B) is correct.
The main benefits of centralization are more effective control and reduced costs
through resource sharing. In a centralized organization, senior management is able to
direct control over subordinates and direct the flow of resources. Senior management
is able to allocate reduce costs most effectively because they are aware of where
expenses can be reduced across departments within an organization.
C. Decentralized organizations have fewer decisions made lower in the hierarchy that are
monitored by senior management.
D. Decentralization has a positive influence on morale
 

Question: 57 The primary difference between centralization and decentralization is

A. Separate offices for all managers.
B. Geographical separation of divisional headquarters and central headquarters.
C. The extent of freedom of decision making by many levels of management.
Answer (C) is correct.
The primary distinction between centralization and decentralization is in the degree of
freedom of decision making by managers at many levels. In decentralization, decision
making is at as low a level as possible. The premise is that the local manager can
make better (more informed) decisions than a centralized manager. Centralization is
based on the theory that decision making must be consolidated so that activities
throughout the organization may be more effectively coordinated. In most
organizations, a mixture of these approaches is found to be best.
D. The relative size of the firm.
 

Question: 58 Which of the following is most likely to be a disadvantage of decentralization?

A. Lower-level employees will develop less rapidly than in a centralized organization.
B. Top management will have less time available to devote to unique problems.
C. Lower-level managers may make conflicting decisions.
Answer (C) is correct.
The disadvantages of decentralization include a tendency to focus on short-run results
to the detriment of the long-term health of the entity, an increased risk of loss of
control by top management, the increased difficulty of coordinating interdependent
units, and less cooperation and communication among competing decentralized unit
managers.
D. Lower-level managers may lose motivation
 
Question: 59 Which of the following is not a cost of decentralization?
A. Dysfunctional decision making owing to disagreements of managers regarding overall
goals and subgoals of the individual decision makers.
B. A decreased understanding of the overall goals of the organization.
C. Increased costs for developing the information system.
D. Increased costs of corporate-level staff services and management talent.
Answer (D) is correct.
The costs of centralized staff may actually decrease under decentralization. On the
other hand, the corporate staff and the various services they provide may have to be
duplicated in various divisions, thereby increasing overall costs. Suboptimal
decisions may result from disharmony among organizational goals, subgoals of the
division, and the individual goals of managers. The overall goals of the firm may
more easily be misunderstood because individual managers may not see the larger
picture. Moreover, the information system necessary for adequate reporting in a
decentralized mode will tend toward redundancy, which increases costs
The CEO of a rapidly growing high-technology firm has exercised centralized authority over all
corporate functions. Because the company now operates in four geographically dispersed
Question: 60 locations, the CEO is considering the advisability of decentralizing operational control over
production and sales. Which of the following conditions probably will result from and be a valid
reason for decentralizing?
A. Greater local control over compliance with governmental regulations.
B. More efficient use of headquarters staff officials and specialists.
C. Less overall operating costs.
D. Quicker and better operating decisions.
Answer (D) is correct.
Decentralization results in greater speed in making operating decisions because they
are made by lower-level managers instead of being referred to top management. The
quality of operating decisions should also be enhanced, assuming proper training of
managers, because those closest to the problems should be the most knowledgeable
about them
 

Question: 61 The most effective way for a supervisor to delegate a task to an employee is to
A. Define the desired outcome and the approach precisely and in writing.
B. Define the desired outcome precisely, discuss possible approaches with the employee,
and reach agreement on the approach to be taken.
Answer (B) is correct.
The supervisor’s expectations should be clear. The employee should also be involved
in determining how to reach the desired outcome, thereby increasing both acceptance
and understanding of the assignment.
C. Let the employee try to perform the task for a defined period of time and then meet to
critique the approach, clarify the assignment as needed.
D. Give the assignment in very general terms, have the employee develop the desired
outcome and approach, and then review and critique the employee’s decisions.
 

Question: 62 Centralization and decentralization are defined according to the relative delegation of decision-
making authority by top management. Many managers believe that decentralized organizations
have significant advantages over centralized organizations. A major advantage of a decentralized
organization is that decentralized
 A. Organizations are easier to control.
B. Structures streamline organizations and eliminate duplication of resources.
C. Organizations have fewer managers than centralized organizations.
D. Organizations encourage increased initiative among employees.
Answer (D) is correct.
A decentralized organization allows lower-level employees to participate in decision
making. This increased involvement encourages initiative and creative thinking and is
especially appropriate in complex and rapidly changing environments.
 

Question: 63 Which of the following statements about desktop computers, servers, and mainframe computers
is true?
A. Desktop computers usually cost more than servers but less than mainframes.
B. Because of the increased use of desktop computers, there will be little need for
mainframes in the near future.
C. Servers must be programmed directly in machine language while mainframes use
higher-level language.
D. The cost per transaction to process on each type of computer has decreased in recent
years.
Answer (D) is correct.
Advances in technology have resulted in less expensive computers and increased
computing power. The cost to process transactions on all kinds of computers has
therefore decreased.
 

Question: 64 An organization must manage its flows of raw materials, components, finished goods, services,
or information through intermediaries to ultimate consumers. These flows may occur across the
functions in an organization’s
A. Supply chain.
B. Value chain.
Answer (B) is correct.
The supply chain consists of flows from sources of (1) raw materials, (2) components,
(3) finished goods, (4) services, or (5) information through intermediaries to ultimate
consumers. These flows and the related activities may occur across the functions in an
organization’s value chain (R&D, design, production, marketing, distribution, and
customer service). These flows and the related activities also may occur across
separate organizations.
C. Full-function chain.
D. Integrated chain
 

Question: 65 The bullwhip, or whiplash, effect on inventories begins when retailers face uncertain demand
from consumers caused by randomness in buying habits. It can be avoided by
A. The need to purchase or manufacture goods in cost-efficient batches.
B. Changes in price that may encourage purchases in anticipation of future increases.
C. Shortages that may lead to rationing by suppliers or manufacturers and hoarding by
manufacturers or retailers.
D. Sharing of information and coordination among the organizations in the supply chain.
 Answer (D) is correct.
Sharing information about sales, inventory, pricing, advertising campaigns, and sales
forecasts by all functions and organizations in the supply chain moderates demand
uncertainty for all parties. The desired results are (1) minimization of inventories held
by suppliers, manufacturers, and retailers; (2) avoidance of stockouts; (3) fewer rush
orders; and (4) production as needed by retailers
 

Question: 66 A desired result of the sharing of information by all functions and organizations in the supply
chain is
A. Fewer rush orders.
Answer (A) is correct.
Sharing information about sales, inventory, pricing, advertising campaigns, and sales
forecasts by all functions and organizations in the supply chain moderates demand
uncertainty for all parties. The desired results are (1) minimization of inventories held
by suppliers, manufacturers, and retailers; (2) avoidance of stockouts; (3) fewer rush
orders; and (4) production as needed by retailers.
B. Maximization of inventories held by suppliers, manufacturers, and retailers.
C. Stockouts.
D. Incompatibility of the information systems of the parties.
 

Question: 67 Which of the following are intermediaries between sellers and buyers?

I. Agent
II. Broker
III. Consignee
IV. Consumer
A. I and II only.
B. I and III only.
C. I, II, and III only.
Answer (C) is correct.
A distribution channel is a series of interdependent marketing institutions that
facilitate the transfer of a product from producer (seller) to consumer (buyer).
Intermediaries include merchant middlemen, agents, brokers, consignees, and
facilitating intermediaries.
D. I, II, III, and IV.
 

Question: 68 The channel structure in which producers, wholesalers, and retailers act as a unified system is a
A. Horizontal distribution system.
B. Vertical distribution system.
Answer (B) is correct.
In vertical distribution systems, producers, wholesalers, and retailers act as a unified
system. Channel conflict is managed through common ownership, contractual
relationships, or administration by one or a few dominant channel members.
Horizontal distribution systems consist of two or more companies at one level of the
channel working together to exploit new opportunities, such as the introduction of
 ATMs in supermarkets. The joint nature of horizontal distribution efforts is the tool
for managing channel conflict. In a multichannel system, a single firm sets up two or
more channels to reach one or more customer segments. Because such a system is
managed by a single firm, channel conflicts can be evaluated and managed internally.
C. Unilateral distribution system.
D. Multichannel system.
 

Question: 69 Which of the following channel structures have the best means of managing channel conflict?

I. Conventional
II. Vertical
III. Horizontal
IV. Multichannel
A. I and II.
B. II, III, and IV.
Answer (B) is correct.
In vertical distribution systems, channel conflict is managed through common
ownership, contractual relationships, or administration by one or a few dominant
channel members. The joint nature of horizontal distribution efforts is the tool for
managing channel conflict. In a multichannel system, because such a system is
managed by a single entity, channel conflicts can be evaluated and managed
internally. Conventional distribution systems consist of one or more independent
producers, wholesalers, and retailers, each of which is a separate profit-maximizing
business. The profit objective of each independent channel member may result in
actions that are not profit-maximizing for the system as a whole, and the conventional
distribution system offers no means for controlling channel conflict.
C. I, III, and IV.
D. II and III.
 

Question: 70 The airlines have been leaders in the use of technology. Customers can make reservations
either with an airline or through a travel agency. In this situation, a travel agency is
classified as which type of distribution channel?
A. An intermediary.
Answer (A) is correct.
Marketing intermediaries assist companies in promoting, selling, and
distributing their goods and services to ultimate consumers. For example, travel
agents access an airline’s computerized reservation system and make
reservations for their customers without ever taking title to the ticket.
B. A jobber.
C. A distributor.
D. A facilitating agent.
 

Question: 71 Physical distribution is the moving of finished products to

 A. Retail outlets.
B. Shipping point.
C. Consumers.
Answer (C) is correct.
Physical distribution is the efficient management of supply chains. It controls value-
added flows from suppliers to consumers.
D. Warehouses.
 

Question: 72 Intensive distribution is most likely to be used for

A. Shopping goods.
B. Specialty goods.
C. Convenience goods.
Answer (C) is correct.
Convenience goods are consumer goods and services that are usually low-priced and
widely available. Consumers buy them often and with a minimum of comparison and
effort. Examples are soap and newspapers. Producers of convenience goods ordinarily
use intensive distribution to sell their products through a large number of retail or
wholesale units.
D. Unsought goods.
 

Question: 73 A distribution channel moves goods from producers to customers. Suppose a channel has 4
producers, each serving the same 4 customers, and no middlemen. If a distributor is introduced,
the number of contacts (among producers, customers, and the distributor) in the channel will
A. Be unaffected.
B. Decrease from eight to four.
C. Increase from eight to 16.
D. Decrease from 16 to eight.
Answer (D) is correct.
The number of contacts without a distributor is 16 (4 producers × 4 customers). The
number with a distributor is 8 (4 producers + 4 customers). Thus, the effort required
of producers and consumers is reduced by the distributor, thereby increasing
marketing efficiency.
 

Question: 74 Which of the following is not a component of physical distribution?

A. Transportation.
B. Pricing.
Answer (B) is correct.
Physical distribution (market logistics) involves planning, implementing, and
controlling the movement of materials and final goods to meet customer needs while
earning a profit. Physical distribution systems coordinate suppliers, purchasing
agents, marketers, channels, and customers. They include warehousing,
transportation, and retail outlets.
C. Location of retail outlets.
D. Warehousing.
 
Question: 75 Queuing models are concerned with balancing the cost of waiting in the queue with the
A. Cost of providing service.
Answer (A) is correct.
Queuing (waiting-line) models minimize, for a given rate of arrivals, the sum of (1)
the cost of providing service (including facility costs and operating costs) and (2) the
cost of idle resources waiting in line. The latter may be a direct cost, if paid
employees are waiting, or an opportunity cost in the case of waiting customers. This
minimization occurs at the point where the cost of waiting is balanced by the cost of
providing service.
B. Number of customers in the queue.
C. Average waiting time in the queue.
D. Usage rate for the service being rendered.
 

Question: 76 The operating condition that cannot be identified by using a queuing model is the
A. Average percentage of time that a service facility is idle.
B. Probability of a specified number of units in the queue.
C. Actual amount of time each unit spends in the queue.
Answer (C) is correct.
Queuing models determine the operating characteristics of a waiting line: the
probability that no units are in the system, the average units in the line, the average
units in the system, the average time a unit waits, the average time a unit is in the
system, the probability that a unit must wait, and the probability of a given number of
units in the system. However, the actual time spent in the queue cannot be determined
from the model.
D. Average number of units in the system and the mean length of the queue.
 

Question: 77 A bank has changed from a system in which lines are formed in front of each teller to a one-line,
multiple-server system. When a teller is free, the person at the head of the line goes to that teller.
Implementing the new system will
A. Decrease the bank’s wage expenses because the new system uses fewer tellers.
B. Decrease time customers spend in the line.
Answer (B) is correct.
When all customers must wait in a single queue, a decrease in waiting time is possible
given multiple servers. An added effect is to increase customer satisfaction.
C. Increase accuracy in teller reconciliations at the end of the day because fewer customers
are served by each teller.
D. Improve on-the-job training for tellers because each will perform different duties.
 

Question: 78 The drive-through service at a fast-food restaurant consists of driving up to place an order,
advancing to a window to pay for the order, and then advancing to another window to receive the
items ordered. This type of waiting-line system is
A. Single channel, single phase.
B. Single channel, multiple phase.
Answer (B) is correct.
The drive-through represents a single queue (channel). Because this waiting line has
 three services in series, it may be said to be multiple phase. Another example is the
typical factory assembly line. This terminology (channel, phase), however, is not used
by all writers on queuing theory.
C. Multiple channel, single phase.
D. Multiple channel, multiple phase.
A post office serves customers in a single line at one service window. During peak periods, the
rate of arrivals has a Poisson distribution with an average of 100 customers per hour and service
Question: 79
times that are exponentially distributed with an average of 60 seconds per customer. From this,
one can conclude that the
A. Queue will expand to infinity.
Answer (A) is correct.
One hundred customers arrive in line per hour, and only 60 are serviced per hour.
Accordingly, the queue will expand to infinity during peak periods.
B. Server will be idle one-sixth of the time.
C. Average rate is 100 customers per hour.
D. Average customer waiting time is 2.5 minutes.
 

Question: 80 The arrival times in a waiting-line (queuing) model follow which probability distribution?
A. Binomial.
B. Chi-square.
C. Poisson.
Answer (C) is correct.
Queuing models assume that arrivals follow a Poisson process: The events (arrivals)
are independent, any number of events must be possible in the interval of time, the
probability of an event is proportional to the length of the interval, and the probability
of more than one event is negligible if the interval is sufficiently small.
D. Exponential.
 

Fact Pattern: 1
A company produces two products, X and Y, which use material and labor as inputs. Fixed amounts of labor and
material are available for production each month. In addition, the demand for product Y each month is limited;
product X has no constraint on the number of units that can be sold.
 A graphical depiction of these production and demand constraints is presented in the opposite column
 

Refer to Fact Pattern: 1 

Question: 81 The feasible solution region is bounded by the lines connecting points
A. 3, 4, 6, and 7.
Answer (A) is correct.
A model consisting of a system of functions may be used to optimize an objective
function. If the functions in the model are all linear, the model is a linear
programming model. Linear programming is a technique to determine optimal
resource allocation. Several solution methods are available to solve linear
programming problems. The graphical method, the easiest technique, is limited to
simple problems. Here, the graph consists of three lines, each representing a
production constraint. The lines connecting points 3, 4, 6, and 7 bound the feasible
solution region. Product mixes of X and Y that lie outside this boundary cannot be
produced and/or sold because the demand constraint (line 3,4), the labor constraint
(line 4,6), and the material constraint (line 6,7) are binding.
B. 1, 5, 6, and 8.
C. 2, 4, 5, 6, and 8.
D. 3, 5, 6, and 7.
 

Refer to Fact Pattern: 1 

Question: 82 If a series of profit lines for X and Y are drawn on the graph, the mix of X and Y that will result in
the maximum profit can be determined from
A. The last point in the feasible solution region touched by a profit line.
Answer (A) is correct.
A profit line has negative slope because the profit from sales of one product increases
as the profit from sales of the other product declines. Moving the profit line rightward
(while maintaining its slope) to the last point in the feasible region determines the
solution.
 B. Any point on the boundary of the feasible solution region touched by a profit line.
C. The first point on the feasible solution region boundary that intersects a profit line.
D. Any point on the demand constraint that intersects a profit line.
 

Question: 83 The data below were gathered on two different machine centers and two products.
Product Hours per Unit

A B Hours Available

Machine Center 1 2.5 4 60

Machine Center 2 6 3 70

Contribution per unit US $4 US $5

Which item below would be part of a linear programming formulation of this problem?
A. Maximize: Contribution ≥ 4A + 5B.
B. Subject to: A ≤ 0.
C. Subject to: 2.5A + 4B ≤ 60.
Answer (C) is correct.
The linear programming solution is subject to constraints on the availability of
machine hours in both centers. For example, products A and B require 2.5 and 4 hours
per unit, respectively, in Machine Center 1, but only 60 hours are available. Hence,
the optimal production of A and B to the following constraint:
2.5A + 4B ≤ 60
D. Subject to: 4A + 5B ≤ 130.
 

Question: 84 A firm must decide the mix of production of Product X and Product Y. There are only two
resources used in the two products, resources A and B. Data related to the two products is given
in the following table:
Products

X Y

Resource A 3 7

Resource B 2 1

Unit Profit US $8 US $6
What is the appropriate objective function to maximize profit?
A. 3X + 7Y
B. 2X + Y
C. 8X + 6Y
Answer (C) is correct.
The objective function is the function to be optimized. This firm wishes to maximize
profits on the sales of two products (X and Y). Based on profits per unit (US $8 and
US $6, respectively), the objective function is 8X + 6Y.
D. 5X + 8Y
 

Question: 85 Under throughput costing, the only cost considered to be truly variable in the short run is
A. Direct materials.
Answer (A) is correct.
Throughput costing, also called supervariable costing, recognizes only direct
materials costs as being truly variable and thus relevant to the calculation of
throughput margin.
B. Direct labor.
C. Manufacturing overhead.
D. All manufacturing costs are considered variable.
 

Question: 86 The immediate goal of a theory of constraints (TOC) analysis is to

A. Maximize the efficiency of the entire production process.
B. Minimize direct materials cost.
C. Maximize contribution margin through the constraint.
Answer (C) is correct.
A basic principle of TOC analysis is that short-term profit maximization requires
maximizing the contribution margin through the constraint, called the throughput
margin or throughput contribution.
D. Smooth production flow to eliminate backup in the system.
 

Question: 87 The following steps make up the stages of a theory of constraints (TOC) analysis.

I. Determine the most profitable product mix given the constraint.

II. Increase capacity at the constraint.
III. Identify the constraint.
IV. Redesign the manufacturing process.
V. Maximize the flow through the constraint.
If executed in the correct order, the sequence is
A. III, I, II, V, IV.
B. III, II, I, V, IV.
C. III, II, I, IV, V.
D. III, I, V, II, IV.
Answer (D) is correct.
The steps in a TOC analysis are (1) identify the constraint, (2) determine the most
profitable product mix given the constraint, (3) maximize the flow through the
constraint, (4) increase capacity at the constraint, and (5) redesign the manufacturing
process for greater flexibility and speed.
 

Question: 88 A manufacturer can sell its single product for US $660. Below are the cost data for the product:
Direct materials US $170

Direct labor 225

 Manufacturing overhead 90
The relevant margin amount when beginning a theory of constraints (TOC) analysis is
A. US $490
Answer (A) is correct.
A theory of constraints (TOC) analysis proceeds from the assumption that only direct
materials costs are truly variable in the short run. This is called throughput, or
supervariable, costing. The relevant margin amount is throughput margin, which
equals price minus direct materials. Thus, the relevant margin amount for this
manufacturer is US $490 (US $660 – US $170).
B. US $345
C. US $265
D. US $175
 

Question: 89 Below are data concerning the hours spent by a manufacturer’s two products in its two
processes.
Assembly Painting

Product A 21 14

Product B 32 8
The constraint is
A. Product A.
B. Product B in Assembly.
C. The assembly activity.
Answer (C) is correct.
In theory of constraints (TOC) analysis, the constraint (bottleneck) operation is the
slowest part of the process. It can usually be identified as the one where work-in-
process backs up the most. Of this manufacturer’s two operations, the one that
requires the most total time is assembly.
D. Cannot be determined from the information given.
 

Question: 90 Data regarding four different products manufactured by an organization are presented as follows.
Direct material and direct labor are readily available from the respective resource markets.
However, the manufacturer is limited to a maximum of 3,000 machine hours per month.
Products

A B C D
Unit price US $15 US $18 US $20 US $25
Variable cost 7 11 10 16
Units Produced per Machine Hour:
A: 3
B: 4
C: 2
 D: 3
The product that is the most profitable for the manufacturer in this situation is
A. Product A.
B. Product B.
Answer (B) is correct.
When resources are limited, maximum profits are achieved by maximizing the dollar
contribution margin per limited or constraining factor. In this situation, machine hours
are the constraining factor. Product B has a contribution margin per machine hour of
US $28 [4 × (US $18 – $11)], which is greater than that of Product A [3 × (US $15 –
$7) = US $24], Product C [2 × (US $20 – $10) = US $20], or Product D [3 × (US $25
– $16) = US $27].
C. Product C.
D. Product D.
 

Question: 91 Business process reengineering is most likely to

A. Implement modern information systems technology to eliminate some controls.
Answer (A) is correct.
Reengineering and TQM techniques eliminate many traditional controls. They exploit
modern technology to improve productivity and decrease the number of clerical
workers. Thus, controls should be automated and self-correcting and require minimal
human intervention. Moreover, auditors must be prepared to encounter (and use) new
technologies. The emphasis therefore shifts to monitoring so management can
determine when an operation may be out of control and corrective action is needed.
B. Be applied within individual departments.
C. Improve existing procedures.
D. Apply a continuous improvement model.
 

Question: 92 One drawback of business process reengineering (BPR), sometimes referred to as business
process analysis, is
A. Improved efficiency in the business processes analyzed.
B. Excess of cost over the benefit.
C. Reduction of operational efficiency.
D. Employee resistance to change.
Answer (D) is correct.
Business process reengineering (BPR), or business process analysis, involves process
innovation and process redesign. Instead of improving existing procedures, it finds
new ways of doing things. One major drawback of BPR is that employees may be
resistant due to fear of layoffs, being replaced, or insecurity about new required skills
or tasks that the employee now has to perform
 

Question: 93 A company has several departments that conduct technical studies and prepare reports for
clients. Recently, there have been long delays in having these reports copied at the company’s
centralized copy center because of the dramatic increase in business. Management is
considering decentralizing copy services to reduce the turnaround and provide clients with timely
reports. An appropriate technique for minimizing turnaround time and the cost of providing copy
services is
 A. Queuing theory.
Answer (A) is correct.
Two basic costs are involved in queuing (waiting-line) models: (1) the cost of
providing service (including facility costs and operating costs) and (2) the cost of idle
resources waiting in line. The latter may be a direct cost if paid employees are waiting
or an opportunity cost in the case of waiting customers. The objective of queuing
theory is to minimize the total cost of the system, including both service and waiting
costs, for a given rate of arrivals. This minimization occurs at the point at which cost
of waiting is balanced by the cost of providing service. This company wishes to
reduce the total of waiting costs (turnaround time) and the cost of copy services.
B. Linear programming.
C. Regression analysis.
D. Game theory.
 

Fact Pattern: 2
A bank has two drive-in lanes to serve customers: one Based on a known probability distribution, the
attached to the bank itself and one on an island. One teller bank assigns random numbers to arrival and
serves both stations. The bank is interested in determining the service times:
average waiting times of customers and has developed a
model based on random numbers. The two key factors are the Time
time between successive car arrivals and the time customers Random between Random
wait in line. # Arrivals # Service Time
1 1 minute 1, 2 1 minute
Assume that the analysis begins with cars just arriving at both
service windows, both requiring 3 minutes of service time. 2, 3 2 minutes 3 2 minutes
Car 1 is at the attached window, and car 2 is at the island 4, 5, 6 3 minutes 4, 5, 6 3 minutes
window. A car will always go to the window attached to the 7, 8 4 minutes 7, 8, 9 4 minutes
bank unless that window has more cars waiting than the island The bank then selects random numbers for the
window. The lone teller will always serve the car that arrived next two cars as follows:
first. If two cars arrive simultaneously, the one at the attached
window will be served before the one at the island. Arrival Service
Car 3 #3 #7
Car 4 #7 #8
 

Refer to Fact Pattern: 2 

Question: 94 The problem just described is best approached by use of which quantitative method?
 A. Integrated autoregressive-moving average (ARIMA) modeling.
B. Exponential smoothing, multiple parameters.
C. Queuing theory.
Answer (C) is correct.
Two basic costs are involved in queuing (waiting-line) models: (1) the cost of
providing service (including facility costs and operating costs) and (2) the cost of idle
resources waiting in line. The latter may be a direct cost if paid employees are waiting
or an opportunity cost in the case of waiting customers. The objective of the queuing
theory is to minimize the total cost of the system, including both service and waiting
costs, for a given rate of arrivals. This minimization occurs at the point where the cost
of waiting is balanced by the cost of providing service.
D. Linear programming.
 

Question: 95 An investment company is attempting to allocate its available funds between two investment
alternatives, equities and bonds, which differ in terms of expected return and risk. The company
would like to minimize its risk while earning an expected return of at least 10% and investing no
more than 70% in either of the investment alternatives. An appropriate technique for allocating its
funds between equities and bonds is
A. Linear programming.
Answer (A) is correct.
Linear programming is a mathematical technique for planning resource allocation that
optimizes a given objective function that is subject to certain constraints. In this case,
the maximum investment is constrained by a 70% limit on either investment choice.
B. Capital budgeting.
C. Differential analysis.
D. Queuing theory.
 

Question: 96 Which of the following will allow a manufacturer with limited resources to maximize profits?
A. The Delphi technique.
B. Exponential smoothing.
C. Regression analysis.
D. Linear programming.
Answer (D) is correct.
Linear programming is a mathematical technique for planning resource allocation that
optimizes a given objective function subject to certain constraints. Thus, it maximizes
a revenue or profit function or minimizes a cost function, subject to constraints. For
example, constraints may be limited (scarce) resources or minimum/maximum levels
of production, performance, etc. In business, linear programming is used for planning
resource allocations. Managers are often faced with problems of selecting the most
profitable or least costly way to use available resources.
 

Question: 97 The CEO of a rapidly growing high-technology firm has exercised centralized authority over all
corporate functions. Because the company now operates in four geographically dispersed
locations, the CEO is considering the advisability of decentralizing operational control over
production and sales. Which of the following conditions probably will result from and be a valid
reason for decentralizing?
 A. Greater local control over compliance with governmental regulations.
B. More efficient use of headquarters staff officials and specialists.
C. Lower overall operating costs.
D. Quicker and better operating decisions.
Answer (D) is correct.
Decentralization results in greater speed in making operating decisions because they
are made by lower-level managers instead of being referred to top management. The
quality of operating decisions should also be enhanced, assuming proper training of
managers, because those closest to the problems should be the most knowledgeable
about them
 

Question: 98 Heniser Pet Foods manufactures two products, X and Y. The unit contribution margins for
Products X and Y are US $30 and US $50, respectively. Each product uses Materials A and B.
Product X uses 6 pounds of Material A and 12 pounds of Material B. Product Y uses 12 pounds
of Material A and 8 pounds of Material B. The company can purchase only 1,200 pounds of
Material A and 1,760 pounds of Material B. The optimal mix of products to manufacture is
A. 146 units of X and 0 units of Y.
B. 0 units of X and 100 units of Y.
C. 120 units of X and 40 units of Y.
Answer (C) is correct.
Linear programming is a technique used to maximize a contribution margin function
or to minimize a cost function, subject to constraints such as scarce resources or
minimum/maximum levels of production. Thus, linear programming is often used for
planning resource allocations. In this problem, the equation to be maximized, called
the objective function, is: US $30X + $50Y. This equation is to be maximized
subject to the constraints on materials. The two constraint functions are:
Material A: 6X + 12Y ≤ 1,200

Material B: 12X + 8Y ≤ 1,760

One way to solve this problem is to graph the constraint lines and determine the
feasible area. The optimal production level is at an extreme point within the feasible
area. The graph shows that a production level of 120 units of X and 40 units of Y is a
feasible production level that maximizes the contribution margin.
D. 40 units of X and 120 units of Y.
 

Question: 99 Dale has 20 days to complete production of an order for an important customer. The customer
wants 96 units of product that may be painted either red or white. The red units can be produced
at a rate of 4 per day. The white units, because of a different quality of paint, can be produced at
a rate of 7 per day. The materials for the red units cost US $80 each, while the white units cost
US $120 each. Dale wants to keep costs at a minimum. What is the constraint that expresses the
number of units to be produced?
A. 4R + 7W = 20
B. (R ÷ 4) + (W ÷ 7) ≤ 20
Answer (B) is correct.
The constraint function that expresses the number of units to be produced is R + W =
96, but that is not one of the answer choices. Another constraint is that the total
quantities of red (R) and white (W) units must be produced in 20 or fewer days at a
rate of 4 red units per day and 7 white units per day. Thus, the time constraint is (R ÷
 4) + (W ÷ 7) ≤ 20.
C. R + W = 20
D. 4R + 7W = 96