Question Paper

Operations Management-I (MB241): April 2008

• Answer all 83 questions.
• Marks are indicated against each question.
Total Marks : 100

1. Decisions like identifying the manpower requirement, determining the inventory levels, vendor
identification etc. are taken by the operations managers to fulfill the requirements for a period of one or
two years. These decisions can be classified under
(a) Investment decisions
(b) Tactical decisions
(c) Operational decisions
(d) Capital decisions
(e) Strategic decisions.
(1 mark)
2. Achieving the production targets to meet the market demand is important for any organization.
Productivity can be improved by splitting and dividing the job into sub tasks and assigning them to
workers based on their skills and capabilities. This concept is known as
(a) Hawthorne studies
(b) Scientific motion study of jobs
(c) Division of labor
(d) Scheduling techniques of employees
(e) Moving assembly line.
(1 mark)
3. Mr. Daniel, M.D of ABC Limited, delivered his speech, “To gain significant market share, we should
enter into the market before the competitors do that. We need to introduce the product into the market
very quickly. I hope it is good enough to adopt the strategy of_________________”. Which of the
following is the strategy that Mr. Daniel is suggesting for the company?
(a) Convenience and location
(b) Product variety and facility size
(c) Shorter product cycle
(d) Quality
(e) Market differentiation.
(1 mark)
4. Goel Corporation is an electronics manufacturing company. Because of the growing competition, the
company wants to produce new and different electronic goods in each product cycle. The operations
manager is required to select a strategy which helps the company to become competitive. Choose the
best strategy to achieve the above results.
(a) Shorter product cycle
(b) Production flexibility
(c) Low cost process
(d) Quality
(e) Convenience and Location.
(1 mark)
5. The showroom manager of Sona Ltd., explained in the meeting, “It is not enough to have one or two.
We need to display more models, more designs and more varieties. We need to fill our showroom. Then
only we can attract the customer. And we need to adopt an appropriate strategy such
as______________”. What is the best strategy for Sona Ltd., to become competitive as explained by the
showroom manager?
 (a) Shorter product cycle
(b) Production flexibility
(c) Convenience and location
(d) Product variety and facility size
(e) Market expansion and penetration.
(1 mark)
6. Large industries use boilers. The boilers we see in one company cannot be seen in another company.
Their design, structure, material combination and purpose vary from user to user. Kalpana Steel &
Alloys Ltd., is planning to produce boilers. Which of the following is a suitable operations strategy for
Kalpana Steel & Alloys Ltd.?
(a) Product focused system
(b) Process focused system
(c) Customized product design
(d) Standard product design
(e) High technology implementation.
(1 mark)
7. Customization is an expensive process. Expenses in customization can be reduced by adopting modern
manufacturing methods, which use a base framework that is common to all versions of product.
Attributes and features are to be added or deleted to the product based on the specific requirements.
This concept is known as
(a) Product development
(b) Prototype development
(c) Platform development
(d) Process development
(e) Design development.
(1 mark)
8. Organizations need to forecast the demand for their products and services so that all relevant plans can
be developed accordingly. Weighted moving average is one of the methods used in forecasting, which is
calculated using the formula
n
WMA t +1 = ∑ C t A t
t =1
,where

Ct
is the weight given to period ‘t’. Which of the following statements is true?
(a) The sum of weights is equal to 0.1
(b) The sum of weights is equal to 1.0
(c) The sum of weights is equal to 0.01
(d) The sum of weights is equal to 10.00
(e) The sum of weights is equal to 100.0.
(1 mark)
9. Demand forecasting is central to the planning and control functions of the organization. Forecasting
demand accurately is difficult, but necessary if an organization wants to achieve a profitable return on
its investment. Exponential smoothing is one of the methods used for forecasting. Which of the
following statements is true regarding exponential smoothing method?
(a) More weightage is assigned to past data
(b) More weightage is assigned to recent data
(c) Weights decrease exponentially from past to recent
(d) Weights increase exponentially from recent to past
(e) Weights are assigned based on the order of the smoothing equation.
(1 mark)
 (1 mark)
10. M/s Eagle Finance Corporation Ltd., wants to forecast the demand for its services. For this purpose, the
organization selected a forecasting model. In the assessment of the forecasting model, the tracking
signal was obtained as – 0.392. What is the performance of the forecasting model?
(a) Forecasting model is underestimating
(b) Forecasting model is overestimating
(c) Forecasting model is accurate
(d) Forecasting model is not appropriate
(e) Forecasting model is optimum.
(1 mark)
11.
Demand Forecast 37 28 21 21 31 24
Actual Demand 27 23 21 31 33 25

From the above data, calculate the tracking signal.

(a) -0.128
(b) -0.228
(c) -0.328
(d) -0.428
(e) -0.528.
(2 marks)
12. The actual sale for July is 10,000 units, and the forecasted sale is 9,000 units. Estimate the sales for the
month of August by exponential smoothing method, if the smoothing constant is 0.23
(a) 5,230 units
(b) 6,230 units
(c) 7,230 units
(d) 8,230 units
(e) 9,230 units.
(2 marks)
13.
Month Demand %Weight
(Units)
Jan 220 0.10
Feb 228 0.15
Mar 222 0.20
Apr 226 0.25
May 220 0.30

From the above data, forecast the demand for the month of June by using weighted moving average
method.
(a) 213 units
(b) 223 units
(c) 233 units
(d) 243 units
(e) 253 units.
(2 marks)
14. Abdullah Electronics Ltd., produces certain electronic goods, the demand for which is dynamic or
unstable. If you were to forecast the demand for the next season by using exponential smoothing, which
of the following statements indicates the right selection of smoothing coefficient?
(a) A low alpha value is preferable
(b) A high alpha value is preferable
(c) Alpha value is assigned based on the beta value
(d) Alpha value is provided based on the value of Dt-1
(e) Alpha value is given based on the value of Ft-1.
(1 mark)
 (1 mark)
15. The following data belongs to XYZ Co.
Demand Forecast 45 40 30 40 45 45
Actual Demand 35 35 30 50 47 46

The Mean Square Error is

(a) 30.63
(b) 32.43
(c) 34.13
(d) 36.23
(e) 38.33.
(2 marks)
16. The following data belongs to Kalyani & Co.
Demand Forecast 19 17 15 18 13 17
Actual Demand 18 12 15 19 15 18
From the above data, calculate Mean Absolute Percentage Error.
(a) 9
(b) 11
(c) 12
(d) 14
(e) 16.
(2 marks)
17. In transportation problem, ‘m’ represents the number of origins and ‘n’ represents the number of
destinations. The solution is feasible if the number of occupied cells in the solution is equal to
(a) m+n
(b) m-n
(c) m+n-1
(d) m+n+1
(e) m × n.
(1 mark)
18. The initial feasible solution for a transportation problem is given below.

Using the stepping stone method, find out the cell that can be assigned a new value to obtain optimum
solution.
(a) Cell (F1,W1)
(b) Cell (F2,W1)
(c) Cell (F1,W2)
(d) Cell (F3,W2)
(e) Cell (F2,W3).
(2 marks)
 (2 marks)
19. The weight of a bangle is 5g. It contains plastic and metal which costs Rs.5 and Rs.8 per g respectively.
The bangle contains not more than 4 g of plastic and not less than 2 g of metal.

x1 x2
If the decision variables are and , choose the correct set of constraints.
(a) x 2 ≥ 4; x1 ≤ 2
(b) x1 + x 2 ≤ 4 x1 + x 2 ≥ 2
;
(c) x1 + x 2 ≥ 5 x1 + x 2 ≤ 8
;
(d) x1 + x 2 ≤ 5 x1 + x 2 ≥ 4
;
(e) x1 ≤ 4; x2 ≥ 2
.
(1 mark)
20. Which of the following statements is true regarding Key column in simplex method?
(a) Key column is the column where the index value is zero
(b) Key column is the column where the index value is minimum
(c) Key column is the column where the index value is maximum
(d) Key column is the column where the basic variable is minimum
(e) Key column is the column where the solution variable is maximum.
(1 mark)
21. Mr. James, the foreman of Mona Ltd., fixed his workmen activities for the coming week. Which of the
following category of decisions does it come under?
(a) Strategic decisions
(b) Tactical decisions
(c) Operational decisions
(d) Planning decisions
(e) Controlling decisions.
(1 mark)
22. Which of the following statement(s) is/are true regarding ‘shop system’, proposed by F.W.Taylor?
I. Standardized work methods and work flow should be followed.
II. Standard output time is to be set for each task.
III. Each worker should be rotated on different jobs in order to acquire multi skills.
(a) Only (I) above
(b) Only (II) above
(c) Only (III) above
(d) Both (I) and (II) above
(e) All (I), (II) and (III) above.
(1 mark)
23. Now-a-days, different types of computer systems are available to help operations managers. Royal
Automobiles Ltd., has recently computerized its operations. In their system, a group of automated
machines are controlled by a central computer. The system is capable of producing a large quantity of
products that have similar processing requirements. Which of the following systems is being referred to
in the present context?
(a) Computer Aided Design
(b) Computer Aided Manufacturing
(c) Flexible Manufacturing System
(d) Automated Storage and Retrieval System
(e) Computer Integrated Manufacturing.
(1 mark)
 (1 mark)
24. New product development always starts with idea generation. Once the idea is generated, that needs to
be tested and verified for the possibilities of converting it into commercial production. Which of the
following studies tests the product both technically and economically?
(a) Market study
(b) Feasibility study
(c) Study of consumer behavior
(d) Hawthorne study
(e) Scientific motion study.
(1 mark)
25. The initial simplex table is given below.
Cj 700 400 0 0 0
CB Basic variables X1 X2 S1 S2 S3
Solution variables Ratio
0 S1 400 3 2 1 0 0 400/3=133.3
0 S2 300 2 1 0 1 0 300/2=150
0 S3 500 5 1 0 0 1 500/5=100
Zj 0 0 0 0 0
(C j − Z j ) 700 400 0 0 0
The values of the revised key row are given by
(a) 133.3, 1, 2/3, 1/3, 0, 0
(b) 150, 1, 1/2, 0, 1/2, 0
(c) 100, 1, 1/5, 0, 0, 1/5
(d) 400, 1, 1/5, 0, 0, 1/5
(e) 700, 1, 2/3, 1/3, 0, 0.
(2 marks)
26.

For the above transportation table,

(a) Row penalty values are 8, 0, 8 and column penalty values are 10, 8, 4
(b) Row penalty values are 6, 4, 2 and column penalty values are 2, 8, 2
(c) Row penalty values are 2, 6, 4 and column penalty values are 2, 8, 4
(d) Row penalty values are 8, 0, 2 and column penalty values are 8, 8, 4
(e) Row penalty values are 2, 4, 6 and column penalty values are 8, 0, 2.
(2 marks)
 (2 marks)
27. The MD of the Funnel Corp. Ltd., was worried about the increasing cost of components. And he was
also not happy with the quality of the components. Mr. David, the operations manager convinced the
MD for producing components in-house. The concept in the above situation refers to
(a) Modernization and expansion
(b) Horizontal integration
(c) Forward integration
(d) Backward integration
(e) Cellular manufacturing.
(1 mark)
28. XYZ Ltd., is a manufacturer of electronic items like transistors, tape recorders, video games etc. These
products can be made in batches. Because of the growing competition, the company wants to produce
new and different electronic goods in each batch. Which of the following is the proper process design
for the company?
(a) Cellular manufacturing
(b) Group technology
(c) Process focused
(d) Process manufacturing
(e) Discrete unit manufacturing.
(1 mark)
29. A work centre is a group of machines to work on products which are similar in shape and processing
requirements. Work centers are used in
(a) Discrete unit manufacturing system
(b) Process manufacturing system
(c) Process focused manufacturing system
(d) Group technology manufacturing system
(e) Product focused manufacturing system.
(1 mark)
30. Which of the following statements is/are not true regarding economic analysis of different production
systems?
I. In product focused production system, variable costs are higher than the other systems.
II. In job shop production system, comparatively higher fixed costs are required.
III. In cellular manufacturing system, fixed costs and variable costs lie between product focused
production system and process focused production system.
(a) Only (I) above
(b) Only (II) above
(c) Only (III) above
(d) Both (I) and (II) above
(e) All (I), (II) and (III) above.
(1 mark)
31. Managers generally use assembly charts to redesign, update and evaluate their production processes.
Which of the following statement(s) is/are true regarding assembly charts?
I. Operations and inspections are indicated in these charts.
II. Operation delays and transportation are indicated in these charts.
III. Various steps of operation and their frequency is indicated in these charts.
(a) Only (I) above
(b) Only (II) above
(c) Only (III) above
(d) Both (I) and (II) above
(e) All (I), (II) and (III) above.
(1 mark)
 (1 mark)
32. The following picture represents the cost – volume relationship for location A and location B.

Scale on X- axis: - 1 cm = 10,000 units

Y- axis: 1 cm = Rs. 5 lakh
Which of the following statements are true with respect to the above diagram?
I. For 50,000 units of sales, location A is preferable.
II. For 50,000 units of sales, location B is preferable.
III. For 80,000 units of sales, location A is preferable.
IV. For 70,000 units of sales, location A is preferable.
V. For 70,000 units of sales, location B is preferable.
(a) Both (II) and (III) above
(b) Both (II) and (V) above
(c) Both (III) and (IV) above
(d) Both (III) and (V) above
(e) (I), (III) and (V) above. (1 mark)
33. Companies use different types of layouts which are suitable to their production activity. Process layout
is one of them. Which of the following statements is not true regarding process layout?
(a) Production requires more time
(b) More floor space is required
(c) Sometimes there will be accumulation of work at different units
(d) In case of breakdown of one machine, the work transfer to another machine is not possible
(e) Better utilization of men and machines is possible.
(1 mark)
34. Managers use different models for developing a process layout. Load distance model is one of them.
Which of the following statement(s) is/are true regarding load distance model?
I. This model uses templates to develop product and fixed position layouts.
II. It is used to minimize the material flow.
III. In this model, generally the load is not fixed.
IV. In this model, computerized relative allocation of facilities technique is used.
V. In this model, generally the load is fixed.
(a) Only (I) above
(b) Only (IV) above
(c) Both (II) and (V) above
(d) Both (III) and (IV) above
(e) (I), (II) and (IV) above.
 (1 mark)
35. Line balancing is a part of assembly line study. Which of the following statements is not true regarding
line balancing?
(a) Line balancing mainly ensures that each workstation gets equal amount of time approximately.
(b) The total amount of work is divided into different tasks.
(c) The cycle time is determined by the minimum time required at any workstation.
(d) The workflow is slow at bottleneck.
(e) The tasks are assigned to workstations such that the work is performed in a feasible sequence.
(1 mark)
36. A production line consists of four workstations. The total time required to complete all the work is 3
minutes and the cycle time is 30.56 sec. Calculate the efficiency of the production line.
(a) 4.47
(b) 3.47
(c) 2.47
(d) 1.47
(e) 0.47.
(2 marks)
37. Manoj Bearings Ltd wanted to set up a new plant for manufacturing automobile bearings. The
management identified Orissa, Bihar and Madhya Pradesh to set up the plant. The fixed cost per year
and the variable cost per unit at each of the three locations are given below.

Location Fixed Cost Variable Cost

(Rs.) (Rs.)
Orissa 50,000 300
Bihar 75,000 250
Madhya Pradesh 1,00,000 200
The product is expected to be sold at Rs. 500 and the company hopes to sell 300 units per year. Which
of the following statements is true?
(a) Orissa is most profitable location and the likely profit is Rs.10,000
(b) Bihar is most profitable location and the likely profit is Rs. 20,000
(c) Madhya Pradesh is most profitable location and the likely profit is Rs. 30,000
(d) Both Bihar and Madhya Pradesh are equally profitable and the likely profit is
Rs. 50,000
(e) Both Orissa and Bihar are equally profitable and the likely profit is Rs.40,000.
(2 marks)
38. Visakhapatnam Shipyard is planning to construct a ship which can accommodate nearly 50,000
passengers and with a luggage capacity of 70,000 tons. Which of the following is the best suited layout
for the given project?
(a) Process layout
(b) Product layout
(c) Fixed position layout
(d) Hybrid layout
(e) Cellular manufacturing layout.
(1 mark)
39. Analytic Delphi Method helps managers take complex multi-location decisions. Which of the following
statement(s) is/are true regarding Analytic Delphi Method?
I. In this method, a forecasting team forecasts the future trends in the physical and social
environments.
II. The long term strategic goals and objectives of the organization are identified by the strategic
management team.
III. In this method, the coordinating team can consist of either external consultants or internal
employees.
 (a) Only (I) above
(b) Only (II) above
(c) Only (III) above
(d) Both (I) and (II) above
(e) All (I), (II) and (III) above.
(1 mark)
40. Location selection is a critical factor to be considered for setting up a company. Several models and
techniques are available that help managers make appropriate location decisions. Which of the
following statements is not true regarding point rating method?
(a) Weightage is assigned to the factors in the form of points
(b) The site with more points is considered to be suitable for selection
(c) Tangible cost factors are assigned points
(d) The drawback of this method is that a high score in any factor can overcome a low score in any
other factor
(e) Relative importance is provided for tangible cost factors when compared to others.
(1 mark)
41. Now-a-days, service organizations are expanding and gaining importance. Service organizations use
service facility layouts. Which of the following statements is true regarding layout for a hospital?
(a) Hospital layouts are designed around customer receiving service functions
(b) Hospital layouts are designed around technology, processing of physical materials and
production efficiency
(c) Hospital layouts are developed by mixed-model line balancing
(d) Hospital layouts are based on process layout
(e) Hospital layouts are developed by computerized relative allocation of facilities technique.
(1 mark)
42. The desired output for an assembly line is 480 units per day. The assembly line operates for a period of
240 minutes a day. The process involves the tasks A, B, C, D, E and F. Task time for each task is given
in the following table. Find the theoretical minimum number of workstations required to balance the
assembly line.

Task A B C D E F
Task time(Seconds) 32 15 12 16 9 24

(a) 2
(b) 3
(c) 4
(d) 5
(e) 6.
(2 marks)
43. The workers in the metal section of Mohan Fabrication Ltd., are not happy with the job design. Their
concern is about materials. These materials are too heavy and proper lifting facilities are not there. In
this particular context, which of the following statements is true?
(a) Job design is economically not feasible
(b) Job design is behaviorally not feasible
(c) Job design is technically not feasible
(d) Job content is not properly defined
(e) Job description is not properly explained.
(1 mark)
 (1 mark)
44. Mr.David is asked to critically examine and define the complete job requirements of a scientist and
submit a report to the GM of research wing. The report should contain : Duties, responsibilities, tasks,
lab, equipment, chemicals, solutions, electronic items, computers, qualification, experience, height,
weight, analytical skills, vision, training, health, drinking habits, heart rate, blood test, ECG, etc. In this
context, which of the following is a correct statement?
(a) Mr. David needs to prepare job specification
(b) Mr. David needs to prepare job description
(c) Mr. David needs to prepare job content
(d) Mr. David needs to do job analysis
(e) Mr. David needs to do job identification.
(1 mark)
45. Job title, job identification, job duties and job specifications are the basic components of
(a) Job analysis
(b) Job content
(c) Job description
(d) Job recruitment
(e) Job training.
(1 mark)
46. Job design plays an important role in operations management. The operations manager is required to
design the job properly. A good job design helps the organization in achieving optimum benefits. In this
regard, which of the following statement(s) is/are true?
I. Job title describes the purpose and responsibilities of the job.
II. Job identification describes the skills and qualifications.
III. Job specification describes the department, number of workers, reporting authority, etc.
(a) Only (I) above
(b) Only (II) above
(c) Only (III) above
(d) Both (I) and (II) above
(e) All (I), (II) and (III) above.
(1 mark)
47. In a time study, the cycle time is 2.50 minutes; worker performance rating is 75 percent, average
allowance for the activity is 15 percent of the normal time. Calculate the standard time.
(a) 1.21min
(b) 2.21min
(c) 3.21min
(d) 4.21min
(e) 5.21min.
(2 marks)
48. Specialization is one of the important components in job design. Specialization has its own merits and
demerits. Which of the following statements is not an advantage of specialization?
(a) Productivity increases because of learning curve effect
(b) Supervision and training of workers is easy
(c) Scope for higher degree of mechanization and automation
(d) In the absence of a worker, it is easy to shift the work to another worker
(e) Simple work instructions and easy production control.
(1 mark)
 (1 mark)
49. Human resource is a very important resource for an organization. Managing manpower is a challenging
job for the operations manager. He/she needs to design the job of an employee in such a manner that it
benefits both employee as well as the organization. Job content is the central aspect of job design.
Which of the following statement(s) is/are true regarding job content?
I. Job content specifies the responsibilities.
II. Job content includes interaction with the people.
III. Job content states about the machinery and equipment.
(a) Only (I) above
(b) Only (II) above
(c) Only (III) above
(d) Both (I) and (II) above
(e) All (I), (II) and (III) above.
(1 mark)
50. Manpower and machine power are two important resources of an organization. The operations manager
has to exercise proper care for optimal utilization of both manpower and machine power. Work
measurement is a tool used to determine the quantity of labor and number of machines required for a
particular operation. Which of the following statements is not a condition to be satisfied for work
measurement?
(a) The worker should be an average performer
(b) The selected job should use different types of tools and materials
(c) The job should be measurable
(d) The job should have a definite start time
(e) The job should have a definite end time.
(1 mark)
51. In organizations, time study is used to measure the time required for a specific task. Time study consists
of several steps. In which of the following steps is the job divided into a number of elemental tasks?
(a) Observation
(b) Job identification and division
(c) Allowances
(d) Computing normal time
(e) Computing standard time.
(1 mark)
52. The work standard of a job is 5 minutes 30 seconds. Mr.Gopal completed the job in 429 seconds. What
is the rating of Mr.Gopal?
(a) 70 %
(b) 80 %
(c) 90 %
(d) 110 %
(e) 130 %.
(2 marks)
53. An operations manager has to manage both manpower and machine power in an efficient manner. He
needs to know the working times and idle times of both men and machines. The percentage of time an
employee or equipment was occupied or idle is known as
(a) Performance measurement
(b) Predetermined motion study
(c) Time study
(d) Ratio delay
(e) Historical Analysis.
(1 mark)
 (1 mark)
54. Different techniques are used for work measurement. Basic motions involved in each and every task are
considered in some of these techniques. In which of the following techniques, recorded standard time
for the basic motions is used?
(a) Time study
(b) Work sampling
(c) Historical analysis
(d) Employees self – timing
(e) Predetermined Motion Time Study.
(1 mark)
55. The following information belongs to ABC Co.
June July Aug Sep
Opening stock (Units) 523 160 380 29
Demand (Units) 15,000 14,600 15,200 14,800
Working days 23 24 22 23

Productivity = 39 units / day.

No of workers = 14
Shortage cost = Rs.3 / unit.
Find shortage cost for the month of August.
(a) Rs.8,424
(b) Rs.7,424
(c) Rs.6,424
(d) Rs.5,424
(e) Rs.4,424.
(2 marks)
56. Organizations need to produce output as per the market demand. But some organizations maintain a
constant rate of production irrespective of demand. This strategy is know as
(a) Varying workforce size strategy
(b) Varying workforce utilization strategy
(c) Varying size of inventory strategy
(d) Back order strategy
(e) Subcontracting strategy.
(1 mark)
57. Organizations need to plan to satisfy the market demand. Plans are of different types. The individual
products that are similar are combined together as a product group and considered in planning process.
This concept is known as
(a) Master planning
(b) Operations planning
(c) Capacity planning
(d) Production planning
(e) Aggregate planning.
(1 mark)
58. An aggregate plan is to be developed carefully by considering several variables. Operations managers
follow different strategies for developing aggregate plans. Which of the following describes a pure
strategy for developing aggregate plans?
(a) A combination of two or more pure planning strategies
(b) A strategy using only one pure planning strategy without using other pure planning strategies
(c) A strategy aiming purely on profit maximization
(d) A strategy which fulfils organizational requirements
(e) A strategy developed purely by the top management.
(1 mark)
 (1 mark)
59. Human resource is considered the most important resource for an organization. Effective operations
management requires organizations to adopt proper manpower strategies. In varying the utilization of
the workforce strategy
(a) Workforce remains constant
(b) Workforce increases when demand is more
(c) Workforce decreases when demand is less
(d) Material is increased when orders are more
(e) Material is reduced when orders are less.
(1 mark)
60. Change is the property of nature and society. Business world has to observe changes in the environment
and needs to do necessary modifications in planning and scheduling activities of operations. This is a
continuous process and is dynamic in nature. This concept is known as
(a) Master requirements planning
(b) Rolling through time
(c) Capacity planning
(d) Master scheduling
(e) Aggregate planning.
(1 mark)
61. Multinational companies consist of several units. It is a challenging job for operations manager to
prepare production plan for all the units that leads to achievement of production goals. Which of the
following is a detailed plan that specifies the exact timing for the production of each unit?
(a) Business plan
(b) Aggregate plan
(c) Aggregate capacity plan
(d) Master production schedule
(e) Detailed capacity plan.
(1 mark)
62. There are many aggregate output planning models available to help managers. Which of the following
models is used to evaluate the performance of a specific plan based on the real world variables and
situations?
(a) Graphical method for aggregate output planning
(b) Linear programming model
(c) Linear decision rules
(d) Computer search model
(e) Computer simulation model.
(1 mark)
63. Demand is not stable in business. Fluctuations in demand and uncertainties in production activities
should be managed effectively by adopting suitable strategies. Which of the following statements is true
regarding back order strategy?
(a) Past order commitments are fulfilled in the current period
(b) Current order commitments are fulfilled in the current period
(c) Current order commitments are fulfilled in the future period
(d) Future order commitments are fulfilled in the current period
(e) Past order commitments are fulfilled in the future period.
(1 mark)
64. The investment made in inventory does not provide immediate return. The company could have earned
if the capital was invested in some other productive activity. Hence loss exists in holding inventory. The
cost associated with the loss is known as
(a) Inventory cost
(b) Holding cost
(c) Opportunity cost
(d) Handling cost
(e) Carrying cost.
(1 mark)
 (1 mark)
65. Costs trade off for XYZ Company is given by the following diagram.

Which of the following is the economic order quantity for the company?
(a) 20,000 units
(b) 25,000 units
(c) 30,000 units
(d) 35,000 units
(e) 40,000 units.
(1 mark)
66. Inadequate inventory hampers the production process, and also affects the sales. Therefore firms
maintain adequate inventory by the reorder process. Which of the following statements is true regarding
inventory level at the end of each reorder cycle?
(a) Should ensure zero inventory levels at the end of each reordering cycle
(b) Should ensure minimum inventory levels at the end of each reordering cycle
(c) Should ensure maximum inventory levels at the end of each reordering cycle
(d) Should ensure optimal inventory levels at the end of each reordering cycle
(e) Should ensure 100% inventory levels at the end of each reordering cycle.
(1 mark)
67. Kasturi & Brothers makes wooden tables for its customers, and stores them in the finished goods store.
Further information is as follows. Sales per year = 200 tables, setup cost = Rs.1,200, carrying cost = 20
percent per year, table cost = Rs.25. How many tables should be made in a production lot to maintain
optimal inventory at finished goods store?
(a) 12
(b) 22
(c) 32
(d) 42
(e) 52.
(2 marks)
 (2 marks)
68. Organizations spend more than 50 percent of the total cost on purchases. When it is economical,
material and components are produced in-house. The cost for setting up the production equipment is
known as setup cost. Setup cost is to be accounted in
(a) Purchase costs
(b) Carrying costs
(c) Holding costs
(d) Ordering costs
(e) Opportunity costs.
(1 mark)
69. One of the key issues faced by operations managers is optimization of inventory costs. Opportunity cost
is an element of inventory cost structure, hence due consideration is required in inventory decisions.
Opportunity cost is included in
(a) Ordering cost
(b) Stock-out cost
(c) Carrying cost
(d) Setup cost
(e) Purchase cost.
(1 mark)
70. Venu Engineering Company is engaged in fabrication work. The company is running in two shifts per
day. The average consumption of drilling bits is 23 per shift. It will take 12 working days to receive the
material from the supplier. Calculate the reorder point.
(a) 352
(b) 452
(c) 552
(d) 652
(e) 752.
(2 marks)
71. Which of the following statements is not true in Fixed Order Period System?
(a) Order period is fixed
(b) Order quantity varies
(c) Lower levels of safety stock are maintained
(d) The quantity ordered depends on the current inventory level
(e) The quantity ordered depends on the future inventory requirement.
(1 mark)
72. Value analysis is an important responsibility of purchasing manager. Which of the following statements
is true regarding value analysis?
(a) Value analysis should be carried out by the purchase department
(b) Value analysis is to be done by the engineering department
(c) Value analysis is conducted by the production department
(d) Value analysis is the coordinated effort of the engineering, production and purchase personnel
(e) Value analysis is to be performed by the suppliers.

(1 mark)
 (1 mark)
73. Make – or – Buy Analysis (Agni Gold Oils Ltd.,)

On X – axis, figures indicate demand in thousand units.

On Y – axis, figures indicate cost in rupees thousand.
‘Make’ decision is suitable for Agni Gold Oils Ltd., if the requirement is
(a) More than 10,000 units
(b) More than 20,000 units
(c) More than 30,000 units
(d) More than 40,000 units
(e) More than 50,000 units.
(1 mark)
74. Golkonda Aluminium Limited is engaged in manufacturing aluminum wires and rods. The company had
been procuring packing boxes from vendors at a price of Rs.70 per box. Now, the company is planning
to make them in-house. For installation of production equipment, the fixed cost is estimated to be
Rs.8,000, and variable cost is Rs.50 per box. What should be the demand of the boxes for the company
to go for in-house production?
(a) More than 100 units
(b) More than 200 units
(c) More than 300 units
(d) More than 400 units
(e) More than 500 units.
(2 marks)
75. Purchasing is an important function for an organization. Internet-based purchasing is expanding by jet
speed. Many small organizations combine their orders to get a volume discount from suppliers. The
concept of getting discount benefits by combining orders is known as
(a) Syndicated buying
(b) Bulk purchasing
(c) High discount orders
(d) Shipping order
(e) High volume purchase.
(1 mark)
 (1 mark)
76. An organization places orders at equal intervals of time (T1=T2=T3). Which of the following
statements is true if the organization is following P-Inventory system?
(a) Order quantity during periods T1 and T2 is equal
(b) Order quantity during periods T1 and T3 is equal
(c) Order quantity during periods T1, T2 and T3 is equal
(d) Order quantity during periods T1, T2 and T3 is different
(e) Order quantity gradually increases from period T1 to T2, and then T2 toT3.
(1 mark)
77. Purchasing involves huge amount of capital. It is a cost center. Hence control is required. The supplier
is authorized to dispatch material only after receiving legal documents from the buyer, that is known as
(a) Indent
(b) Quotation
(c) Material requisition
(d) Purchase order
(e) Bill of material.
(1 mark)
78. The production supervisor of XYZ Co. observed the lower bottom end curvature of angular component
as being 42 degrees. But they are in need of a component with 45 degrees curvature. He informed the
same to the production manager and also to the quality manager. They want to inform the matter to the
supplier. Which of the following statements is true in the present context?
(a) The production supervisor has to communicate to the supplier
(b) The production manager has to communicate to the supplier
(c) The quality manager has to communicate to the supplier
(d) The purchase manager has to communicate to the supplier
(e) The foreman has to communicate to the supplier.
(1 mark)
79. The term ‘purchasing’ refers to buying of material or an item. This is not an easy task. Purchasing
activity involves several steps and procedures. Sending and receiving quotations is one of the steps.
Which of the following statements is true regarding quotations?
(a) Quotations are sent from user department to purchase department
(b) Quotations are sent from purchase department to potential suppliers
(c) Quotations are sent from potential suppliers to purchase department
(d) Quotations are sent from purchase department to indenting department
(e) Quotations are sent from indenting department to prospective suppliers.
(1 mark)
80. Generally, marketing department prefers high levels of inventories to enhance sales. Storing huge
inventory is risky and needs insurance. Insurance cost of inventory is to be included in
(a) Purchase cost
(b) Carrying cost
(c) Stock out cost
(d) Ordering cost
(e) Setup cost.
(1 mark)
81. People are the primary resource for any organization. Managing workforce is a complex and critical job.
Job design makes a job comfortable for an employee and productive for the employer. In this context,
job design aims at
(a) Maximizing employee performance
(b) Optimizing employee performance
(c) Minimizing employee performance
(d) Assigning more responsibilities to employee
(e) Maximizing profits.
(1 mark)
 (1 mark)
82. The following diagram explains the objectives of job design.

In the diagram different areas are marked differently and indicated by numbers from 1 to 7. Which area
among the following indicates desirable objective of Job Design?
(a) Area indicated by 1
(b) Area indicated by 3
(c) Area indicated by 2
(d) Area indicated by 7
(e) Areas indicated by 4, 5 and 6.
(1 mark)
83. Work measurement is the process of identifying time standards for a job. Operations managers use past
data to set work standards. In this technique, in order to arrive at a normal time, the output of a
particular worker or department, over a specified period of time, is divided by the number of work hours
expended. This technique is known as
(a) Motion study
(b) Employee self-timing
(c) Historical Analysis
(d) Time study
(e) Predetermined Motion Time Study.
(1 mark)

END OF QUESTION PAPER

Suggested Answers
Operations Management-I (MB241): April 2008
Ans Reason
1. B Tactical decisions are medium term in nature and have a time frame of one or two
years.
2. C Division of labor:- Division of job into subtasks and assigning them to workers based
on their skills and capabilities is called division of labor.
3. C Shorter Product Cycle:- The first company that enters a market usually gains a
significant market share over subsequent entrants. The speed of product introduction
is dependent on the flexibility and adaptability of the production system. A company
which is more adaptable than its competitors can introduce product into the market
relatively quickly and will gain the advantage of the untapped market demand and will
be able to gain significant market share.
4. B Flexible production system:-To produce new and different products in each
production cycle, the production facilities should be flexible. Rearrangement of
equipment and reconfiguration of product lines should be made easy and fast. This is
possible by adopting a flexible production system.
5. D Product variety and facility size:- Attracting the customer is more important for
business. In our question, the showroom manager wants to attract the customers by
providing more and more varieties on display. This concept focuses on the strategy
‘product variety and facility size’.
6. C Customized product design:- Customer satisfaction is the key to the success of
business. The products should be designed to satisfy the individual customer needs.
Customization of product design is necessary when the customization is high and the
quantity to be produced is low. The products in our question are the examples for
customized products. They cannot be standardized and they cannot be produced in
large scale (mass production).
7. C Platform development:- In platform development, firms use a base framework that is
common to all versions of product. Attributes and features are to be added or deleted
to the product based on the specific requirements.
8. B Weighted moving average:- Sometimes the forecaster wants to use moving average
but does not want all ‘n’ periods equally weighted because of some trend or
seasonality in demand. There is no set rule for calculating weights. Experience and
trial and error methods are used to assign weights to a particular data. Each element is
weighted by a factor and the sum of the weights should be equal to one.
9. B Exponential smoothing method:- Exponential smoothing method is based on the
assumption that most recent data is a better indicator of future trends than the past
data. The demand for the most recent period is given maximum weightage. The
weights assigned to preceding periods decrease exponentially.
10. B The performance of a forecasting model can be monitored by Tracking signal. If a
forecast model makes accurate predictions then the tracking signal will be very close
to zero. If demand deviates widely from the forecast over a period of time the
tracking signal deviates significantly from zero. A positive tracking signal indicates
that the forecasts are lower than actual demand (underestimating). A negative tracking
signal indicates that the forecasts are higher than the actual demand (overestimating).
Thus the performance of a forecasting model is monitored over a period.
Tracking signal Forecasts Actual Performance of the forecasting model
+ ve Lower More Underestimating
- ve More Lower Overestimating
11. D
Demand Actual Absolute
Deviation
Forecast Demand Deviation
37 27 -10 10
28 23 -5 5
21 21 0 0
21 31 10 10
31 33 2 2
24 25 1 1
-2 28
Sum of deviations = -2
Sum of absolute deviation = 28
Deviation is nothing but the forecasting error.
Running sum of forecast errors (RSFE) is the sum of deviations, hence RSFE = -2
Mean absolute deviation = Sum of absolute deviations / no of periods. = 28/6 = 4.67
Running Sum of Forecast Errors
Mean Absolute Deviation
Tracking signal = = -2 / 4.67 = -0.428
12. E Demand forecast for period ‘t’ is derived from
Ft = α Dt −1 + (1 − α ) Ft −1
Ft
= Forecast for period ‘t’
Ft −1
= Forecast for period ‘t-1’
Dt −1
= Actual demand for period ‘t-1’
Smoothing constant, α = 0.23
F ( Aug ) = 0.23 ( 10,000) + (1 – 0.23 ) (9000)
= 2300 + 0.77 (9000)
= 2300 + 6930
= 9230 units.
13. B n

(WMA t +1 ) ∑C A
t =1
t t
Weighed Moving Average =
(WMA t +1 )
= Weighted Moving Average at the end of the time period t
At
= Actual demand in time period ‘t’
Ct
= Percentage weight given to time period ‘t’
May
(WMA June ) = ∑ Ct A t
Hence, Weighted Moving Average for June t = Jan

= (220 x 0.10) + (228 x 0.15) +(222 x 0.20) +(226 x 0.25) +(220 x 0.30)
= 22+34.2+44.4+56.5+66
=223.10 = 223 Units.
14. B The selection of alpha is more critical. Alpha shows the effects of past demand on
future demand. A high alpha results in more weightage and a low alpha results in
relatively low weightage. New products for which demand is dynamic or unstable are
having more effect, more influence on the future demand. A high alpha is more
appropriate for these products. If the demand is stable and believed to influence on
the future demand, then a low alpha can be selected.
Product demand Alpha value
Dynamic & unstable High
Stable ( uniform ) Low
15. E
F A (A t − Ft ) (A t − Ft ) 2
45 35 -10 100
40 35 -5 25
30 30 0 0
40 50 10 100
45 47 2 4
45 46 1 1
230
n=6
1 n 1
MSE = ∑ (A t − Ft )2 = 6 × 230 = 38.33
n t =1

16. C
Ft At A t − Ft A t − Ft A t − Ft
At
19 18 -1 1 0.06
17 12 -5 5 0.42
15 15 0 0 0
18 19 1 1 0.05
13 15 2 2 0.13
17 18 1 1 0.06
0.72
n A t − Ft
∑
t =1 At
=0.72
100 n A t − Ft
∑
n t =1 A t
MAPE =
M A P E = (100 / 6 ) × 0.72 = 12
17. C In transportation problem the feasible solution is obtained when the number of
occupied cells is equal to m+n-1.
18. B For this, the closed paths to the unoccupied cells have to be found out and the net cost
change has to be calculated.
The closed path for (F1,W1) :
(F1,W1) – (F1,W3)-(F3,W3) – (F3,W1)
Net cost change =3-1.2+2-1=2.8 ( Positive , Therefore nothing can be assigned to this
cell )
Closed path for (F1,W2) :
(F1,W2) – (F1,W3)-(F2,W3) – (F2,W2)
Net cost change =5-1.2+6-4=5.8 ( Positive , Therefore nothing can be assigned to this
cell )
 Closed path for (F2,W1) :
(F2,W1) – (F2,W3)-(F3,W3) – (F3,W1)
=3-6+2-1=-2 ( Negative value , so some quantity can be assigned to this cell. The
quantity is equal to the minimum quantity of the minus cells in this closed path.)
The minus cells are (F2,W3)=3 and (F3,W1)=8
Therefore (F2,W1) should be assigned the value 3 from (F2,W3).
19. E The bangles contain not more than 4 g of plastic and not less than 2 g of metal. As per
the decision variables x1 is plastic and x2 is metal respectively.
The first constraint is Plastic. And the second constraint is metal.
Plastic ≤ 4 g
Metal ≥ 2 g
x1 ≤ 4 x2 ≥ 2
Hence the constraints are ;
20. C Cj − Zj
In simplex table, key column is the column where the index value ( ) is
maximum.
21. C Operational decisions: - The decisions related to day to day work, one week and less
than one week are known as Operational decisions. Operational decisions are short
time in nature and generally have a time frame of one week or less than one week.
22. D The following statements are true regarding ‘shop system’ proposed by Taylor.
• Standardized work methods and work flow should be followed.
• Standard output time is to be set for each task.
• Each worker should be assigned a particular task based on his skill.
23. C Flexible Manufacturing System:- Flexible Manufacturing System (FMS) is a set of
automated machines, which is controlled by a central computer. FMS systems are
capable of producing a large quantity of products that have similar processing
requirements.
24. B Feasibility study:- Feasibility study considers whether the idea generated is feasible
both technically and economically. Such studies test whether the production of the
product is technically feasible and profitable to produce and market.
25. C X1 is the key column and S3 is the key row. 5 is the key element. All the values of the
key row are divided by the key element to obtain the new values of the revised key
row.
Hence 100, 1, 1/5, 0, 0, 1/5 are the new values.
26. E The penalty for each row/column is the difference between the least cost and the next
least cost of that row/column.
Transportation Table
W1 W2 W3 Supply Penalty
F1 19 25 17 195 19 - 17 =2
F2 21 17 21 145 21 - 17 = 4
F3 11 17 19 95 17 - 11 = 6
Demand 170 120 145
Penalty 19 - 11 = 8 17 - 17 = 0 19 - 17 =2
27. D Backward integration refers to the ownership of the production and distribution chain
backwards, i.e., towards source of supplies. It involves reducing the dependency on
suppliers and producing the spares and components to be used in the production by
themselves.
28. E Discrete unit manufacturing refers to the production of distinct products by using the
same production system, i.e., after one batch the same system can be utilized for the
production of different or new items of the same type to be produced in the next batch.
29. D Work centers are used in group technology layout or group technology production
system. In this, the machines are grouped into work centers to work on products
similar in shape and processing requirements.
30. D

Economic analysis: - Each type of process design requires a different amount of funds
for its implementation, because fixed and variable costs are tending to differ from one
production system to another. The greater the investments in fixed assets, the greater
are the fixed costs. Variable costs differ with the volume of production in each
period. Above figure illustrates the different costs associated with different
production volumes and types of process design for a hypothetical product.
Product Focused System: - Product focused system is associated with high fixed cost
because of expensive machinery, automated controls and fixed position material
handling equipment. The variable costs associated with this system are relatively low
as compared to the other types of process design.
Process Focused Job Shop System: - In this system comparatively lower initial
investment in fixed assets (low fixed cost) is required, but there is steep growth in
variable costs when the production volume is increased.
Cellular Manufacturing: - The fixed and variable costs of a cellular manufacturing
process design generally lie between the other two i.e. product focused system and
process focused job shop system.
31. A Assembly charts:- Assembly charts are used to obtain a general understanding of
entire process involved in producing products which involve assembly of a number of
parts. They provide an overall macro view of the movement of components and sub-
assemblies in the process of producing a finished product. In these charts it is standard
practice to indicate operations by circles and inspections by squares. Statement I only
relate to assembly charts.
Process charts: Process charts are similar to assembly charts, except that they include
extra information like description of the various steps involved, their frequency of
occurrence, the time for each step, the distance travelled and so on. Non-productive
activities like storage, delay and transport are indicated in the process charts.
Statements II and III relate to process charts.
32. B For 50,000 units of sales location B is preferable because both fixed cost and variable
costs are less than location A.
For 70,000 units of sales the variable cost is equal for both location A and location B .
But the fixed cost is less for location B. Hence location B is more suitable.
For 80,000 units of sales the difference in variable cost is minor. Hence the decision
can be made on the basis of fixed cost or on the net total cost. The fixed cost for B is
much lower than A, therefore location B is preferable.
Hence statement 2 and 5 are true.
 Cost analysis for location A and B
Sales Cost Location A Location B
Fixed Cost More Less
50,000 Variable cost More Less
70,000 Variable cost Equal Equal
80,000 Variable cost Less More
33. D Option (d) is incorrect statement. One of the advantages in process layout is that
breakdown of equipment can easily be handled by transferring work to another
machine because similar machines (functions) are grouped at one place.
34. C The load distance model is used to minimize the material movement. In this model,
the number of loads moved and the distance between the process centers is
considered. Here the load represents standard amount of material. (It means fixed
amount).
35. C In line balancing, the cycle time is determined by the maximum time required at any
work station.
36. D N
Number of workstations ( a ) = 4
Sum of task times ( total time to complete the work ) ( T ) = 3 minutes = 3 x 60
seconds = 180 sec
Cycle time (C) = 30.56 sec.
T 180 180
Na X C 4 X 30.56
Efficiency of the line = = = 122.24 = 1.47
37. A Expected Revenue per year = 500 X 300 = Rs. 1, 50,000
The following table gives the calculation of likely profit at the three centers. At
Orissa, the likely profit is Rs. 10,000, at Bihar, there is no profit, and at Madhya
Pradesh, there is a negative profit of Rs. 10,000. Hence Orissa is the most profitable
location.
All figures are in rupees.
Fixed Total
Cost Variable Cost Cost Profit
Orissa 50000 300 X 300 = 90,000 1,40,000 1,50,000 - 1,40,000=10,000
Bihar 75000 250 X 300 = 75,000 1,50,000 1,50,000 - 1,50,000 =0
Madhya 200 X 300 = 60, 1,50,000 - 1, 60,000 = -
Pradesh 100000 000 1,60,000 10,000
38. C Fixed position layout involves movement of all men and machinery to the product that
remains stationary. For example, construction of ship, rocket assembly, aircraft
assembly, etc. are the products which are huge and remain stationary. Fixed position
layout is required for these products.
39. E All statements are true regarding Analytic Delphi Method.
I. In this method, a forecasting team forecasts the future trends in the physical and
social environments.
II. The long term strategic goals and objectives of the organization are identified by
the strategic management.
III. In this method, the coordinating team can consist of either external consultants or
internal employees.
40. C All statements are true except option (c).
Only intangible factors are assigned points.
41. B The fundamental difference between a service facility and a manufacturing facility is
that service facility exists to bring together the customer and the organization’s
services. There are two different types of layouts of service facilities based on the
degree of customer contact. At one extreme is that layout which is totally designed
around customer receiving service functions, and the other is that layout which is
designed around technology, processing of physical materials and production
efficiency.
In banks, layouts are designed around customer receiving service functions. They give
importance for customer convenience.
In hospitals, layouts are designed around technology, processing of physical materials
and production efficiency. The primary focus in hospitals is on the medical treatment
which depends on the medical technology used such as surgery, radiology, laboratory
tests and patient treatment etc. So the layout is designed based on the technology and
processing.
42. C The sum of task times of the process T = (32 + 15 + 12 + 16 + 9 + 24 ) = 108 sec
Operation time per day = 240 min = 240 X 60 sec
Desired daily output = 480 units
Operation time per day 240 X 60
= = 30
Output per day 480
Cycle time = sec
Theoretical minimum number of workstations required
Sum of task times of the process (T) 108
Nt = = = 3.6
Cycle time (C) 30
Workstations cannot exist in decimal, hence rounded up.
Therefore, a minimum of 4 workstations are required to balance the assembly line.
43. C The job design should be technically feasible.
Technical feasibility considerations are
• Convenient work load
• Required machinery
• Required equipment
• Required training.
In our question, the workmen do not have proper lifting machines. Hence, the job
design is not technically feasible.
44. D Job analysis is the investigation of the job content and all other information related to
job content. Setting and defining all requirements which is stated in the question is
part of job analysis.
45. C Job title, Job identification, Job duties and job specifications are the basic components
of job description.
46. A The following statements are true regarding job design.
Job title describes the purpose and responsibilities.
Job specification describes the skills and qualifications.
Job identification describes the department, number of workers, reporting authority,
etc.
47. B Average cycle time = 2.50 minutes
Performance rating = 75 % = 0.75
Normal time = Average cycle time x performance rating
= 2.50 x 0.75 = 1.875
Available fraction = 1-0.15=0.85
Standard time = Normal time / Available fraction
= 1.875 / 0.85 = 2.21 minutes.
48. D In specialization, the worker becomes more skilled and efficient in a particular area.
He does not posses a variety of skills. In the production process, the flexibility is low.
In the absence of a worker, it is difficult to shift the work load to another worker.
49. E All statements are true regarding job content.
Job content specifies the responsibilities.
Job content includes interaction with the people.
Job content states about the machinery and equipment.
50. B In work measurement the selected job should be standardized. The job should use
standard tools and materials. Then only it is possible to estimate time standard. When
the job is using different tools and materials, different times will be observed, and it is
not possible to get time standard.
51. B Job identification and division :- This is the first step in time study. The job is
divided into a convenient number of elemental tasks. Elemental tasks should have
identifiable break points, i.e. a specific starting point and a specific ending point, so
that the time taken for the completion of such tasks can be measured.
52. A Work standard = 5 min 30 sec = 300 sec + 30 sec = 330 sec
330 sec is rated as 100%
When a person takes more time, his performance decreases by the excess time taken.
If a person takes less time his performance increases more than 100% by the
difference of the time.
Time taken by Gopal = 429 seconds
Excess time taken by Gopal = 429-330=99 sec
His performance decreases by (99/330) x 100 = 30 %
Therefore his performance = 70 %

53. D Ratio delay shows the percentage of time an employee or equipment was occupied or
idle.
54. E The basic movements are considered in Predetermined Motion Time Study. In this
technique, recorded standard time is used for the movements associated to individual
elements. And total time determines the time taken for the whole task.
55. A Actual production = (No. working days) × (No. of workers) × (Productivity
per day)
= 22 × 14 × 39 = 12012.
Closing stock = Opening stock + Production – Demand
= 380 + 12012 – 15200
= 12392 – 15200
= –2808 ( shortage )
Shortage = 2808
Shortage cost = 2808 × Rs.3 = Rs.8424.
56. C Varying size of inventory: - Under this strategy an organization maintains a constant
workforce and level of production. Constant rate of production is maintained during
all periods irrespective of the demand. When the demand is low, then there will be
accumulation of production. This excess production is utilized during the periods of
high demand.
57. E Aggregate planning: The aggregate planning is based on the meaningful measure of
output. This is easy for organizations with single product, but is quite difficult for
organizations producing several products. In such a case meaningful measure can be
found by identifying groups or families of individual products. These products
although different from one another, share common production processes or consume
similar resources. In aggregate plan, these individual products are combined together
as a product group and product type.
58. B Pure planning strategies: - Functions in demand and uncertainties in production
activities can be effectively managed by varying size and utilization of the workforce,
and the size of the inventory and through backorders, subcontracts and varying plant
capacity. If only one of these strategies is adopted without using others, then the
strategy is called pure strategy.
59. A Varying the utilization of the workforce: - Under this strategy, the company maintains
stable workforce and the utilization of workforce varies according to the demand.
When the demand is high, workers work overtime to meet the high demand. When the
demand is low workers wok limited time to meet only the limited demand resulting in
idle working hours.
60. B Rolling through time: - During implementation, the Master Production Schedule
(Operational plans) is required to be reviewed and updated continuously to suit the
changing environment. This is the dynamic nature of planning and scheduling
activities and is known as “Rolling through time”.
61. D Master production schedule: - Master production schedule is a manufacturing plan,
which breaks up planned total production of the firm into groups of products or
product lots. It is a detailed plan that specifies the exact timing for the production of
each unit.
62. E Computer simulation model is used to evaluate the performance of a specific plan,
based on real world variables and situations.
63. C In back order strategy, current order commitments are fulfilled in the future.
64. C Opportunity cost:- Opportunity cost is the loss due to losing an opportunity. If the
company invested the capital in some other productive activity, then the company
might have earned something. By investing in inventory, the company lost an
opportunity. This is known as opportunity cost.
65. B

Economic order quantity is the quantity at which the total annual cost is minimum. As
per the given diagram, the total annual cost is minimum at 25,000 units.
66. A Reorder point:- The calculation of the reorder point should ensure that the inventory
level reaches zero at the end of each reordering cycle. This is because a positive
inventory level at the end of cycle results in an increase in average inventory and an
associated cost.
67. B This is in house production. The number of tables to be made in a lot is nothing but
the economic order quantity. So we need to find out the economic order quantity.
2C0 D
Ch
EOQ =
C0
Where is the fixed cost per order or set up cost
D is the annual usage or demand
Ch
is the carrying cost per unit time
Carrying cost per unit = carrying rate × unit cost = 20% × 25= Rs.5.
Ch
= (carrying cost per unit) × (average inventory) =5 × 200 = Rs.1000
C0
=Rs.1200
2 × 1200 × 200

EOQ = 1000 = 480 =21.9 ≅ 22

68. D When the item is produced within the firm, there are costs associated with the set up
of the production equipment for running the production. These may be ordering cost
for equipment, transportation, installation etc. These costs fall under ordering cost
and accounted in ordering costs.
69. C Carrying costs:- Carrying costs represent the cost incurred while inventories are
stored. Investment made in inventory does not provide immediate returns. The
organization might have earned if the capital was invested in some other productive
activity. The loss or cost associated with missing a productive opportunity (or cost of
capital) is known as opportunity cost.
Carrying costs include both storing cost and opportunity cost.
70. C Reorder point = Average demand per unit time × lead time
Average demand = 23 per shift
Demand and lead time, both should be specified in the same units.
Lead time = 12 working days ( each working day running in two
shifts )
= 24 working shifts

Reorder point = Average Demand × Lead Time = 23 × 24=552

71. C In fixed order period system, higher levels of safety stocks are required to tide over
any unexpected demand variations. Hence lower levels of safety stocks are not
sufficient.
72. D Value analysis is the coordinated effort of engineering, production and purchase
personnel. None of the department can perform it independently because technical
and economical factors are included.
73. E From the graph, it can be observed that the break even point is 50,000 units.
For less than 50,000 units total buying cost is lower than total making cost.
For more than 50,000 units total making cost is lower than total buying cost.
Hence ‘make’ decision is suitable only when the demand is more than 50,000.
Best decision Quantity
Buy Less than 50,000
Make More than 50,000
74. D Price = Rs.70 per box ( Purchase price )
Fixed cost = Rs.8000 ( for production )
Variable cost = Rs.50 per unit
Assume the break even demand is Q.
Total purchase price = unit price × quantity
= 70 × Q
Total production cost = Fixed cost + (Variable cost × Demand)
= 8000 + ( 50 ) Q
At break even point,
Total production cost = Total purchase cost
8000 + ( 50 ) Q = 70 × Q
20 Q = 8000

8000
Q= = 400
20
If the demand is more than 400 boxes, then only it is economical for the company to
go for in-house production.
75. A Syndicated buying: - In syndicated buying, small organizations combine their orders
to get a volume discount from suppliers. For example, fifty small oil companies can
combine their requirements to get volume discounts otherwise available only to large
oil companies.
76. D Fixed Order Period System:-In fixed order period system, the order period is fixed,
but the order quantity varies with the requirement. The orders are placed at equal
intervals of time ( T1=T2=T3) and the quantity ordered during these periods is
different from one another.
77. D Purchase Order:- Purchase order is the legal document that authorizes the supplier to
supply goods. It represents the buyer’s obligation to buy the material against specified
terms and conditions.
78. D Purchase manager is the channel or interface between the vendor and the indenting
department. Hence the communication has to pass through the purchase manager.
79. C

80. B Insurance cost belongs to carrying or holding cost.

Carrying (holding) cost :- Carrying cost includes opportunity cost (cost of capital),
storage costs (rent, lighting, refrigeration etc.), staffing, equipment, maintenance,
insurance, taxes on godown, taxes on inventory, security, obsolescence (deterioration
costs like breakage, spoil, etc.)
81. B Optimization:- Performance of workmen is not just being more productive.
Performance in a broad sense includes cost, quality, delivery and flexibility, which are
the main objectives of operations management. Job design concentrates on improving
the performance of the workmen by considering the objectives of cost, quality,
delivery and flexibility. Overworked employees may become de motivated; as a
result, the quality of their work may be affected. Hence job design is not aiming at
maximization but optimization of the workmen performance. Optimization balances
all objectives of the organization. Job design helps in optimization of the economic,
social and technical variables.
82. D Desirable objective of Job Design:- Job design objective has to fulfill the technical,
economical and social requirements without conflicting with each other. In the
diagram, the area indicating number 7 is the area where all the three variables are in
common.
83. C Historical Analysis:- Using scientific methods for setting work standards is not always
economical for the organization. To reduce the costs of work measurement, operations
managers use historical data. In this technique the output of a particular worker or
department is, over a specified period of time, divided by the number of work hours
expended, to arrive at the normal time. This technique is known as Historical
Analysis.