Junsay-Ms9 - Module 2 - Leganes - Bsa3 D-E Ivisan - A-B

COLLEGE OF SCIENCE AND TECHNOLOGY
Cagamutan Norte, Leganes, Iloilo - 5003

Tel. # (033) 396-2291 ; Fax : (033) 5248081
Email Address : svcst_leganes@yahoo.com
COO – FORM 12
SUBJECT TITLE: MANAGEMENT SCIENCE

INSTRUCTOR: NEL JANE D. JUNSAY, CPA
SUBJECT CODE: MS9
MIDTERM MODULE
Topic 1: Network Analysis
LEARNING OBJECTIVES:
At the end of this topic, the students are expected to:
1. Give the general description of PERT/CPM.

2. Construct network analysis and Compute slacks on activities and on events.
3. Describe the issue of resource allocation and how it is handled, activity
crashing and solve simple problems.
4. Describe the purposes and advantages of PERT.
5. Interpret the task progress in a Gantt chart.
NOTES:
1.1. PERT or Program Evaluation and Review Technique used for planning and
controlling the activities in a project. It provides management pertinent information
about a project, such as;
• Expected completion time of the project;

• When each of the activity in a project is scheduled to start and finish;
• which part of the project must be finished on time to avoid making the whole
project late;
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• how resources may be shifted from one part to another part of project without
affecting the overall completion time of the project;
• the progress of each part of the project as of a certain date.
WHAT IS PERT DIAGRAM?
PERT Diagram is an arrow diagram on a network showing the interrelationships or

interdependencies of the various activities of a project. Although more complex than
a Gantt charts, a PERT diagram has the advantages of incorporating probabilistic time
estimates and identify the critical path. Optimal Completion Time (OCT) refers to
the average or expected completion time of the entire project. From the network
diagram, OCT is the highest total required completion time among its network paths.
Considered as the possible time to finish the last required activities among its path.
ACTIVITY
Activity is a task to be accomplished. It represents the time and resources necessary

to move from one node or event to another.
*Types of Activities*
• Series- an activity cannot be performed unless its predecessor activity is

finish.
Ex. Activities 1 2 and 2 5

Activity 2 5 cannot be performed unless activity 1 2 is finished.
• Parallel- activities can be performed simultaneously.
Immediate predecessors are activities that can be completed prior to the start of
the activity in question.
TIME ESTIMATES
*4 ESTIMATES OF ATIVITY TIME*
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ANY REPRODUCTION NOT AUTHORIZED BY THE SCHOOL IS PROHIBITED.
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• Optimistic Time (tₒ) - it is based on the assumption that it would take

the shortest possible time to complete an activity went right.
• Pessimistic Time (tp) – it is based on the assumption that it would take

the longest possible time to complete an activity if everything went wrong.
• Most likely time (tm) – it is based on the assumption that the time would
occur most frequently if the activity is repeated many times.
• Expected Time (te) - the average time an activity would require if it were
repeated a large number of times.
𝒕𝒐 "𝟒𝒕𝒎 "𝒕𝒑
te =
𝟔
1.2. WHAT IS CRITICAL PATH METHOD?
Critical Path Method or CPM is a network technique that uses deterministic

time and cost estimates. It is a network based project scheduling procedure.
It may be considered as a subset of PERT.
Critical path is the longest path through the network. It is composed of

activities with 0 slack time. A delay in the completion of activities in the critical
path would cause a delay in the completion of the entire project. Shortening
the total completion time of the whole project can be accomplished only by
shortening the critical path. Critical Activities are activities found in the
critical path, which has the highest required completion time among the
network paths and must be done immediately; thus, allowing no delay for each
activities.
Activity slacks are the time that starts the activity can be delayed without
exceeding time the critical path project time. Slack time the length of time by
which a particular activity can slip (can delay) without having any delaying
effect on the end event. Activities along the critical path have a slack of zero
and all non-critical path activities have positive slack.
*2 MAIN PROCEDURES IN A PERT/CPM*
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• FORWARD PASS- it involves moving forward through the project

network to determine the earliest start and earliest finish time for each
activity.
• BACKWARD PASS- it involves moving backward through the network
to determine the latest start and latest finish time for each activity.
1.3. WHAT IS CRASHING THE NETWORK?
Crashing the Network is determining the minimum cost for completing the
project in minimum time so that an optimum trade-off between time and cost
is achieved. Activity times and activity costs are estimated for both the normal
and crash efforts with these estimates, project manager can determine the
cost of completing the project if some of the activities are completed in the
crash basis. Crash time is the time required to complete an activity assuming
that all available resources are devoted to such activities.
WHAT ARE THE BENEFITS AND LIMITATIONS OF PERT, AS WELL AS

THE MANAGER ROLE IN PERT?
ACCOUNTANT’S ROLE IN PERT
• Determination of cost estimates and actual cost of each activity in a

project.
• Preparation of activity/project cost reports and computation/analysis of
cost variances.
BENEFITS OF PERT
• PERT is a very useful technique for planning and controlling activities in

a project itself.
• Some of the procedures included in PERT or in PERT/CPM are in harmony
with the accountant’s budgetary tasks and in the application of a
responsibility accounting system.
• The technique may be used to solve managerial problems pertaining to
project scheduling, information systems design, and transportation
system design.
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• PERT helps to keep the project on schedule and to provide feedback to

management about the progress of each part of the project.
LIMITATIONS OF PERT
Reliable time and cost data may not be readily available and obtaining them
may be difficult. Persons involved may overstate budgeted costs and time
estimates to avoid unfavorable variances and pressure from their superiors.
1.4. WHAT IS GANTT CHART?
A Gantt chart or Bar chart shows the different activities or tasks in a project, as
well as their estimated start and completion times.
WHAT ARE THE ADVANTAGES AND DISADVANTAGES OF GANTT CHART?

ADVANTAGES OF GANTT CHART
• A Gantt chart is a simple construct and use requiring no special tools or

mathematics. It can be used on all types of projects.
• A Gantt chart is a very useful control tool. As the project progresses, actual
completion time can be compared with the plan.
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• A Gantt chart can be used to monitor the activities in a project. It shows which
activity should be in progress as of a certain date and how close it is to
completion time.
DISADVANTAGES OF GANTT CHART
• A Gantt chart does not show the interrelationships among the activities in a
project. Only simple relationships can be shown on the chart.
Exercises:
1. State in general the description of PERT/CPM techniques.
2. How can you handle the issue of resource allocation in business
3. Why use PERT technique? What do you think the advantages of using this
technique?
4. The Galactic University is considering building a new athletic complex on

campus. The complex would provide new gymnasium for inter-university
college games, expanded office space, classrooms, intramural facilities. The
following activities would have to be undertaken before construction start:
Activity Description Immediate Time

predecessor (weeks)
A Survey building ----- 6
site
B Develop initial ----- 8

design
C Obtain board A,B 10

approval
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D Select architect C 5
E Establish C 6
budget
F Finalize design D,E 14
G Obtain E 13
financing
H Hire contractor F,G 7
a) Draw a project network.

b) Identify the critical path.
c) Develop the activity schedule for the project
5. Given in the table are estimated times (in days) of each activity of the project
coded as FRANCHISED.
Activity Predecessor Most Most Most
Optimistic likely pessimistic
time (a) time time (b)
(c)
None 9 11 16
F
F 2 8 15
R
F 1 4 5
A
F 2 3 4
N
R 9 12 20
C
A 15 18 23
H
A 3 5 8
I
C,H 2 4 8
S
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N,I 5 8 12
E
S,E 5 6 14
D
a. Compute for the equivalent or expected time of each activity.

b. Determine the critical path and critical activities.
6. The Omega department is planning to bid on large project for the development
of a new communication system for commercial planes the table below shows
the activities, times and sequences required:
Activity Immediate Time Crash Normal Crash Reduced Additional

predecessor (weeks) Time Cost Cost Time Cost
Nt-Ct Nc-Cc
P ----- 8 6 16000 16500 2 500
R ----- 1 0.5 1000 1100 0.5 100
O R 3 2 1500 1600 1 100
J P,O 3 2 3000 3400 1 400
E P,O 5 3 15000 16200 2 600
C R 7 4 7000 7600 3 200
T C,E,J 2 1 8000 8300 1 300
S C,E,J 3 2 4500 4600 1 100
Total Cost 56000 59300
a) What is the critical path?

b) How many weeks will it take to complete the project?
c) Which activities should be crashed if the desired completion time for
the project id 11 weeks?
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Topic 2: Learning Curve

1. To know what is the learning curve and its Importance.
2. Determine the cumulative units, cumulative cost, average time per unit and
cumulative total time to produce.
NOTES:
The learning curve theory is a way to understand the improved performance of an

employee or investment over time. The idea is that the more an employee does
something, the better they will get at it, which translates to lower cost and higher
output in the long term. It's a useful model for tracking progress, improving
productivity and ensuring your company is hitting certain performance targets.
In any environment if a person is assigned to do the same task, then after a period
of time, there is an improvement in his performance. If data points are collected over
a period of time, the curve constructed on the graph will show a decrease in effort
per unit for repetitive operations. This curve is very important in cost analysis, cost
estimation and efficiency studies. This curve is called the learning curve. The learning
curve shows that if a task is performed over and over than less time will be required
at each iteration. Historically, it has been reported that whenever there has been
instanced of double production, the required labor time has decreased by 10 or 15
percent or more.
Learning curves are also known as experience curve, cost curves, efficiency curves
and productivity curves. These curves help demonstrate the cost per unit of output
decreases over time with the increase in experience of the workforce. Learning curves
and experience curves is extensively used by organization in production planning,
cost forecasting and setting delivery schedules.
Learning Curve or Experience Curve is a mathematical expression of the

phenomena that incremental unit costs to produce (or incremental unit time used to
produce) decrease as managers and labor gain experience from practice.
The learning curve model shows constant percentage reduction (usually from 20% to
40%) in the average direct labor input in time required per unit as the cumulative
output doubles.
Requirements for learning curve models
To develop an accurate learning curve model, you need to make sure you have all
the variables that go into the formula. The data required to plot a learning curve and
then interpret what it means for your company's performance includes the following:
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• A measurable unit of output

• A defined unit of cost (in time, dollars, effort, etc.)
• Either a fixed time frame or a fixed productivity target
Why are learning curve models important?
Learning curve models are useful because they help you understand whether the
processes and employees at your company are performing well enough to match the
resources put into improving them. The shape of the learning curve can tell you
whether performance is improving, declining, stagnating or fluctuating. This can then
bring awareness to the potential influences on this performance so you can make
decisions that help amplify the positive influences on your company and mitigate the
negative influences.
The advantages and disadvantages of the learning curve model
The learning curve model is very useful for monitoring various aspects of company
performance and identifying areas in need of improvement. It can provide a lot of
great insights, but there are some limitations. In this section, we examine some of
the key advantages and disadvantages of the learning curve model.
Advantages of the learning curve model
Using a learning curve model to track the progress of various aspects of your
company can help you in the following tasks:
• Strategic planning to improve the output of employees or even whole

departments
• Motivating company staff by creating a culture of ongoing learning and
progress-tracking
• Identifying trends that can be used for more accurate forecasting and better
business decisions
Disadvantages of the learning curve model
• As valuable as it can be to a company, there are some important limitations to

understand so the learning curve isn't misinterpreted or misused. Here are
some of the key disadvantages and limitations:
• Learning progress is influenced by a number of variables, including time,

previous experience, quality of training and so on. As a result, tracking only
one of these variables might give you misleading data.
• Some performance or progress is difficult to quantify and measure. If there is

no specific deliverable, such as a product or a sale, it can be hard to define a
single unit of output for the purpose of measuring progress.
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• It's incomplete on its own. Because there are so many variables that can
impact performance, it's important that you use the learning curve model in
combination with other methods of tracking company performance for a more
complete picture.
EXERCISES;
1. An 80% learning curve means that each time cumulative production is

doubled, the time required to produce is reduced by 20%. Assume that the
first unit takes 100 hours to finish, each time cumulative production is doubled,
average time required will be in producing the 8th unit?
2. A particular manufacturing job is subject to an estimated 60% learning curve.

The first unit required 20 labor hours to complete.
a. A doubling of production will reduce the cumulative average completion
time by?
b. What is the average time per unit after four units are completed?
c. What is the cumulative total time required to produce 8 units?
3. A 75% learning curve is applied to the following consecutive lots as follows:

Number of units Average time / unit
A 50 6.0
B 100 ?
C 200 ?
D 400 ?
The average time per unit for lots B to D are?
4. The cumulative average labor cost per unit for the first batch (100 units) produced
using a new process is P200. The cumulative average labor cost per unit after the
second batch is P140.
a. The new process has learning curve percentage of
b. Assuming that the learning curved obtained continues, the cumulative total labor
cost of four batches is
Moss Point Manufacturing recently completed and sold an order of 50 units that had
costs as shown in the next column.
The company has now been requested to prepare bid for 150 units of the
same product.
Direct materials $1,500
Direct labor (1,000 hours x $8.50) $8,500
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Variable overhead* (1,000 hours x $4.00) $4,000

Fixed overhead** $1,400
$15,400
*Applied on the basis of direct labor hours
**Applied at the rate of 10% of variable cost
i. If an 80% learning curve is applicable, Moss Point’s total cost on

this order would be estimated at

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Topic 3: Waiting Line Theory
1. Understand queuing theory and its purpose.

2. Identify the situations in which queuing theory is applicable.
3. Solve problem involving queuing theory.
NOTES:
3.1. WHAT IS QUEUEING THEORY?
Most waiting line problems are centered on the question of finding the ideal level of
services that a firm should provide. Supermarkets must decide how many cash
register checkout positions should be opened. Gasoline stations must decide how
many pumps should be opened and how many attendants should be on duty.
Manufacturing plants must determine the optimal number of mechanics to have on
duty each shift to repair machines that break down. Banks must decide how many
teller windows to keep open to serve customers during various hours of the day. In
most cases, this level of service is an option over which management has control. An
extra teller, for example, can be borrowed from another chore or can be hired and
trained quickly if demand warrants it. This may not always be the case, though. A
plant may not be able to locate or hire skilled mechanics to repair sophisticated
electronic machinery.
When an organization does have control, its objective is usually to find a happy
medium between two extremes. On the one hand, a firm can retain a large staff and
provide many service facilities. This may result in excellent customer service, with
seldom more than one or two customers in a queue. Customers are kept happy with
the quick response and appreciate the convenience. This, however, can become
expensive.
The other extreme is to have the minimum possible number of checkout lines, gas
pumps, or teller windows open. This keeps the service cost down but may result in
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customer dissatisfaction. How many times would you return to a large discount
department store that had only one cash register open during the day you shop? As
the average length of the queue increases and poor service results, customers and
goodwill may be lost.
Most managers recognize the trade-off that must take place between the cost of
providing good service and the cost of customer waiting time. They want queues that
are short enough so that customers don’t become unhappy and either storm out
without buying or buy but never return. But they are willing to allow some waiting in
line if it is balanced by a significant savings in service costs.
Queuing Theory or Waiting-line Theory is a study of random arrivals at a

processing or servicing facility of limited capacity. It allows the decision maker to
calculate the:
a) Lengths of future waiting line

b) Average time spent in line waiting
c) Additional facilities required
d) Service level or capacity that minimize waiting and operating costs
*EXAMPLES OF QUEUING THEORY APPLICATIONS*
1. Check-out counters (cashiers) in groceries/malls

2. Movie ticket booths
3. School registrar office windows
*COST INVOLVED*
One means of evaluating a service facility is thus to look at a total expected cost, a
concept illustrated in Figure below. Total expected cost is the sum of expected service
costs plus expected waiting costs.
1. Facility cost and operating cost- the cost of providing services.

2. Waiting cost- the cost of idle resources waiting in line, including the income
foregone (opportunity cost) in the case of waiting customers.
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Service costs are seen to increase as a firm attempts to raise its level of service. For
example, if three teams of stevedores, instead of two, are employed to unload a
cargo ship, service costs are increased by the additional price of wages. As service
improves in speed, however, the cost of time spent waiting in lines decreases. This
waiting cost may reflect lost productivity of workers while their tools or machines are
waiting repairs or may simply be an estimate of the costs of customers lost because
of poor service and long queues.
3.2. WHAT IS THE OBJECTIVE OF QUEUING THEORY?
The objective of queuing theory is to minimize total cost involved (both the
service and waiting cost).
FORMULAS FOR A SINGLE SERVICE FACILITY AND RANDOM ARRIVAL OF

WORKING UNITS
The single-channel, single-phase model considered here is one of the most widely
used and simplest queuing models. It involves assuming that seven conditions
exist:
1. Arrivals are served on a FIFO basis.
2. Every arrival waits to be served regardless of the length of the line; that is, there
is no balking or reneging.
3. Arrivals are independent of preceding arrivals, but the average number of
arrivals (the arrival rate) does not change over time.
4. Arrivals are described by a Poisson probability distribution and come from an
infinite or very large population.
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5. Service times also vary from one customer to the next and are independent of
one another, but their average rate is known.
6. The average service rate is greater than the average arrival rate.
𝑩
N = 𝑻#𝑩
Where;
N = average number of customer or work units in the system
B = average number of customer or work units arriving in one unit of
time
T = average number of customer or work units service of time
(assuming there is no shortage of work units)
$
*it is assumed that < 1, otherwise, the queue will grow to infinite
%
length.
𝟏
L =
𝑻#𝑩
Where; L = average time a customer spends in the system
𝑩𝟐
Nq = 𝑻(𝑻#𝑩)
Where; Nq = average number in waiting line
𝑵𝒒
W= 𝑩
Where; W = average waiting time before service
The utilization factor for the system, (the Greek lowercase letter rho), that is, the
probability that the service facility is being used:
𝑩
P=𝑻
The percent idle time, that is, the probability that no one is in the system
𝑩
P =1- 𝑻
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Computing the Cost involved
The solution to a queuing problem may require management to make a trade-off

between the increased cost of providing better service and the decreased waiting
costs derived from providing that service
These two costs are called the waiting cost and the service cost.
Total Service Cost = (Number of service provider) X (Cost per service provider)
Total Waiting Cost = (Total time spent waiting by all arrivals) X (Cost of Waiting)
Exercises:
1. What is the purpose of using the queuing theory?
2. Give situations in which queuing theory is being applied.
3. In a supermarket, customers arrive at the cashier’s counter at the average rate of

20 customers per hour. The cashier can serve an average of 30 customers per
hour. Find;
a) The average number of customers waiting in line or paying for

their groceries at any time.
b) The average number of customers in the waiting line not being
serviced
c) The average waiting time.
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4. Arnold’s Muffler Shop in New Orleans. Arnold’s mechanic, Reid Blank, is able
to install new mufflers at an average rate of 3 per hour, or about 1 every 20
minutes. Customers needing this service arrive at the shop on the average
of 2 per hour. Larry Arnold, the shop owner, studied queuing models in an
MBA program and feels that all seven of the conditions for a single-channel
model are met. Proceeds to calculate the following:
a. Average Cars in the system
b. Average time spend in the system
c. Average car waiting in line
d. Average waiting time per car
e. Percentage of time the mechanic is busy
5. Arnold pays $15 per labor hour to the mechanic for 8 hours of work per day.
He also estimates that the cost of customer waiting time, in terms of customer
dissatisfaction and lost goodwill, is $50 per hour of time spent waiting in line.
Compute for the:

a. total daily waiting cost, service cost and total cost
6. Arnold finds out through the muffler business grapevine that the Rusty Muffler,
a cross-town competitor, employs a mechanic named Jimmy Smith who can
efficiently install new mufflers at the rate of 4 per hour. Larry Arnold contacts
Smith and inquires as to his interest in switching employers. Smith says that
he would consider leaving the Rusty Muffler but only if he were paid a $20 per
hour salary.
Compute for the:

a. Average Cars in the syste
b. Average time spend in the system
c. Average car waiting in line
d. Average waiting time per car
e. total daily waiting cost, service cost and total cost
f. Will Arnold accept the offer of Jimmy Smith?
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Topic 4: Sensitivity Analysis
1. Understand the concept of sensitivity analysis.

2. Determine the impact of sensitivity analysis in decision-making of business.
3. Use sensitivity analysis to maximize profit and use it as a tool for decision
making.
NOTES:
4.1. Sensitivity Analysis
Sensitivity Analysis is the study of how the outcome of a decision process

changes as one or more of the assumptions changes. It presents different
scenarios, showing different outcomes.
A sensitivity analysis determines how different values of an independent

variable affect a particular dependent variable under a given set of
assumptions. In other words, sensitivity analyses study how various sources
of uncertainty in a mathematical model contribute to the model's overall
uncertainty. This technique is used within specific boundaries that depend on
one or more input variables.
Sensitivity analysis is the use of multiple what-if scenarios to model a range

of possible outcomes. The technique is used to evaluate alternative
business decisions, employing different assumptions about variables. For
example, a financial analyst could examine the potential profit levels that
may be achieved as a result of an investment in machinery by altering the
expected demand level, material costs, equipment downtime percentage,
crewing costs, and the residual value of the equipment.
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As another example, an analyst is modeling the range of profit outcomes

for a prospective equipment purchase. A potential issue is that the
equipment may be superseded by a new equipment model, which may
reduce its resale value. Accordingly, the analyst conducts a sensitivity
analysis that models the lifetime profitability of the investment, assuming
a range of possible resale values at the end of the projected usage period
for the equipment.
4.2. Advantage and Disadvantage of Sensitivity Analysis
A particularly useful aspect of sensitivity analysis is to locate those

variables that can have an unusually large impact on the outcome of the
analysis. The decision maker can then evaluate the probability of the
variables experiencing significant changes. The outcome is a better
understanding of the risks associated with an investment.
A potential problem with sensitivity analysis is that it is conducted using

historical data, which may not exactly apply to future predictions.
A sensitivity analysis advantage, it is an easy and quick tool that provides

useful information for decision-making. It helps to identify those critical
assumptions that give rise to volatility of assets, liabilities and consequently
financial results. By the means of sensitivity analysis, the attention of
management and users of financial statements is brought to the most risky
areas. If risks and uncertainties were not considered in financial statements,
too much confidence might have been placed on the financial results of an
entity.
4.3. Uses of Sensitivity Analysis
Ø The key application of sensitivity analysis is to indicate the sensitivity of

simulation to uncertainties in the input values of the model.
Ø They help in decision making
Ø Sensitivity analysis is a method for predicting the outcome of a decision
if a situation turns out to be different compared to the key predictions.
Ø It helps in assessing the riskiness of a strategy.
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Ø Helps in identifying how dependent the output is on a particular input

value. Analyses if the dependency in turn helps in assessing the risk
associated.
Ø Helps in taking informed and appropriate decisions
Ø Aids searching for errors in the model
Sensitivity analysis usually used in projecting profit using different scenarios,

like:
• Change in sales volume
• Changing variable cost
• Changing the fixed cost
• Adjusting product mix
• Change in selling price
Exercises:
1. With sales of 100 units, the company’s projected profit is P500:
Sales P5,000
Less variable cost 3,000
Contribution margin 2,000
Less fixed cost 1,500
Profit 500
What would be the profit if:

a. sales in units increased by 20%;
b. variable cost per unit decreases by 5%;
c. fixed cost decreases by P500?
2. Bisikleta Corporation manufactures models of bicycles for kids and adults. For
the coming period, Bisikleta is planning to start the production of new model
of bicycle to increase its profitability. A recently concluded projected sales for
next year is 5,000 model with a selling price of P4,250 and variable cost of
P2,740. The total fixed cost in producing this product is P3,455,000.
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What will be the profit of Bisikleta if:
a. Sales volume increases by 15%

b. Total fixed cost decreases by P152,000
c. Variable cost per unit decreases by P160
d. Selling price increases to P 5, 250
3. International Printer Machines (IPM) builds three computer printer models:

Inkjet, Laser, and Color Laser. Base case information for these three
products is as follows:
Inkjet Laser Color Total

Laser
Selling 250 400 1,600
price per
unit
Variable 100 150 800
cost per
unit
unit sales 12,000 6,000 2,000
(annual)
Total annual fixed costs are $5,000,000.
What will be the profit if:

a. Inkjet sales volume decreases by 4,000 units and the sales volume of
other products remains the same
b. the Laser sales price increases by 10 percent?
4. Snowboard Company, a company that produces one snowboard model. The

assumptions for Snowboard were as follows:
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SALES PRICE/UNIT 250

VARIABLE COST/UNIT 150
FIXED COST/MONTH 50000
TARGET PROFIT 30000
MONTHLY SALES
(UNITS) 700
a. How will profit change if the sales price increases by $25 per unit (10
percent)?
b. How will profit change if sales volume decreases by 70 units (10 percent)?
c. How will profit change if fixed costs decrease by $15,000 (30 percent)
and variable cost increases $15 per unit (10 percent)?
d. How many units must Snowboard Company sell to break even?
e. How would these scenarios achieve a profit of $30,000?
5. Back Door Café has the opportunity to purchase a new espresso machine
that will reduce the amount of coffee beans required for an espresso drink by
putting the beans under higher pressure. The new machine will cost $15,000,
but it will decrease the variable cost per cup by $0.05. The owner wants to
see what the effect will be on the monthly net operating income and break-
even point if she purchases the new machine. She has arranged financing for
the new machine and the monthly payment will increase her fixed costs by
$400 per month.
She has the following information:
Current Data
Sales Price/Unit 3.75
VC/unit 1.5
CM/unit 2.25
Fixed Cost 2,475
a. What would happen if she purchased the new machine to realize the
variable cost savings and also raised her price by just $0.20?
b. Compute for the new total profit and the new break-even point.
c. What will be the amount and percentage change?
d. If the Company aims a 1000 target profit, how many units they should
sell?
END OF MIDTERM MODULE
Page 23 of 23

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COLLEGE OF SCIENCE AND TECHNOLOGY

Cagamutan Norte, Leganes, Iloilo - 5003

SUBJECT TITLE: MANAGEMENT SCIENCE

Topic 1: Network Analysis

At the end of this topic, the students are expected to:

1. Give the general description of PERT/CPM.

• Expected completion time of the project;

WHAT IS PERT DIAGRAM?

PERT Diagram is an arrow diagram on a network showing the interrelationships or

Activity is a task to be accomplished. It represents the time and resources necessary

• Series- an activity cannot be performed unless its predecessor activity is

Ex. Activities 1 2 and 2 5

• Parallel- activities can be performed simultaneously.

*4 ESTIMATES OF ATIVITY TIME*

• Optimistic Time (tₒ) - it is based on the assumption that it would take

• Pessimistic Time (tp) – it is based on the assumption that it would take

1.2. WHAT IS CRITICAL PATH METHOD?

Critical Path Method or CPM is a network technique that uses deterministic

Critical path is the longest path through the network. It is composed of

*2 MAIN PROCEDURES IN A PERT/CPM*

• FORWARD PASS- it involves moving forward through the project

1.3. WHAT IS CRASHING THE NETWORK?

WHAT ARE THE BENEFITS AND LIMITATIONS OF PERT, AS WELL AS

ACCOUNTANT’S ROLE IN PERT

• Determination of cost estimates and actual cost of each activity in a

• PERT is a very useful technique for planning and controlling activities in

• PERT helps to keep the project on schedule and to provide feedback to

1.4. WHAT IS GANTT CHART?

WHAT ARE THE ADVANTAGES AND DISADVANTAGES OF GANTT CHART?

• A Gantt chart is a simple construct and use requiring no special tools or

DISADVANTAGES OF GANTT CHART

1. State in general the description of PERT/CPM techniques.

2. How can you handle the issue of resource allocation in business

4. The Galactic University is considering building a new athletic complex on

Activity Description Immediate Time

B Develop initial ----- 8

C Obtain board A,B 10

a) Draw a project network.

a. Compute for the equivalent or expected time of each activity.

Activity Immediate Time Crash Normal Crash Reduced Additional

a) What is the critical path?

Topic 2: Learning Curve

At the end of this topic, the students are expected to:

The learning curve theory is a way to understand the improved performance of an

Learning Curve or Experience Curve is a mathematical expression of the

Requirements for learning curve models

• A measurable unit of output

Why are learning curve models important?

The advantages and disadvantages of the learning curve model

Advantages of the learning curve model

• Strategic planning to improve the output of employees or even whole

Disadvantages of the learning curve model

• As valuable as it can be to a company, there are some important limitations to

• Learning progress is influenced by a number of variables, including time,

• Some performance or progress is difficult to quantify and measure. If there is

1. An 80% learning curve means that each time cumulative production is

2. A particular manufacturing job is subject to an estimated 60% learning curve.

3. A 75% learning curve is applied to the following consecutive lots as follows:

The average time per unit for lots B to D are?

Variable overhead* (1,000 hours x $4.00) $4,000

i. If an 80% learning curve is applicable, Moss Point’s total cost on

Topic 3: Waiting Line Theory

At the end of this topic, the students are expected to:

4 ESTIMATES OF ATIVITY TIME

2 MAIN PROCEDURES IN A PERT/CPM

EXAMPLES OF QUEUING THEORY APPLICATIONS