MAS – Quantitative Techniques in Business

Quantitative Techniques
• Group of mathematical methods, tools and models that assist decision-making.

Learning Curve
• Accounts for the fact that it takes less time to do a task which has been done before, than a task that is
yet to be done for the first time.

Probability and decision tree

• Expected value
o Probabilistic approach; central concept to the principles of probability
o Long-run average value of an event if the repeated trials are to be made.
• Deterministic approach does not incorporate likelihoods of possible events.
o Assumes the most likely event will happen with certainty. If there is perfect information, the
decision maker can match its actions in a way favorable to an event.
o Perfect information has a value, it is the difference between the pay-offs of the action with
perfect information and the best course of action under imperfect information.

Program evaluation and review technique – critical path method (PERT-CPM)

• Networking technique used in project planning and control.
• PERT focuses on project scheduling and resource shifting (probabilistic)
• CPM focuses on cost estimates and crashing (deterministic)

Linear Programming
• Mathematical model used in finding the best mix of variables to achieve a certain objective within the
limits of certain constraints.

Inventory Management Techniques

• ABC Analysis – simple procedure to classify items based on some measure of importance: divided into
three classes (A – small volume of expensive items and should receive maximum analysis, monitoring
and tight inventory management; B – moderate form in between A and C; and C – many different items
with low sales, managed casually with high inventory level)
• Economic Order Quantity (EOQ) - optimum amount that should be ordered every time an order is
placed (how much/how many).
• Reorder Point – level of inventory in which an order is to be placed (when to order).

Questions:
1. Which of the following is true regarding the learning curve?
a. As the laborers work more, they can finish the same task with less efficiency.
b. If the laborers work repetitively over the same task, they gain more experience, and finish the
same task slower than their first time.
c. Learning curve states that the cumulative average resources needed to produce a unit of
product declines every time cumulative production doubles.
d. All of the statements are correct.

2. Which formula describes the learning curve?

a. y = axb
b. y = abx
c. y = ax-b
d. x = ayb

3. Uno Manufacturing Corporation has found that the production of a certain product is subject to an 80%
learning curve. Production is in lots of 100 units, with 8 hours required for the first lot each time the
product is manufactured. The total time to produce 400 units is:
a. 19.52 hours
b. 24 hours
c. 20.48 hours
d. 25.60 hours

4. Tofte has a target total labor cost of $1,500 for the first four batches of a product. Labor is paid $10 an
hour. If Tofte expects an 80% learning rate, how many hours should the first batch take?
a. 150 hours
b. 58.6 hours
c. 96.0 hours
d. 73.2 hours
5. Which one of the following statements best describes a difference between basic PERT and the Critical
Path Method (CPM) of network analysis?
a. PERT uses probability distribution on the activity times while CPM uses point estimates for the
activity times.
b. PERT does not allow for slack times on the activities while CPM does.
c. PERT considers only activity cost while CPM considers only activity time.
d. PERT determines the least-cost path through a network while CPM determines the least-time
path through a network.

6. When using the PERT method for network analysis, the critical path through the network is
a. The longest path through the network
b. The shortest path through the network
c. The path with the most slack
d. The least cost path

7. Of these statements, which is the least pertinent to the concept of “slack” in relation to the Project
Evaluation and Review Technique (PERT)?
a. The less the amount of slack time, the more critical an activity or path.
b. Slack time information is useful for planning and continuous monitoring.
c. It is computed by subtracting the earliest expected time from the earliest allowable time.
d. If not exceeded, non-critical activities can be delayed without delaying the project’s completion
time.

8. The process of adding resources to shorten selected activity times on the critical path in project
scheduling is called
a. Crashing
b. Delphi Technique
c. Material-requirements planning
d. A branch-and-bound solution

9. In a probabilistic approach, what is the range than an event is to be occurred?

a. Between 0 and 1
b. Between 0 and -1
c. Between 1 and 2
d. Between -1 and -2

10. Dough Distributors has decided to increase its daily muffin purchases by 100 boxes. A box of muffins
costs $2 and sells for $3 through regular stores. Any boxes not sold through regular stores are sold
through Dough’s thrift store for $1. Dough assigns the following probabilities to selling additional boxes:
Additional sales Probability
60 0.6
100 0.4
What is the expected value of Dough’s decision to buy 100 additional boxes of muffins?
a. $28
b. $40
c. $52
d. $68

11. Sampaguita Company is planning to market a new product. The marketing research staff prepared the
following payoff probability distribution giving the relative likelihood of monthly sales volume levels and
the corresponding income (loss) for the new product;
Monthly sales volume Probability Income(loss)
2,500 0.10 P(25,000)
5,000 0.20 7,500
10,000 0.50 37,500
15,000 0.10 50,000
25,000 0.10 75,000
The expected value of the monthly income from the new product:
a. P18,750
b. P22,500
c. P30,250
d. P32,750

12. A quantitative technique used for selecting the combination of resources that maximize profits or
minimize costs is
a. Curvilinear theory
 b. Queuing theory
c. Dynamic programming
d. Linear programming

13. AB Woods Co. is planning to expand its production facilities, which is at present, a constraint. You are
asked to review the linear programming model. Among the items in the model, which will not be found?
a. Constraints
b. Slack variables
c. Independent and dependent variables
d. Networks

For 14-16
ReMetal, Inc. uses the following model to determine blends of new (n) metal and scrap (s) metal.
Max Z = $30N + $70S
subject to:
3N + 2S < 15
2N + 4S < 18

14. These mathematical functions are an example of a(n)

a. Parametric model
b. Present value model
c. Economic order quantity model
d. Linear programming model

15. The two inequality functions are

a. Constraints
b. Objectives
c. Conditions
d. Shadow prices

16. The point where N = 2 and S = 3 would

a. Be the optimal solution point.
b. Be a feasible point.
c. Lie in a corner.
d. Minimize cost.

Questions 17 and 18 are based on the following information.

A company has the following probabilities of profit (or loss) from an investment opportunity:
Profit Outlook Profit (Loss) Amount Probability
Optimistic $10,000 .30
Most likely 6,000 .55
Pessimistic (1,000) .15

17. What is the expected profit?

a. $6,000
b. $6,150
c. $6,300
d. $6,450

18. How much would the company be willing to pay before investing in the project to learn in advance
which of the three scenarios (optimistic, pessimistic, or most likely) would actually occur?
a. $0
b. $150
c. $300
d. $550

19. The following information applies to a project:

Activity Time Immediate
(days) Predecessor
A 5 None
B 3 None
C 4 A
D 2 B
E 6 C, D
The earliest completion time for the project is
a. 11 days.
 b. 14 days.
c. 15 days.
d. 20 days.

20. Which one of the following items is not directly reflected in the basic economic order quantity (EOQ)
model?
a. Interest on invested capital.
b. Inventory obsolescence.
c. Public warehouse rental charges.
d. Quantity discounts lost on inventory purchases.

21. The economic order quantity is not affected by the

a. estimate of the annual material consumption.
b. cost of insuring a unit of inventory for a year.
c. cost of purchase-order forms.
d. safety stock level

22. The optimal safety stock level is the quantity of safety stock that minimizes the
a. sum of the annual relevant stockout costs and carrying costs.
b. sum of the annual relevant ordering costs and carrying costs.
c. sum of the annual relevant ordering costs and stockout costs.
d. sum of the annual relevant ordering costs and purchasing costs.

23. The cost of stock-out do not include

a. Depreciation and obsolescence.
b. Loss of sales.
c. Loss of customer goodwill.
d. Disruption of production schedules.

24. For Raw Material B, a company maintains a safety stock of 5,000 pounds. Its average inventory (taking
into account the safety stock) is 8,000 pounds. What is the apparent order quantity?
a. 16,000 lbs.
b. 6,000 lbs.
c. 10,000 lbs.
d. 21,000 lbs

25. A&B Co.’s financial plan for next year shows sales of P72 million and cost of sales of P45 million. It
expects short term interest rates to average 10% for the coming year. It aims to increase inventory
turnover from the present level of 9 times to 12 times next year. If its plans and objectives would be
carried out, how much is the cost savings for the coming year?
a. P125,000
b. P300,000
c. P375,000
d. P500,000

26. A company has estimated its economic order quantity for Part A at 2,400 units for the coming year. If
ordering costs are $200 and carrying costs are $0.50 per unit per year, what is the estimated total
annual usage?
a. 6,000 units
b. 28,800 units
c. 7,200 units
d. 2,400 units

27. Information regarding the usage of material Y which shall be required evenly throughout the year by
GAC Company
Annual usage in units 30,000
Working days per year 250
Safety stock in units 1,200
Normal lead time in working days 25
The re-order point is
a. 6,250
b. 5,700
c. 4,200
d. 3,000

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