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THEORY
Forecasting
1. The calculation of reasonable probabilities about the future, based on the analysis of 6. Which of the following statements is the least pertinent to the Project Evaluation
all the latest relevant information by tested and logically sound statistical and Review Technique (PERT)
economic techniques, and applied in terms of an executive’s personal judgement and A. It is a system, which uses network analysis and critical path methods.
knowledge of his business is B. It is more useful for analyzing the interrelationships of time and activities to
A. Budgeting C. Planning and control discover potential bottlenecks.
B. Business forecasting D. Project feasibility studies C. It involves measuring progress in relation to schedule, evaluating changes to
schedule, forecasting future progress and predicting and controlling costs.
Learning curve D. Time is a primary consideration and this technique is particularly suite for
2. Which formula describes the learning curve? problems, which involve the combination of resources that maximize profits or
A. y = axb C. y = ax-b minimize costs.
B. y = abx D. x = ayb
7. Which one of the following statements best describes a difference between basic
Project management PERT and the Critical Path Method (CPM) of network analysis?
3. Various tools are employed to control large scale projects. They include all of the A. PERT does not allow for slack times on the activities while CPM does.
following except: B. PERT considers only activity cost while CPM considers only activity time.
A. CPM. C. PERT. C. PERT uses probability distribution on the activity times while CPM uses point
B. Gantt charts. D. Statistical process control. estimates for the activity times.
D. PERT determines the least-cost path through a network while CPM determines
4. Which of the following terms is not used in project management? the least-time path through a network.
A. Dummy activity. C. Lumpy demand.
B. Latest finish. D. Optimistic time. 8. When using the PERT method for network analysis, the critical path through the
network is
5. A management consultant is scheduling a long-term research and development A. The least cost path. C. The path with the most slack.
project. The time table is very tight due to the advent of the rainy season and to B. The longest path through the network. D. The shortest path through the
inadequate research and development staff complement. As the requirements are network.
extensive and complex, what is the most appropriate approach for planning and
controlling the government highway project? 9. Of these statements, which is the least pertinent to the concept of “slack” in relation to
A. Cost-volume-profit analysis. the Project Evaluation and Review Technique (PERT)?
B. Queuing theory analysis. A. The less the amount of slack time, the more critical an activity or path.
C. Time-series or trend regression analysis. B. Slack time information is useful for planning and continuous monitoring.
D. Program evaluation review technique (PERT) C. It is computed by subtracting the earliest expected time from the earliest
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allowable time. A. Networks.

D. If not exceeded, non-critical activities can be delayed without delaying the B. Constraints.
project’s completion time. C. Slack variables.
D. Independent and dependent variables.

10. In a Program Evaluation and Review Technique (PERT) system, activities along the 15. Linear programming models are mathematical techniques in which an objective
critical path: function is maximized or minimized subject to constraints. These constraints must be
A. have a slack of zero fully specified before a linear programming problem can be solved, and generally
B. follow the line of best fit described:
C. may be delayed without affecting completion time A. Costs. C. Inefficiencies.
D. intersect at a corner point described by the feasible area B. Dependent variables. D. Resources.

11. The process of adding resources to shorten selected activity times on the critical path 16. In a linear programming maximization problem for business problem solving, the
in project scheduling is called coefficient of the objective function usually are
A. A branch-and-bound solution. C. Material-requirements planning. A. Variable costs.
B. Crashing. D. The Delphi technique. B. Marginal contributions per unit.
C. Usage rates for scarce resources.
Linear Programming D. Profit based on allocations of overhead and all indirect costs.
12. A quantitative technique used for selecting the combination of resources that
maximize profits or minimize costs is 17. A transportation model is a special case of
A. Curvilenear analysis C. Linear programming A. Dynamic programming model. C. Linear programming model.
B. Dynamic programming D. Queuing theory B. Economic order quantity model. D. PERT/CPM.

13. Linear programming is used most commonly to determine the Questions 18 through 20 are based on the following information.
A. Fastest timing. ReMetal, Inc. uses the following model to determine blends of new (n) metal and scrap (s)
B. Most advantageous prices. metal.
C. Best use of scarce resources. Max Z = $30N + $70S
D. Mix of variables that will result in the largest quantity. subject to:
3N + 2S < 15
14. AB Woods Co. is planning to expand its production facilities, which is at present, a 2N + 4S < 18
constraint. You are asked to review the linear programming model. Among the items
in the model, which will not be found? 18. These mathematical functions are an example of a(n)
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A. Economic order quantity model. C. Parametric model. 2,500 0.10 P(25,000)

B. Linear programming model. D. Present value model. 5,000 0.20 7,500
10,000 0.50 37,500
19. The two inequality functions are 15,000 0.10 50,000
A. Conditions. C. Objectives. 25,000 0.10 75,000
B. Constraints. D. Shadow prices. The expected value of the monthly income from the new product:
A. P18,750 C. P30,250
B. P22,500 D. P32,750
20. The point where N = 2 and S = 3 would
A. Be a feasible point. C. Lie in a corner. 3. The Sigma Company wants more information on the demand for its products. The
B. Be the optimal solution point. D. Minimize cost. following data are relevant
Units demanded Probability of unit Total cost of units
demand demanded
PROBLEMS 0 0.10 P0.00
Project management 1 0.15 1.00
1. The following information applies to a project: 2 0.20 2.00
Activity Time (days) Immediate Predecessor 3 0.40 3.00
A 5 None 4 0.10 4.00
B 3 None 5 0.05 5.00
C 4 A What is the total expected value of the total cost of units demanded?
D 2 B A. P2.40 C. P9.00
E 6 C, D B. P7.40 D. P9.15
The earliest completion time for the project is
A. 11 days. C. 15 days. 4. Dough Distributors has decided to increase its daily muffin purchases by 100 boxes.
B. 14 days. D. 20 days. 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
Expected value following probabilities to selling additional boxes:
2. Sampaguita Company is planning to market a new product. The marketing research Additional sales Probability
staff prepared the following payoff probability distribution giving the relative likelihood 60 0.6
of monthly sales volume levels and the corresponding income (loss) for the new 100 0.4
product;
What is the expected value of Dough’s decision to buy 100 additional boxes of
Monthly sales volume Probability Income(loss) muffins?
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A. $28 C. $52 opportunity:

B. $40 D. $68 Profit Outlook Profit (Loss) Amount Probability
Optimistic $10,000 .30
5. The auditor is attempting to evaluate the potential dollar effect of a control breakdown Most likely 6,000 .55
in the sales cycle. Two controls are involved. The probability that control A will fail is Pessimistic (1,000) .15
10%, and the probability that control B will fail is 5%. The controls are independent
such that the failure of one does not affect the failure of the other. In evaluating the 7. What is the expected profit?
potential exposure to the organization, the auditor determines that the cost of control A. $6,000 C. $6,300
A's failure is $10,000, the cost of control B's failure is $25,000, and the cost of failure B. $6,150 D. $6,450
of both control procedures at the same time is an additional $200,000.
8. How much would the company be willing to pay before investing in the project to
If the control procedures are not made more effective, the expected cost to the learn in advance which of the three scenarios (optimistic, pessimistic, or most likely)
organization is would actually occur?
A. $1,000 C. $3,250 A. $0 C. $300
B. $2,250 D. $32,250 B. $150 D. $550
Questions 9 through 13 are based on the following information.
6. In actual business, it is difficult to ascertain the value of information about a future The College Honor Society sells hot pretzels at the home football games. The pretzels
event. However, it is possible to compute the maximum expected value of additional are sold for $1.00 each, and the cost per pretzel is $0.30. Any unsold pretzels are
information by computing the expected value under conditions of certainty and discarded because they will be stale before the next home game.
comparing it with the expected value of the best strategy under uncertainty. The frequency distribution of the demand for pretzels per game is presented below.
Assuming: Unit Sales Volume Probability
Expected value under certainty conditions P12,000 2,000 pretzels .10
Expected value using best strategy under uncertainty 10,900 3,000 pretzels .15
Expected value of perfect information 1,100 4,000 pretzels .20
This means 5,000 pretzels .35
A. Management is uncertain it will incur P10,900. 6,000 pretzels .20
B. Management is certain it will realize P12,000. 9. The estimated demand for pretzels at the next home football game using an expected
C. Management can afford to spendP1,100 for perfect information. value approach is
D. Management can afford to incur P10,900 since it will earn a net income of A. 4,000 pretzels. C. 5,000 pretzels.
P1,100. B. 4,400 pretzels. D. 6,000 pretzels.

Questions 7 and 8 are based on the following information. 10. The estimated demand for pretzels at the next home football game using a
A company has the following probabilities of profit (or loss) from an investment determinate approach based on the most likely outcome is
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A. 4,000 pretzels. C. 5,000 pretzels. The costs associated with the two products have been estimated by Gleason's cost
B. 4,400 pretzels. D. 6,000 pretzels. accounting department and are shown as follows.
Dessert Rolls
11. The conditional profit per game of having 4,000 pretzels available but only selling Ingredients per unit $.40 $.25
3,000 pretzels is Direct labor per unit .35 .30
A. $1,800 C. $2,800 Variable overhead per .40 .20
B. $2,100 D. $3,500 unit
Production tooling* 48,000 25,000
12. The conditional profit per game of having 4,000 pretzels available and selling all Advertising 30,000 20,000
4,000 pretzels is *Gleason treats production tooling as a current operating expense rather than capitalizing
A. $800 C. $2,100 it as a fixed asset.
B. $1,200 D. $2,800 14. According to Gleason's market study, the expected value of the sales volume of the
breakfast rolls is
A. 125,000 units. C. 275,000 units.
B. 260,000 units. D. Some amount other than those
13. The conditional profit (loss) per game of having 4,000 pretzels available but being given.
able to sell 5,000 pretzels if they had been available is
A. $(1,225). C. $3,500. 15. Applying a deterministic approach, Gleason's revenue from sales of frozen desserts
B. $2,800. D. $4,025. would be
A. $216,000. C. $549,000.
Questions 14 through 18 are based on the following information. B. $540,000. D. Some amount other than those
Gleason Co. has two products, a frozen dessert and ready-to-bake breakfast rolls, ready given.
for introduction. However, plant capacity is limited, and only one product can be
introduced at present. Therefore, Gleason has conducted a market study, at a cost of 16. The expected value of Gleason's operating profit directly traceable to the sale of
$26,000, to determine which product will be more profitable. The results of the study frozen desserts is
follow. A. $120,250. C. $198,250.
Sales of Desserts at $1.80/unit Sales of Rolls at $1.20/unit B. $150,250. D. Some amount other than those
Volume Probability Volume Probability given.
250,000 .30 200,000 .20
300,000 .40 250,000 .50 17. In order to recover the costs of production tooling and advertising for the breakfast
350,000 .20 300,000 .20 rolls, Gleason's sales of the breakfast rolls would have to be
400,000 .10 350,000 .10 A. 37,500 units. C. 100,000 units.
B. 60,000 units. D. Some amount other than those
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given. “not success” to make Superior Craft indifferent between the two actions “invest” and
“do not invest”?
18. The advertising expense estimated by Gleason for the introduction of the new A. B. C. D.
products is an example of a(n) Probability of success 37.5% 40% 45.5% 50%
A. Conversion cost. C. Discretionary cost. Probability of not success 62.5% 60% 54.5% 50%
B. Committed cost. D. Opportunity cost.
22. If Superior Craft thinks the probability of “success” is 60%, how much higher would be
Decision tree the expected value of the act “invest” over the expected value of the act “do not
19. Ron Bagley is contemplating whether to investigate a labor efficiency variance in the invest”?
Assembly Department. It will cost $6,000 to undertake the investigation and another A. P360,000 C. P600,000
$18,000 to correct operations if the department is found to be operating improperly. If B. P400,000 D. P1,000,000
the department is operating improperly and Bagley fails to investigate, operating
costs from the various inefficiencies are expected to amount to $33,000. Bagley will Markov analysis
be indifferent between investigating and not investigating the variance if the 23. Rusty, the night manager at a local fast food restaurant, has had problems with his
probability of improper operation is employees not arriving on time. After doing some research, he discovered that, if his
A. 0.29 C. 0.60 employees were on time the night before, the probability that they would arrive on
B. 0.40 D. 0.71 time again is .7. On the other hand, if they were late the night before, the probability
that they would arrive on time the following day is .4. What is the probability that an
20. Under favorable weather conditions, the management of Flesher Farms expects its employee will arrive on time the fourth day if they arrived on time the first day?
raspberry crop to have a $120,000 market value. An unprotected crop subject to frost A. .575 C. .61
has an expected market value of $80,000. If Flesher protects the raspberries against B. .583 D. .7
frost, the market value of the crop is still expected to be $120,000 under frost-free
conditions and $180,000 if a frost occurs. What must be the probability of a frost for
Flesher to be indifferent to spending $20,000 for tents to provide frost protection? Learning curve
A. 0.167 C. 0.250 24. Hennepin Co. used 30 hours to produce the first batch of units. The second batch
B. 0.200 D. 0.333 took an additional 18 hours. How many total hours will the first four batches require?
A. 61.44 hours. C. 96.2 hours.
Questions 21 and 22 are based on the following information: B. 76.8 hours. D. 120.0 hours.
Superior Craft is evaluating the launching of a new product. If the product becomes
successful, the present value of future cash flows (excluding investment) is estimated at 25. Lake Corporation manufactures specialty components for the electronics industry in a
P2,000,000. If the product is not successful, the present value of this flow is estimated at highly labor intensive environment. Are Electronics has asked Lake to bid on a
P400,000. The required investment is P1,000,000. component that Lake made for Arc last month. The previous order was for 80 units
21. What are the probabilities that would have to be assigned to the events “success” and
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and required 120 hours of direct labor to manufacture. Arc would now like 240 C 60 5 5 15 15
additional components. Lake experiences an 80% learning curve on all of its jobs. There are 2,400 minutes available on each machine during the week. Which
The number of direct labor hours needed for Lake to complete the 240 additional machine is the bottleneck?
components is A. M1 C. M3
A. 187.2 C. 307.2 B. M2 D. M4
B. 256.0 D. 360.0
30. Phil-Fuji Co. manufactures two types of electronic components, both of which must
26. Tofte has a target total labor cost of $1,500 for the first four batches of a product. pass through the Assembly and Finishing Departments. The following constraints
Labor is paid $10 an hour. If Tofte expects an 80% learning rate, how many hours apply:
should the first batch take? Unit Contribution Hrs Required per unit
A. 58.6 hours. C. 96.0 hours. Product Selling Price Margin per Unit Assembly Finishing
B. 73.2 hours. D. 150 hours. Component P120 P30 3 4
27. CBA Company expects a 90% learning curve. The first batch of a new product 818
required 100 hours. The second batch should take Component P180 P45 4 6
A. 80 hours. C. 95 hours 810
B. 90 hours. D. 100 hours. Demand for Component 818 far exceeds the company’s capacity, but the company
can only sell 60 units of component 810 each week. Workers in the Assembly
Linear programming department work a total of 200 hours per week, and workers in the Finishing
28. If plant capacity for cutting time and shaping time is 80 hours and 100 hours, department work a total of 250 hours per week. The company wants to know how
respectively, and it takes four hours to cut and two hours to shape a standard model many units of each component to produce to maximize profit. If X represents the
and two hours to cut and five hours to shape a deluxe model, the maximum number number of units of Component 818 and Y represents the number of units of
of standard and deluxe models that can be produced are: Component 810, the objective function would be
A. 20 standard and 20 deluxe D. 40 standard and 20 deluxe A. Maximize 30X + 45Y C. Minimize 30X + 45Y
B. 20 standard and 40 deluxe E. 50 standard and 40 deluxe B. Maximize 120X + 180Y D. Minimize 90X + 135Y
C. 20 standard and 50 deluxe
29. Colfax Creations produces three products: A, B, and C. Four machines are used to 31. A mathematical technique that can be used to find the best possible combination of
produce the products. The sales demands and time on each machine (in minutes) is the company’s limited resources is called linear programming. Star Electronics
as follows: manufactures two types of calculators, Star 1 and Star 2. Each calculator is
Demand Time on Time on M2 Time on Time on M4 processed in two departments, departments 1 and 2. Daily labor requirements are as
M1 M3 follows:
A 100 10 15 10 5
B 80 10 5 10 5

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Hours Required per Calculator Total Hours Product Z 20 units 10 units 0 units 0 units
Departmen Star 1 Star 2 Available Questions 34 and 35 are based on the following information.
t D Company has available production capacity of 180,000 hours. This can be used to
1 15 5 450 produce 3 products in any combination. Total fixed cost is P180,000, other facts are:
2 18 9 720 PRODUCTS
The marginal contributions are P15 on Star 1 and P0.10 on Star 2. From the items X Y Z
listed below what are the labor constraints? (Assume X represents the number of Selling price P 8 P 23 P 5
units of Star 1, Y represents the number of units of Star 2, P represents profit). Variable cost 7 12 2
A. X > 0 ; Y > 0 C. 15X + 5Y < 450; 18X + 9Y < 720 No. of hours per 1 hr. 10 hrs. 2 hrs.
B. P = 15X + 10Y; P = 15X + 5Y D. combination of (b) and (c) unit
Market limits 5,000 50,000
32. Consider the following linear programming problem and assume that non-negativity
constraints apply to the independent variables:
34. The best possible combination of product is:
Max CM = $14X + $23Y
A. B. C. D.
Subject to
Product 4,000 30,000 30,000 80,000
Constraint 1: 4X + 5Y < 3,200
X
Constraint 2: 2X + 6Y < 2,400
Product 4,000 3,000 5,000 0
Which of the following are feasible solutions to the linear programming problem?
Y
A. X = 0, Y = 400 C. X = 800, Y = 640
Product 50,000 50,000 50,000 50,000
B. X = 600, Y = 240 D. X = 1,200, Y = 0
Z
33. The Katangalan Company makes toys Y and Z each of which needs two processes,
cutting and sanding. The contribution margin is P3.00 for product Y and P4.00 for 35. The net profit associated with the best combination of products is:
product Z. The table below shows the maximum number of units (constraints) of A. P33,000 C. P54,000
each product that may be processed in the two departments. B. P50,000 D. P55,000
Maximum Capacities (in Product Units)
Product Cutting Sanding Questions 36 through 38 are based on the following information.
Y 30 40 In the two following constraint equations, X and Y represent two products (in units)
Z 30 20 produced by the Generic Co.
Considering the constraint on processing, which combination of product Y and Z Constraint 1: 3X + 5Y < 4,200
maximizes the total contribution margin? Constraint 2: 5X + 2Y > 3,000
A. B. C. D. 36. What is the maximum number of units of Product X that can be produced?
Product Y 0 units 20 units 30 units 40 units A. 600 C. 3,000
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B. 1,400 D. 4,200

37. What is the feasible range for the production of Y?

A. 0 to 631 units C. 0 to 1500 units
B. 0 to 840 units D. 840 to 1,500 units
38. A solution of X = 500 and Y = 600 would violate
A. Constraint 1. C. both constraints.
B. Constraint 2. D. neither constraint.

Theory Problem
1. B 1. C 21. A
2. A 2. C 22. A
3. D 3. A 23. B
4. C 4. C 24. B
5. D 5. C 25. A
6. C 6. C 26. A
7. C 7. B 27. A
8. B 8. B 28. A
9. C 9. B 29. C
10. A 10. C 30. A
11. B 11. A 31. C
12. C 12. D 32. A
13. C 13. B 33. B
14. A 14. B 34. C
15. D 15. B 35. D
16. C 16. A 36. B
17. C 17. C 37. B
18. B 18. C 38. A
19. B 19. B
20. A 20. B

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