ACC 115

QUIZ 1

1. A manufacturing company required 800 direct labor hours to produce the first lot of four units of a new motor.
Management believes that a 90% learning curve will be experienced over the next four lots of production. How many
direct labor hours will be required to manufacture the next 12 units?
a. 1,792.
b. 1,944.
c. 2,016.
d. 2,160.

2. Propeller Inc. plans to manufacture a newly designed high-technology propeller for airplanes.
Propeller forecasts that as workers gain experience, they will need less time to complete the job. Based on prior
experience, Propeller estimates a 70% cumulative learning curve and has projected the following costs.
Cumulative number Manufacturing Projections
of units produced Average cost per unit Total costs
1 $20,000 $20,000
2 $14,000 $28,000
The estimated cost of an order for seven additional propellers, after completing production of the first propeller, would
be
a. $34,880.
b. $54,880.
c. $92,000.
d. $98,000.

3. Johnson Software has developed a new software package. Johnson’s sales manager has prepared the following
probability distribution describing the relative likelihood of monthly sales levels and relative income (loss) for the
company’s new software package.
Monthly Sales (units) Probability Income (Loss)
10,000 .2 $(4,000)
20,000 .3 $10,000
30,000 .3 $30,000
40,000 .2 $60,000
If Johnson decides to market its new software package, the expected value of additional monthly income will be
a. $23,200.
b. $24,000.
c. $24,800.
d. $25,000.

4. According to recent focus sessions, Norton Corporation has a “can’t miss” consumer product on its hands. Sales
forecasts indicate either excellent or good results, with Norton’s sales manager
assigning a probability of .6 to a good results outcome. The company is now studying various sales compensation
plans for the product and has determined the following contribution margin data.
ContributionMargin
If sales are excellent and…
Plan 1 is adopted $300,000
Plan 2 is adopted 370,000

If sales are good and

Plan 1 is adopted 240,000
Plan 2 is adopted 180,000

5. On the basis of this information, which of the following statements is correct?

a. Plan 2 should be adopted because it is $10,000 more attractive than Plan 1.
b. Plan 1 should be adopted because it is $8,000 more attractive than Plan 2.
c. Plan 1 should be adopted because of the sales manager’s higher confidence in good results.
d. Either Plan should be adopted, the decision being dependent on the probability of excellent
sales results.

6. Denton Inc. manufactures industrial machinery and requires 100,000 switches per year in its
assembly process. When switches are received from a vendor they are installed in the specific
machine and tested. If the switches fail, they are scrapped and the associated labor cost of $25
is considered lost productivity. Denton purchases “off the shelf” switches as opposed to custom-made switches and
experiences quality problems with some vendors’ products. A decision must be made as to which vendor to buy from
during the next year based on the following information.
Percentage expected Vendor Price per switch to pass the test
P $35 90%
Q $37 94%
R $39 97%
S $40 99%
Which vendor should Denton’s controller recommend to management?
a. Vendor P.
b. Vendor Q.
c. Vendor R.
d. Vendor S.

7. Scarf Corporation’s controller has decided to use a decision model to cope with uncertainty. With a particular
proposal, currently under consideration, Scarf has two possible actions, invest or not invest in a joint venture with an
international firm. The controller has determined the following.
Action 1: Invest in the Joint Venture
Events and Probabilities:
Probability of success = 60%.
Cost of investment = $9.5 million.
Cash flow if investment is successful = $15.0 million.
Cash flow if investment is unsuccessful = $2.0 million.
Additional costs to be paid = $0
Costs incurred up to this point = $650,000.
Action 2: Do Not Invest in the Joint Venture
Events
Costs incurred up to this point = $650,000.
Additional costs to be paid = $100,000.
Which one of the following alternatives correctly reflects the respective expected values of investing
versus not investing?
a. $300,000 and $(750,000).
b. $(350,000) and $(100,000).
c. $300,000 and (100,000).
d. $(350,000) and $(750,000).

8. Allbee Company has three possible investment opportunities. The controller calculated the payoffs and
probabilities, as follows.
Probabilities
Payoffs Investment A Investment B Investment C
$(20,000) .3 .2 .3
(10,000) .1 .2 .1
30,000 .3 .2 .2
70,000 .2 .2 .3
100,000 .1 .2 .1

The cost of investments A, B, and C are the same. Using the expected-value criterion, which one of the following
rankings of these investments, from highest payoff to lowest payoff, is correct?
a. A, B, C.
b. B, A, C.
c. C, A, B.
d. B, C, A.

9. The sales manager of Serito Doll Company has suggested that an expanded advertising campaign costing
$40,000 would increase the sales and profits of the company. He has developed the following probability distribution
for the effect of the advertising campaign on company sales.
Sales increase (units) Probability
15,000 .10
30,000 .35
45,000 .10
60,000 .25
75,000 .20

The company sells the dolls at $5.20 each. The cost of each doll is $3.20. Serito’s expected
incremental profit, if the advertising campaign is adopted, would be
a. $6,500.
b. $46,500.
c. $53,000.
d. $93,000.

10. Stock X has the following probability distribution of expected future returns.
Expected
Probability Return
.10 -20%
.20 5%
.40 15%
.20 20%
.10 30%
The expected rate of return on stock X would be
a. 10%.
b. 12%.
c. 16%.
d. 19%.

11. Which one of the following four probability distributions provides the highest expected monetary
value?
Alternative #1 Alternative #2 Alternative #3 Alternative #4
Cash Cash Cash Cash
Prob. Inflows Prob. Inflows Prob. Inflows Prob. Inflows
10% $50,000 10% $50,000 10% $50,000 10% $150,000
20% 75,000 20% 75,000 20% 75,000 20% 100,000
40% 100,000 45% 100,000 40% 100,000 40% 75,000
30% 150,000 25% 150,000 30% 125,000 30% 50,000
a. Alternative #1.
b. Alternative #2.
c. Alternative #3.
d. Alternative #4
12. The table below shows the estimated probabilities of the percent of defective units resulting from a production
run.
Percent Defective Probability
2% 30%
3% 50%
4% 20%
The expected percent defective for a production run would be
a) 1.50%
b) 2.30%
c) 2.90%
d) 3.00%

13. The following is a table of probabilities for two separate product lines, X and Y:
Probability X profit Y profit
0.20 $500 $ 50
0.70 $300 $400
0.10 $600 $800
The product line to obtain maximum utility for a risk-averse decision-maker is:
a) X because it has the highest expected profit.
b) Y because it has the highest expected profit.
c) Y because it has the highest dispersion.
d) X because it has the lowest dispersion.

14. A company uses two major material inputs in its production. To prepare its manufacturing operations budget, the
company has to project the cost changes of these material inputs. The cost changes are independent of one another.
The purchasing department provides the following probabilities associated with projected cost changes:
Cost Change Material 1 Material 2
3% increase 0.3 0.5
5% increase 0.5 0.4
10% increase 0.2 0.1
The probability of a 3 percent increase in the cost of both Material 1 and Material 2 is:
a) 15 percent
b) 40 percent
c) 80 percent
d) 20 percent

15. Ron Bagley is contemplating whether to investigate a labor efficiency variance in the Assembly Department. It will
cost $6,000 to undertake the investigation and another $18,000 to correct operations if the department is found to be
operating improperly. If the department is operating improperly and Bagley failed to make the investigation, operating
costs from the various efficiencies are expected to amount to $33,000. Bagley would be indifferent between
investigating and not investigating the variance if the probability of improper operation is:
a) 0.29
b) 0.40
c) 0.60
d) 0.71

16. Ryerson Company has three sales departments, each contributing the following percentages of total sales:
clothing, 50 percent; hardware, 30 percent; and household sundries, 20 percent. Each department has had the
following average annual damaged goods rates: clothing, 2 percent; hardware, 5 percent; and household sundries,
2.5 percent. A random corporate audit has found a weekly damaged goods rate of sufficient magnitude to alarm
Ryerson's management. The probability (rounded) that this rate occurred in the clothing department is:
a) 50 percent
b) 1 percent
c) 25 percent
d) 33 1/3 percent

17. Two firms share customers in the same market. Firm A sampled its customers’ buying habits and found that about
70 percent were repeat customers each week, while 30 percent went to Firm B. Firm B found that 80 percent of its
customers remained loyal each week, while 20 percent switched to Firm A. If this retention and loss of customers
continues for a long period, the percentage of customers Firm A will have is:
a) 70 percent
b) 80 percent
c) 60 percent
d) 40 percent

18. A beverage stand can sell either soft drinks or coffee. If the stand sells soft drinks and the weather is hot, it will
make $2,500; if the weather is cold, the profit will be $1,000. If the stand sells coffee and the weather is hot, it will
make $1,900; if the weather is cold, the profit will be $2,000. The probability of cold weather on a given day at this
time is 60%.
The expected payoff for selling coffee is:
a) $1,360
b) $2,200
c) $3,900
d) $1,960

19. Carson Products sells sweatshirts and is preparing for a World Cup Soccer match. The cost per sweatshirt varies
with the quantity purchased as follows.
Quantity Unit Cost
4,000 $14.00
5,000 $13.50
6,000 $13.00
7,000 $12.50
Carson must purchase the shirts one month before the game and has analyzed the market and estimated sales
levels as follows.
Unit Sales 4,000 5,000 6,000 7,000
Probability 15% 20% 35% 30%
The estimated selling price is $25 for sales made before and during the day of the game. Any shirts remaining after
game day can be sold at wholesale to a local discount store for $10.
The expected profit if Carson purchases 6,000 shirts is
a) $64,500
b) $66,000
c) $69,000
d) $72,000

20. A quantitative technique that deals with the problem of supplying sufficient facilities to meet the needs to
production lines or individuals that demand service unevenly is
A. Learning curve
B. Queuing theory
C. Monte Carlo Simulation
D. Linear Programming

21. The modeling technique that would be used to solve such problems as the number of check-out counters in a
store
A. Learning curve
B. Queuing theory
C. Monte Carlo Simulation
 D. Linear Programming

22. Using this method, a random number generator is used to produce numbers with a uniform probability distribution
(equal likelihood of occurrence).
A. Learning curve
B. Queuing theory
C. Monte Carlo Simulation
D. Linear Programming

23. A learning curve of 80% assumes that production unit costs are reduced by 20% for each doubling of output.
What is the cost of the sixteenth unit produced as an approximate percent of the first unit produced?
A. 30 percent
B. 51 percent
C. 41 percent
D. 64 percent

24. 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.

25. A quantitative technique useful in projecting a firm’s sales and profits is

A. probability distribution theory
B. learning curves
C. Gantt chart
D. queuing theory

26. The expected value of perfect information is the

A. Same as the expected profit under uncertainty
B. Sum of the conditional profit (loss) for the best event of each act times the probability of each event
occurring.
C. Difference between the expected profit under certainty and the expected opportunity loss.
D. Difference between the expected profit under certainty and the expected monetary value of the best act
under uncertainty.

27. Which one of the following statements does not apply to the decision tree analysis?
A. The sum of the probabilities of the events is less than one.
B. All the events are mutually exclusive.
C. All the events are included in the decision.
D. The branches emanate from a node from left to right.

28. Which of the following statements does not apply to decision tree analysis?
A. The sum of the probabilities of the events is less than one (1).
B. All of the events are mutually exclusive.
C. All of the events are included in the decision.
D. The branches emanate from a node from left to right.

29. The modeling technique to be used for situations involving a sequence of events with several possible outcomes
associated with each event is
A. queueing theory
B. dynamic programming
C. the critical path method
 D. decision tree analysis

30. The use of a decision tree is appropriate for decision making under conditions of
A. uncertainty and risk
B. uncertainty and subjective likelihood
C. Certainty
D. risk

31. The techniques which provide the decision maker a systematic and powerful means of analysis to explore policies
for achieving predetermined goals are called
A. mathematical techniques
B. correlation technique
C. quantitative techniques
D. none of the above

32. The term expected value refers to the

A. mean value of a variable
B. tails of a normal probability distribution
C. most likely single outcome selected from among a number of possible alternatives
D. value which would be assigned to a variable if a problem were to be treated in a deterministic manner

33. In a situation involving a sequence of decisions and several possible events associated with each decision, the
modeling technique to be employed would be
A. decision tree analysis
B. Monte Carlo simulation
C. linear programming
D. network analysis

34. A company is designing a new regional distribution warehouse. To minimize delays in loading and unloading
trucks, an adequate number of loading docks must be built. The most relevant technique to assist in determining the
proper number docks is
A. Decision Tree Analysis
B. PERT/CPM analysis
C. Linear programming
D. Queuing theory

35. Matamis Company is preparing its 2020 budget and taking into consideration the recent place of economic
recovery, has developed several sales forecasts and the estimated probability associated with each sales
forecast. In order to determine the sales forecast to be used for 2019 budgeting purposes, which one of the
following techniques should Matamis use?
A. Expected value analysis
B. Exponential distribution analysis
C. Continuous probability distribution
D. Sensitivity analysis