CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

MANAGEMENT ADVISORY SERVICES

QUANTITATIVE METHODS

THEORY

1. Order-filling costs, as opposed to order-getting costs, include all but which of the following
items?
a. Credit check of new customers. c. Collection of payments for sales orders.
b. Packing ad shipping of sales orders. d. Mailing catalogs to current customers.

2. Which condition justifies accepting a low inventory turnover ratio?

a. High carrying costs. c. Short inventory order lead times.
b. High stock-out costs. d. Low inventory order costs.

3. Which of the following inventory items would be the most frequently reviewed in an ABC
inventory control system?
a. Expensive, frequently used, high stock-out cost items with short lead times.
b. Expensive, frequently used, low stock-out cost items with long lead times.
c. Inexpensive, frequently used, high stock-out cost items with long lead time.
d. Expensive, frequently used, high stock-out cost items with long lead time.

4. In an ABC inventory analysis, the items that are most likely to be controlled with a red-line
system are the
a. A items. c. C items.
b. B items. d. items on a perpetual inventory.

5. The materials control method that is based on physical observation that an order point has
been reached is the:
A. cycle review method C. two-bin method
B. min-max method D. ABC plan

6. The underlying philosophy of “just-in-time” inventory system is that

a. The status of quantities on hand must be periodically reviewed where high-value items or
critical items are examined more frequently than low-cost or non-critical items.
b. It is a quest toward continuous improvement in the environmental conditions that
necessitates inventories.
c. The quantities of most stock items are subject to definable limits.
d. It is impractical to give equal attention to all stock items, hence the need to classify and
rank them according to their cost significance.

7. Companies that adopt just-in-time purchasing systems often experience

a. An increase in carrying costs.
b. A reduction in the number of suppliers.
c. Fewer deliveries from suppliers.
d. A greater need for inspection of goods as the goods arrive.

8. An inventory control system which employs mathematical models as an aid in making

inventory decision is known as
a. Order cycling system c. Statistical inventory control system.
b. Two-bin system d. Mini-max system

9. Which of the following is used in determining the economic order quantity (EOQ)?
a. Regression analysis. c. Markov process.

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b. Calculus. d. Queuing theory.

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10. In inventory management, the problem of avoiding excessive investment in inventories and
at the same time avoiding inventory shortages can be solved by applying a quantitative
technique known as
a. Payback analysis c. Economic order quantity
b. Probability analysis d. High-low point method

11. A characteristic of the basic economic order quantity (EOQ) model is that it
a. Is relatively insensitive to error.
b. Should not be used when carrying costs are large in relation to procurement costs.
c. Is used when product demand, lead-time, and ordering costs are uncertain.
d. Should not be used in conjunction with computerized perpetual inventory systems.

12. In the Economic Order Quantity (EOQ) model, some of the underlying assumptions are
a. Unlimited production capacity, declining demand, decreasing ordering cost, decreasing
carrying cost, and unlimited inventory capacity.
b. Constant demand, constant ordering cost, constant carrying cost, unlimited production
and inventory capacity.
c. Limited production capacity, declining demand, constant ordering cost, constant carrying
cost, and unlimited inventory capacity.
d. Increasing demand, limited production capacity, increasing ordering cost, increasing
carrying cost, and limited inventory capacity.

13. The economic order quantity formula can be used to determine the optimum size of
a. b. c. d.
Production run Yes Yes No No
Purchase order No Yes No Yes

14. The simple economic production lot size model will only apply to situations in which the
production
a. Rate equals the demand rate.
b. Rate is less than the demand rate.
c. Rate is greater than the demand rate.
d. For the period covered equals the projected sales for the period.

15. 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.

16. The ______________ would not affect the economic order quantity.
a. company's weighted average cost of capital
b. cost of purchase requisition forms
c. cost of insuring inventory
d. cost of a stockout

17. 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

18. Various tools are employed to control large scale projects. They include all of the following
except:
A. PERT. C. Statistical process control.
B. CPM. D. Gantt charts.

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19. The ordering costs associated with inventory management include
a. Insurance costs, purchasing costs, shipping costs, and obsolescence.
b. Obsolescence, set up costs, quantity discounts lost, and storage costs.
c. Quantity discounts lost, storage costs, handling costs, and interest on capital invested.
d. Purchasing costs, shipping costs, set-up costs, and quantity discounts lost.

20. If one optimizes the inventory turnover ratio, which costs will not increase?
a. Total reorder costs c. Unit reorder costs
b. Stock-out cost d. Carrying costs

21. The carrying costs pertaining to inventory include

a. Insurance costs, incoming freight costs and storage costs.
b. Insurance costs, incoming freight costs and setup costs.
c. Setup costs and opportunity cost of capital invested in inventory.
d. Storage costs and opportunity cost of capital invested in inventory.

22. The optimal level of inventory is affected by all of the following except the
A. Usage rate of inventory per time period.
B. Cost per unit of inventory.
C. Current level of inventory.
D. Cost of placing an order for merchandise.

23. 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.

24. When a specific level of safety stock is carried for an item in inventory, the average
inventory level for that item
a. Is not affected by the safety stock.
b. Increases by the amount of the safety stock.
c. Increases by one-half the amount of the safety stock.
d. Decreases by the amount of the safety stock.

25. For inventory management, ignoring safety stocks, which of the following is a valid
computation of the reorder point?
a. The economic order quantity.
b. The economic order quantity times the anticipated demand during the lead time.
c. The anticipated demand per day during lead time times lead time in days.
d. The square root of the anticipated demand during the lead time.

26. The cost of stock-out do not include

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

27. A change from the FIFO (first-in, first-out) inventory valuation method to the LIFO (last-in,
first-out) method would
A. Increase the EOQ in times of rising prices.
B. Decrease the EOQ in times of rising prices.
C. Increase the EOQ in times of falling prices.
D. Not affect the EOQ.

28. The process of adding resources to shorten selected activity times on the critical path in
project scheduling is called
A. Crashing. C. Material-requirements planning.
B. The Delphi technique. D. A branch-and-bound solution.

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29. The selling price of the product is relatively high and the purchase cost of the product is
relatively low. In this situation
a. Management must increase the price to cover the cost of carrying higher inventory.
b. The EOQ model will indicate frequent large orders.
c. The EOQ of the product is affected by the selling price.
d. The selling price has nothing to do with the EOQ of the product.

30. Clear View Co. manufactures various glass products including a car window. The setup cost
to produce the car window is $1,200. The cost to carry a window in inventory is $3 per year.
Annual demand for the car window is 12,000 units. If the annual demand for the car window
was to increase to 15,000 units,
a. the number of setups would decrease.
b. the total carrying costs would increase.
c. the economic order quantity would decline.
d. all of the above would occur.

31. The economic order quantity (EOQ) will rise following

a. A decrease in annual unit sales.
b. An increase in carrying costs.
c. An increase in the per unit purchase price of inventory.
d. An increase in the variable costs of placing and receiving an order.

32. Missile Company has correctly computed its economic order quantity as 500 units.
However, management feels it would rather order quantities of 600 units. How should
Missile’s total annual purchase-order costs and total annual carrying cost for an order
quantity of 600 units compare to the respective amounts for an order quantity of 500 units?
a. Higher purchase-order cost and lower carrying cost.
b. Higher purchase-order cost and higher carrying cost.
c. Lower purchase-order cost and higher carrying cost.
d. Lower purchase-order cost and lower carrying cost.

33. A decrease in inventory order costs will

a. Increase the reorder point.
b. Decrease the economic order quantity.
c. Have no effect on the economic order quantity.
d. Decrease the holding cost percentage.

34. An increase in inventory holding costs will

a. Decrease the economic order quantity.
b. Have no effect on the economic order quantity.
c. Increase the economic order quantity.
d. Decrease the number of orders issued per year.

35. For its economic order quantity model, a company has a $10 cost of placing an order and a
$2 annual cost of carrying one unit in stock. If the cost of placing an order increases by 20%,
the annual cost of carrying one unit in stock increases by 25%, and all other considerations
remain constant, the economic order quantity will:
A. decrease
B. increase
C. remain unchanged
D. either increase or decrease, depending on the reorder point
E. either increase or decrease, depending on the safety stock

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

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37. For a 300-day work year Kulasa Corp. consumes 420,000 units of an inventory item. The
usual lead-time for the inventory item is six (6) days; however, at times, the lead-time has
gone as high as eight (8) days. Kulasa now desires to adjust its safety stock policy. The
likely effect on stockout costs and carrying costs, respectively, would be
a. Increase and decrease. c. Increase and increase.
b. Decrease and decrease. d. Decrease and increase.

38. Which of the following terms is not used in project management?

a. Dummy activity. c. Optimistic time.
b. Latest finish. d. Lumpy demand.

39. A management consultant is scheduling a long-term research and development project. The
time table is very tight due to the advent of the rainy season and to inadequate research and
development staff complement. As the requirements are extensive and complex, what is the
most appropriate approach for planning and controlling the government highway project?
a. Time-series or trend regression analysis.
b. Cost-volume-profit analysis.
c. Queuing theory analysis.
d. Program evaluation review technique (PERT)

40. Which of the following statements is the least pertinent to the Project Evaluation Review
Technique (PERT)
a. It is a system, which uses network analysis and critical path methods.
b. It is more useful for analyzing the interrelationships of time and activities to discover
potential bottlenecks.
c. It involves measuring progress in relation to schedule, evaluating changes to schedule,
forecasting future progress and predicting and controlling costs.
d. Time is a primary consideration and this technique is particularly suite for problems,
which involve the combination of resources that maximize profits or minimize costs.

41. 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.

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

43. In a Program Evaluation and Review Technique (PERT) system, activities along the critical
path:
A. intersect at a corner point described by the feasible area
B. may be delayed without affecting completion time
C. follow the line of best fit
D. have a slack of zero

44. 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.

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45. Which formula describes the learning curve?
a. y = axb c. y = ax-b
b
b. y = a x d. x = ayb

46. The calculation of reasonable probabilities about the future, based on the analysis of all the
latest relevant information by tested and logically sound statistical and economic techniques,
and applied in terms of an executive’s personal judgement and knowledge of his business is
a. Business forecasting c. Project feasibility studies
b. Budgeting d. Planning and control

47. Linear programming is used most commonly to determine the

a. Fastest timing.
b. Best use of scarce resources.
c. Most advantageous prices.
d. Mix of variables that will result in the largest quantity.

48. 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. c. Independent and dependent variables.
b. Slack variables. d. Networks.

49. In a linear programming maximization problem for business problem solving, the coefficient
of the objective function usually are
a. Usage rates for scarce resources.
b. Profit based on allocations of overhead and all indirect costs.
c. Variable costs.
d. Marginal contributions per unit.

50. Linear programming models are mathematical techniques in which an objective function is
maximized or minimized subject to constraints. These constraints must be fully specified
before a linear programming problem can be solved, and generally described:
a. Costs. c. Inefficiencies.
b. Resources. d. Dependent variables.

Questions 51 through 53 are based on the following information.

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

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

A. Parametric model. C. Economic order quantity model.
B. Present value model. D. Linear programming model.

52. The two inequality functions are

A. Constraints. C. Conditions.
B. Objectives. D. Shadow prices.

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

A. Be the optimal solution point. C. Lie in a corner.
B. Be a feasible point. D. Minimize cost.

54. A transportation model is a special case of

a. Dynamic programming model. c. Linear programming model.
b. PERT/CPM. d. Economic order quantity model.

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