productions and operations management reviewer

8/20/2019 Productions and Operations Management Reviewer

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Productions and Operations Management Reviewer

Chapter 1

1. Operations managers are responsible for assessing consumer wants and needs and selling and promoting theorganization's goods or services.

FALSE

Operation managers are not responsible for promoting goods/services.

2. Often, the collective success or failure of companies' operations functions will impact the ability of a nationto compete with other nations.

TRUE

A nation is often only as competitive as its companies.

3. Companies are either producing goods or delivering services. This means that only one of the two types ofoperations management strategies are used.

FALSE

Most systems involve a blend of goods and services.

4. Operations, marketing, and finance function independently of each other in most organizations.FALSE

Operations, marketing and finance are naturally dependent upon one another.


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5. The greater the degree of customer involvement, the more challenging the design and management ofoperations.

TRUE

Greater customer involvement leads to more complexity in the design and management of operations.

6. Goods producing organizations are not involved in service activities.FALSE

Most systems involve a blend of goods and services.

7. Service operations require additional inventory because of the unpredictability of consumer demand.

FALSE

Service operations cannot use inventory as a hedge against unpredictable demand.

8. The value of outputs is measured by the prices customers are willing to pay for goods or services.

TRUE

Customers' willingness to pay for goods or services sets the value of these outputs.

9. The use of models will guarantee the best possible decisions.FALSE

Models are useful, but their use does not guarantee the best decisions.

10. People who work in the field of operations should have skills that include both knowledge and peopleskills.

TRUE

Operations management requires a blend of knowledge and people skills.


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11. Assembly lines achieved productivity but at the expense of standard of living.

FALSE

Productivity and standard of living go hand in hand.

12. The operations manager has primary responsibility for making operations system design decisions, such as

system capacity and location of facilities.FALSE

The operations manager plays a role in these decisions but is not primarily responsible for them.

13. The word "technology" is used only to refer to "information technology".

FALSE

Technology also refers to the technology involved in resource transformations.

14. ‘Value added' by definition is always a positive number since 'added' implies increases.

FALSE

Some transformations result in the output being worth less than the inputs.

15. Service often requires greater labor content, whereas manufacturing is more capital intensive.

TRUE

Service operations tend to be more labor-intensive than manufacturing.

16. Measurement of productivity in service is more straightforward than in manufacturing since it is notnecessary to take into account the cost of materials.

FALSE

Materials cost must be considered in services as well.

17. Special-purpose technology is a common way of offering increased customization in manufacturing orservices without taking on additional labor costs.

FALSE


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Special-purpose technology typically reduces costs through standardization.

18. One concern in the design of production systems is the degree of standardization.

TRUE

How standardized outputs will be is a critical consideration in the system design question.

19. Most people encounter operations only in profit-making organizations.

FALSE

Operations are also relevant to not-for-profit organizations such as the Red Cross.

20. Service involves a much higher degree of customer contact than manufacturing.

TRUE

Customer contact tends to be much higher in services.

21. A systems approach emphasizes interrelationships among subsystems, but its main theme is that the wholeis greater than the sum of its individual parts.

TRUE

Optimizing the performance of individual subsystems does not guarantee optimal performance from the overallsystem.

22. The Pareto phenomenon is one of the most important and pervasive concepts that can be applied at all levels

of management.TRUE

Pareto phenomena can be observed in a wide variety of organization situations.


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23. Operations managers, who usually use quantitative approaches, are not really concerned with ethicaldecision-making.

FALSE

Ethics issues are touching on all areas of management, including operations.

24. The optimal solutions produced by quantitative techniques should always be evaluated in terms of the largerframework.

TRUE

Quantitative techniques have limitations that must be considered.

25. Managers should most often rely on quantitative techniques for important decisions since quantitativeapproaches result in more accurate decisions.

FALSE

Just as other techniques do, quantitative techniques have limitations.

26. Many operations management decisions can be described as tradeoffs.

TRUE

Managing tradeoffs is the essence of operations management.

27. A systems approach means that we concentrate on efficiency within a subsystem and thereby assure overallefficiency.

FALSE

Subsystem efficiency doesn't necessarily translate into overall efficiency.

28. Prior to the Industrial Revolution, goods were produced primarily by craftsmen or their apprentices usingcustom made parts.

TRUE


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After the Industrial Revolution, more standardized approaches became common.

29. Elton Mayo's "Hawthorne Experiment" was the focal point of the Human Relations Movement, whichemphasized the importance of the human element in job design.

TRUE

The Hawthorne Experiments were the beginning of the Human Relations Movement.

30. Among Ford's many contributions was the introduction of mass production, using the concept ofinterchangeable parts and division of labor.

TRUE

Ford made mass production a practical success.

31. Operations management and marketing are the two functional areas that exist to support activities in otherfunctions such as accounting, finance, IT and human resources.

FALSE

Operations management and marketing are supported by these functions.

32. Lean production systems incorporate the advantages of both mass production and craft production.

TRUE

Lean production blends the best of both worlds.

33. As an abstraction of reality, a model is a simplified version of a real phenomenon.

TRUE

Models are valuable abstractions and simplifications of real, complex phenomena.

34. Lean production systems use a highly skilled work force and flexible equipment.

TRUE

Lean depends on a skilled workforce.

35. The lean production philosophy has been slow to be adopted in service industries.

FALSE


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Lean concepts apply very well in service industries.

36. Operations Management activities will be less important in the future because many firms are becomingservice-oriented operations rather than goods producing operations.

FALSE

Operations management is just as important for service firms.

37. A modern firm has two supply chain considerations - external links with suppliers and customers, and aninternal network of flows to and between the operations function itself.

TRUE

Supply chain considerations are at play both in and beyond the modern firm.

38. Operations management involves continuous decision-making; hopefully most decisions made will be:A. redundant B. minor in nature C. informed D. quantitative E. none of the above

Informed decisions incorporate all relevant issues.

39. A 'product package' consists of:A. the exterior wrapping B. the shipping container C. a combination of goods and services D. goods if a manufacturing organization E. customer relations if a service organization

Most firms are not pure service or manufacturing firms; they produce combinations of goods and services.


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40. Business organizations consist of three major functions which, ideally:A. support one another B. are mutually exclusive C. exist independently of each other D. function independently of each other E. do not interface with each other

Finance, Marketing and Operations are these major functions.

41. Which of the following is not a type of operations?A. goods production B. storage/transportation C. entertainment D. communication E. all the above involve operations

All of these involve taking inputs and transforming them.

42. Technology choices seldom affect:A. costs. B. productivity. C. union activity. D. quality. E. flexibility.

Union activity can affect a firm's technology choices, but not the other way around.

43. Measurements taken at various points in the transformation process for control purposes are called:A. plans B. directions C. controls D. feedback E. budgets


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Feedback is used to monitor and improve processes.

44. Budgeting, analysis of investment proposals, and provision of funds are activities associated with the _______ function.A. operation B. marketing

C. purchasing

D. finance E. internal audit

These are the primary tasks for the finance function.

45. Which one of the following would not generally be classified under the heading of transformation?A. assembling B. teaching C. staffing D. farming

E. consulting

Staffing doesn't involve transforming resources so much as it involves acquiring them.

46. Manufacturing work sent to other countries is called:A. downsized B. outsourced

C. internationalization

D. vertical integration

E. entrepreneurial ship

Outsourcing is increasingly a part of operations management.

47. Product design and process selection are examples of _______ decisions.A. financial B. tactical C. system design

D. system operation

E. forecasting These major decisions affect decisions made at lower levels.


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48. The responsibilities of the operations manager are:A. planning, organizing, staffing, procuring, and reviewing B. planning, organizing, staffing, directing, and controlling C. forecasting, designing, planning, organizing, and controlling D. forecasting, designing, operating, procuring, and reviewing E. designing and operating

The scope of operations management ranges across the organization.

49. Knowledge skills usually don't include:A. process knowledge B. accounting skills C. communication skills D. global knowledge E. all of the above

Communication skills generally are considered to be people skills.

50. Which of the following is not true about systems approach?A. A systems viewpoint is almost always beneficial in decision making. B. A systems approach emphasizes interrelationships among subsystems. C. A systems approach concentrates on efficiency within subsystems. D. A systems approach is essential whenever something is being redesigned or improved. E. All of the above are true.

Subsystem efficiency doesn't necessarily translate into overall system efficiency.

51. What is credited with gains in industrial productivity, increased standards of living and affordable products?A. personal computers B. the internet C. mass transportation D. assembly lines E. multi-level marketing

Mass production has played a prominent role in increasing standards of living.

52. Production systems with customized outputs typically have relatively:A. high volumes of output B. low unit costs C. high amount of specialized equipment D. fast work movement E. skilled workers Skilled workers are necessary to accommodate the variation inherent in customized outputs


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53. Which is not a significant difference between manufacturing and service operations?A. cost per unit B. uniformity of output C. labor content of jobs D. customer contact E. measurement of productivity

Manufacturing operations aren't necessarily more or less efficient than service operations.

54. Which of the following is not a characteristic of service operations?A. intangible output B. high customer contact C. high labor content D. easy measurement of productivity E. low uniformity of output

The productivity of service operations is often hard to measure.

55. Which of the following is a recent trend in business?A. pollution control B. total quality management C. supply chain management D. competition from foreign manufacturers E. technological change

Supply chain management involves a broader systemic view of operations.

56. Farming is an example of:A. an obsolete activity B. a virtual organization C. non-manufactured goods D. a growth industry E. customized manufacturing

Farm operations are not manufacturing operations.

57. Dealing with the fact that certain aspects of any management situation are more important than others is

called:A. analysis of tradeoffs

B. sensitivity analysis C. recognition of priorities D. analysis of variance E. decision table analysis


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Solutions tend to be targeted toward higher priority aspects of a situation.

58. The fact that a few improvements in a few key areas of operations will have more impact than manyimprovements in many other areas is consistent with the:A. Irwin phenomenon B. Pareto phenomenon

C. Stevenson phenomenon

D. Tellier phenomenon E. Adam Smith phenomenon

Pareto phenomena direct our attention to the difference between the "important few" and the "trivial many."

59. The process of comparing outputs to previously established standards to determine if corrective action is

needed is called:A. planning B. directing C. controlling D. budgeting E. disciplining

Controls are used to maintain performance.

60. Which of the following does not relate to system design?A. altering the system capacity

B. location of facilities C. inventory management D. selection and acquisition of equipment E. physical arrangement of departments


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Inventory management is a system operation decision area.

61. Taking a systems viewpoint with regard to operations in today's environment increasingly leadsdecision-makers to consider ______________ in response to the ___________.A. flexibility; pressure to be more efficient B. offshoring; need to promote domestic production

C. sustainability; threat of global warming

D. technology; impact of random variation E. forecasting; stabilization of demand

Sustainability is a relatively recent operations management consideration.

62. Some companies attempt to maximize the revenue they receive from fixed operating capacity by influencingdemands through price manipulation. This is an example of __________________:

A. Illegal price discrimination B. Collusion

C. Volume analysis D. Revenue management E. Outsourcing

Revenue management is used to ensure that as much perishable capacity as possible is sold.

63. Which of the following is not an ongoing trend in manufacturing?A. globalization B. quality improvement C. flexibility and agility D. mass production for greater economies of scale E. technological advances

Manufacturers are moving away from mass production for economies of scale.


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64. Which of the following is not a benefit of using models in decision making?A. They provide a standardized format for analyzing a problem. B. They serve as a consistent tool for evaluation. C. They are easy to use and less expensive than dealing with the actual situation. D. All of the above are benefits. E. None of the above is a benefit.

Models are useful tools for making decisions without confronting the actual situation with all of its complexity.

65. Modern firms increasingly rely on other firms to supply goods and services instead of doing these tasksthemselves. This increased level of _____________ is leading to increased emphasis on ____________management.A. outsourcing; supply chain B. offshoring; lean C. downsizing; total quality D. optimizing; inventory E. internationalization; interculturalSupply chain management takes a more systemic view of the firm, its

operations, and its suppliers.

66. Operations and sales are the two ________ functions in businesses.A. strategic B. tactical C. support

D. value-adding E. line

Others are support functions.

67. Marketing depends on operations for information regarding ___________.A. productivity B. lead time C. cash flow D. budgeting E. corporate intelligence

Marketing uses lead time information to make promises to customers.

68. Two widely used metrics of variation are the __________ and the _________.A. mean; standard deviation B. productivity ratio; correlation C. standardized mean; assignable deviation D. randomized mean; standardized deviation E. normal distribution; random variation

The mean and standard deviation summarize important facets regarding the variation in a process.


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69. Which of the following statements about variation is FALSE?A. Variation prevents a production process from being as efficient as it can be. B. Some variation can be prevented. C. Variation can either be assignable or random. D. Any variation makes a production process less productive. E. Random variation generally cannot be influenced by managers.

The choice to offer customers greater variety might increase variation but increase productivity even more.

70. Which of the following is essential to consider with respect to managing a process to meet demand?A. strategy B. demand forecasts C. capacity D. random variability E. all of the above

All of these play a role in determining whether a process can meet demand.

Chapter 2

1. Competitiveness doesn't include:

A. Productivity

B. Effectiveness C. Profitability D. Operations Strategy E. Operations Management

A company can be competitive relative to similar companies and still be unprofitable if the competitiveenvironment is inherently unprofitable.

2. Product design and choice of location are examples of _______ decisions.A. strategic B. tactical C. operational D. customer focused E. design

These decisions are made high in the hierarchy.


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3. Scheduling personnel is an example of an operations management:A. mission implementation B. operational decision C. organizational strategy D. functional strategy E. tactical decision

Staffing level decisions are made low in the hierarchy.

4. Productivity is expressed as:A. output plus input B. output minus input C. output times input D. output divided by input E. input divided by output

Productivity is the ratio of outputs to inputs.

5. In the 1970's and 1980's in the USA, organizations concentrated on:A. operations strategies B. improving quality C. marketing and financial strategies D. revising mission statements E. environmental issues

This led to U.S. firms being not very competitive with regard to their operations.

6. In the past, a significant reason why U.S. productivity was the highest in the world was high:A. agricultural productivity B. manufacturing productivity C. labor productivity D. savings productivity E. governmental productivity

This freed up resources for productivity improvements in a wide variety of non-agricultural sectors.


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7. Which of the following is not a factor that affects productivity?A. computer viruses B. design of the workspace C. use of the Internet D. standardizing processes E. wireless cellular phones

These don't lead to fundamental changes in operations.

8. Which of these factors affects productivity?A. methods and technology B. workers C. management D. a and b only E. all of the above

All of these affect productivity.

9. The manager of a carpet store is trying to determine the best installation crew size. He has tried various crewsizes with the results shown below. Based on productivity, what crew size do you recommend?

A. 2

B. 3

C. 4

10. The weekly output of a fabrication process is shown below together with data for labor and material inputs.Standard selling price is $125 per unit. Overhead is charged weekly at the rate of $1,500 plus .5 times directlabor cost. Assume a 40-hour week and an hourly wage of $16. Material cost is $10 per foot. What is theaverage multifactor productivity?

A. 1.463 B. 1.457 C. 1.431


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11. The Balanced Scorecard is a useful tool for helping managers translate their strategy into action in thefollowing areas:A. Sustainability; Flexibility; Efficiency; Technology B. Customers; Financial; Internal Business Processes; Learning and Growth C. Customization; Standardization; Efficiency; Effectiveness D. The Environment; The Community; Suppliers; Other Stakeholders E. Strategy; Tactics; Productivity; Profitability

These are the four core areas addressed by the Balanced Scorecard.

12. A firm pursuing a strategy based on customization and variety will tend to structure and manage its supplychain to accommodate more _____________ than a firm pursuing a strategy based on low-cost andhigh-volume.A. Variation B. Streamlined flow C. Quality D. Capacity E. Productivity

Customization and variety lead to variation that must be accommodated.

13. Unique attributes of firms that give them a competitive edge are called ______________.A. Functional strategies B. Balanced scorecards C. Supply chains D. Core competencies E. Sustainable initiatives

Core competencies can be translated into competitive advantage.

14. Years ago in the overnight delivery business, providing package tracking capability gave some firms acompetitive advantage. Now, all firms must offer this capability simply to be in this line of business. This is anexample of ______________ becoming ____________ over time.A. Tactical implications; strategic B. Strategic implications; tactical C. Order winners; order qualifiers D. Profitability factors; productivity factors E. Order qualifiers; order winners

What is an order qualifier and what is an order winner changes over time.

15. For firms competing in worldwide markets, conducting __________________ is more complex, since whatworks in one country or region might not work in another.A. Productivity analysis B. Environmental analysis C. Strategy implementation D. Sustainability analysis E. Growth forecasting


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Environmental analysis takes into account the relevant factors in the environment; there are more of these ifthere are more markets to consider.

16. Suppose a country's productivity last year was 84. If this country's productivity growth rate of 5% is to bemaintained, this means that this year's productivity will have to be _______.A. 88.2 B. 79.8 C. 82.8

D. 78.9

E. 4.2

Multiply 84 by 1.05 and then subtract 84 from this product.

17. The weekly output of a production process is shown below, together with data for labor and material inputs.The standard inventory value of the output is $125 per unit. Overhead is charged weekly at the rate of $1500 plus .5 times direct labor cost. Assume a 40-hour week and an hourly wage of $16. Material cost is $10 perrunning foot. What is the average multi-factor productivity for this process?

Feedback: Calculate the weekly multi-factor productivities and then average

18. A company has introduced a process improvement that reduces processing time for each unit, so that outputis increased by 25% with less material, but one additional worker required. Under the old process, five workerscould produce 60 units per hour. Labor costs are $12/hour, and material input was previously $16/unit. For thenew process, material is now $10/unit. Overhead is charged at 1.6 times direct labor cost. Finished units sell for$31 each. What increase in productivity is associated with the process improvement?


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Feedback: Divide the improvement in productivity by the productivity before the change. Multiply this ratio forthe percent increase.

Chapter 3

1. Forecasts based on judgment and opinion don't include

A. executive opinion B. salesperson opinion

C. second opinions D. customer surveys E. Delphi methods

2. In business, forecasts are the basis for:A. capacity planning B. budgeting C. sales planning

D. production planning

E. all of the above

3. Which of the following features would not generally be considered common to all forecasts?A. Assumption of a stable underlying causal system. B. Actual results will differ somewhat from predicted values. C. Historical data is available on which to base the forecast. D. Forecasts for groups of items tend to be more accurate than forecasts for individual items. E. Accuracy decreases as the time horizon increases.

4. Which of the following is not a step in the forecasting process?A. determine the purpose and level of detail required B. eliminate all assumptions C. establish a time horizon D. select a forecasting model E. monitor the forecast


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We cannot eliminate all assumptions.

5. Accuracy in forecasting can be measured by:A. MSE B. MRP C. MAPE D. MTM E. A & C

6. Which of the following would be an advantage of using a sales force composite to develop a demandforecast?A. The sales staff is least affected by changing customer needs. B. The sales force can easily distinguish between customer desires and probable actions. C. The sales staff is often aware of customers' future plans. D. Salespeople are least likely to be influenced by recent events. E. Salespeople are least likely to be biased by sales quotas.

Members of the sales force should be the organization's tightest link with its customers.

7. One reason for using the Delphi method in forecasting is to:A. avoid premature consensus (bandwagon effect) B. achieve a high degree of accuracy C. maintain accountability and responsibility D. be able to replicate results E. prevent hurt feelings

A bandwagon can lead to popular but potentially inaccurate viewpoints to drown up other importantconsiderations.

8. Gradual, long-term movement in time series data is called:A. seasonal variation B. cycles C. irregular variation D. trend E. random variation

9. The primary difference between seasonality and cycles is:A. the duration of the repeating patterns B. the magnitude of the variation C. the ability to attribute the pattern to a cause

D. the direction of the movement E. there are only 4 seasons but 30 cycles

Seasons happen within time periods; cycles happen across multiple time periods.


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10. Averaging techniques are useful for:A. distinguishing between random and non-random variations B. smoothing out fluctuations in time series C. eliminating historical data D. providing accuracy in forecasts E. average people

Smoothing helps forecasters see past random error.

11. Putting forecast errors into perspective is best done usingA. Exponential smoothing B. MAPE C. Linear decision rules D. MAD E. Hindsight

MAPE depicts the forecast error relative to what was being forecast.

12. Using the latest observation in a sequence of data to forecast the next period is:A. a moving average forecast B. a naive forecast C. an exponentially smoothed forecast D. an associative forecast E. regression analysis

Only one piece of information is needed for a naïve forecast.

13. For the data given below, what would the naive forecast be for the next period (period #5)?

A. 58 B. 62 C. 59.5 D. 61 E. cannot tell from the data given

Period 5's forecast would be period 4's demand.

14. Moving average forecasting techniques do the following:A. immediately reflect changing patterns in the data B. lead changes in the data C. smooth variations in the data D. operate independently of recent data E. assist when organizations are relocating

Variation is smoothed out in moving average forecasts.


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15. Which is not a characteristic of simple moving averages applied to time series data?A. smoothes random variations in the data B. weights each historical value equally C. lags changes in the data D. requires only last period's forecast and actual data E. smoothes real variations in the data

Simple moving averages can require several periods of data.

16. In order to increase the responsiveness of a forecast made using the moving average technique, the numberof data points in the average should be:A. decreased B. increased C. multiplied by a larger alpha D. multiplied by a smaller alpha E. eliminated if the MAD is greater than the MSE

Fewer data points result in more responsive moving averages.

17. A forecast based on the previous forecast plus a percentage of the forecast error is:A. a naive forecast B. a simple moving average forecast C. a centered moving average forecast D. an exponentially smoothed forecast E. an associative forecast

Exponential smoothing uses the previous forecast error to shape the next forecast.

18. Which is not a characteristic of exponential smoothing?A. smoothes random variations in the data B. weights each historical value equally C. has an easily altered weighting scheme D. has minimal data storage requirements E. smoothes real variations in the data

The most recent period of demand is given the most weight in exponential smoothing.

19. Which of the following smoothing constants would make an exponential smoothing forecast equivalent to a

naive forecast?A. 0 B. .01 C. .1 D. .5 E. 1.0

An alpha of 1.0 leads to a naïve forecast.


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20. Simple exponential smoothing is being used to forecast demand. The previous forecast of 66 turned out to be four units less than actual demand. The next forecast is 66.6, implying a smoothing constant, alpha, equal to:A. .01 B. .10 C. .15 D. .20 E. .60

A previous period's forecast error of 4 units would lead to a change in the forecast of 0.6 if alpha equals 0.15.

21. Given an actual demand of 59, a previous forecast of 64, and an alpha of .3, what would the forecast for thenext period be using simple exponential smoothing?A. 36.9 B. 57.5 C. 60.5 D. 62.5 E. 65.5

Multiply the previous period's forecast error (-5) by alpha and then add to the previous period's forecast.

22. Given an actual demand of 105, a forecasted value of 97, and an alpha of .4, the simple exponentialsmoothing forecast for the next period would be:A. 80.8 B. 93.8 C. 100.2 D. 101.8 E. 108.2

Multiply the previous period's forecast error (8) by alpha and then add to the previous period's forecast.

23. Which of the following possible values of alpha would cause exponential smoothing to respond the mostquickly to forecast errors?A. 0 B. .01 C. .05 D. .10 E. .15

Larger values for alpha correspond with greater responsiveness.

24. A manager uses the following equation to predict monthly receipts: Yt = 40,000 + 150t. What is the forecastfor July if t = 0 in April of this year?A. 40,450 B. 40,600 C. 42,100 D. 42,250 E. 42,400


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July would be period 3, so the forecast would be 40,000 + 150(3).

25. In trend-adjusted exponential smoothing, the trend adjusted forecast (TAF) consists of:A. an exponentially smoothed forecast and a smoothed trend factor B. an exponentially smoothed forecast and an estimated trend value C. the old forecast adjusted by a trend factor D. the old forecast and a smoothed trend factor E. a moving average and a trend factor

Both random variation and the trend are smoothed in TAF models.

26. In the "additive" model for seasonality, seasonality is expressed as a ______________ adjustment to theaverage; in the multiplicative model, seasonality is expressed as a __________ adjustment to the average.A. quantity, percentage B. percentage, quantity C. quantity, quantity

D. percentage, percentage E. qualitative, quantitative

The additive model simply adds a seasonal adjustment to the de-seasonalized forecast. The multiplicative modeladjusts the de-seasonalized forecast by multiplying it by a season relative or index.

27. Which technique is used in computing seasonal relatives?A. double smoothing B. Delphi C. Mean Squared Error (MSE) D. centered moving average E. exponential smoothing

The centered moving average serves as the basis point for computing seasonal relatives.

28. A persistent tendency for forecasts to be greater than or less than the actual values is called:A. bias B. tracking C. control charting D. positive correlation E. linear regression

Bias is a tendency for a forecast to be above (or below) the actual value

29. Which of the following might be used to indicate the cyclical component of a forecast?A. leading variable B. Mean Squared Error (MSE) C. Delphi technique D. exponential smoothing E. Mean Absolute Deviation (MAD)

Leading variables, such as births in a given year, can correlate strongly with long-term phenomena such ascycles.


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30. The primary method for associative forecasting is:A. sensitivity analysis B. regression analysis C. simple moving averages D. centered moving averages E. exponential smoothing

Regression analysis is an associative forecasting technique.

31. Which term most closely relates to associative forecasting techniques?A. time series data B. expert opinions C. Delphi technique D. consumer survey E. predictor variables

Associate techniques use predictor variables.

32. Which of the following corresponds to the predictor variable in simple linear regression?A. regression coefficient B. dependent variable C. independent variable D. predicted variable E. demand coefficient

Demand is the typical dependent variable when forecasting with simple linear regression.

33. Given the following historical data, what is the simple three-period moving average forecast for period 6?

A. 67 B. 115 C. 69 D. 68 E. 68.67

Average demand from periods 3 through 5.


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34. Given the following historical data and weights of .5, .3, and .2, what is the three-period moving averageforecast for period 5?

A. 144.20 B. 144.80 C. 144.67 D. 143.00

E. 144.00

Multiply period 4 (144) by .5, period 3 (148) by .3 and period 2 (142) by .2, then sum these products.

35. Use of simple linear regression analysis assumes that:A. Variations around the line are random. B. Deviations around the line are normally distributed. C. Predictions are to be made only within the range of observed values of the predictor variable. D. all of the above E. none of the above

A through C are important assumptions underpinning simple linear regression.

36. Given forecast errors of - 5, - 10, and +15, the MAD is:A. 0 B. 10 C. 30 D. 175

E. none of these

Convert these errors into absolute value, then average.

37. Develop a forecast for the next period, given the data below, using a 3-period moving average.

Feedback: Average demand from periods 3 through 5.

38 Consider the data below:

Using exponential smoothing with alpha = .2, and assuming the forecast for period 11 was 80, what would theforecast for period 14 be?


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Feedback: The forecast error in period 13 (2.84) is multiplied by the smoothing constant. This is then added tothe period 13 forecast to get the period 14 forecast

39. A manager is using the equation below to forecast quarterly demand for a product:

Yt = 6,000 + 80t where t = 0 at Q2 of last year Quarter relatives are Q1 = .6, Q2 = .9, Q3 = 1.3, and Q4 = 1.2. What forecasts are appropriate for the last quarter of this year and the first quarter of next year?

For Q4 of this year t = 6 For Q1 of next year t = 7

Feedback: Adjust de-seasonalized forecasts by the quarterly seasonal relatives.

40. Over the past five years, a firm's sales have averaged 250 units in the first quarter of each year, 100 units inthe second quarter, 150 units in the third quarter, and 300 units in the fourth quarter. What are appropriatequarter relatives for this firm's sales? Hint: Only minimal computations are necessary.

Feedback: Since a trend is not present, quarter relatives are simply a percentage of average, which is 200 units.

110. A manager has been using a certain technique to forecast demand for gallons of ice cream for the past six periods. Actual and predicted amounts are shown below. Would a naive forecast have produced better results?

Summary:

Current method: MAD = 3.67; MSE = 16.8; 2s Control limits 8.2 (OK)

Naïve method: MAD = 4.40; MSE = 30.0; 2s Control limits 11.0 (OK)

Feedback: Either MSE or MAD should be computed for both forecasts and compared. The demand data arestable. Therefore, the most recent value of the series is a reasonable forecast for the next period of time, justifying the naïve approach. The current method is slightly superior both in terms of MAD and MSE. Eithermethod would be considered in control.


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41. A new car dealer has been using exponential smoothing with an alpha of .2 to forecast weekly new car salesGiven the data below, would a naive forecast have provided greater accuracy? Explain. Assume an initialexponential forecast of 60 units in period 2 (i.e., no forecast for period 1).

Summary: Exponential method: MAD = 1.70; MSE = 6.34 Naïve method: MAD = 3.00; MSE = 15.25

Feedback: The exponential forecast method appears to be superior because both MAD and MSE are lower when

it is used.

42. A CPA firm has been using the following equation to predict annual demand for tax audits: Yt = 55 + 4tDemand for the past few years is shown below. Is the forecast performing as well as it might? Explain.

MSE = 11/6 and s = = 3.41. Even with 2s limits (6.82) all values are within the limits. It seems, then,that only random variation is present, so one might say that the forecast is working. One might also observe thatthe first three errors are negative and the last three are positive. Although six observations constitute a relativelysmall sample, it may be that the errors are cycling, and this would be a matter to investigate with additionaldata.

Feedback: Either a tracking signal or a control chart is called for. To conduct these assessments, it is necessaryto generate the forecasts so that errors can be determined.

43. Use linear regression to develop a predictive model for demand for burial vaults based on sales of caskets.

A) Develop the regression equation.


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Feedback: Least-squares estimation leads to this regression equation.

44. Given the following data, develop a linear regression model for y as a function of x.

Feedback: Least-squares estimation leads to this regression equation.

45. A manager uses this equation to predict demand: Yt = 20 + 4t. Over the past 8 periods, demand has been as

follows. Are the results acceptable? Explain.

Feedback: s = 2.10; 2s control limits are 4.20. Although all values are within control limits, the errors may beexhibiting cyclical patterns, which would suggest nonrandomness.

AACSB: Analytic

Blooms: Apply

Difficulty: Medium

Learning Objective: 03-07 Compare two ways of evaluating and controlling forecasts.

Stevenson - Chapter 03 #121

Topic Area: Approaches to Forecasting


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The president of State University wants to forecast student enrollments for this academic year based on thefollowing historical data:

Stevenson - Chapter 03

46. What is the forecast for this year using a four-year simple moving average?A. 18,750 B. 19,500 C. 21,000 D. 22,650 E. 22,800

Average enrollment from the last four years.

47. What is the forecast for this year using exponential smoothing with alpha = 0.5, if the forecast for two yearsago was 16,000?A. 18,750 B. 19,500 C. 21,000 D. 22,650 E. 22,800

Multiply last year's forecast error by the smoothing constant, then add that adjusted error to last year's forecastto get this year's forecast.


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48. What is the forecast for this year using the least squares trend line for these data?A. 18,750 B. 19,500 C. 21,000 D. 22,650 E. 22,800

Treat 5 years ago as period 0.

49. What is the forecast for this year using trend adjusted (double) smoothing with alpha = .05 and beta = 0.3, ifthe forecast for last year was 21,000, the forecast for two years ago was 19,000, and the trend estimate for lastyear's forecast was 1,500?A. 18,750 B. 19,500

C. 21,000

D. 22,650

E. 22,800

Smooth both the trend and the forecast to get this year's forecast.

The business analyst for Video Sales, Inc. wants to forecast this year's demand for DVD decoders based on thefollowing historical data:

Stevenson - Chapter 03


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50. What is the forecast for this year using the naive approach?A. 163 B. 180 C. 300 D. 420 E. 510

This year's forecast is last year's demand.

51. What is the forecast for this year using a three-year weighted moving average with weights of .5, .3, and .2?A. 163 B. 180 C. 300 D. 420 E. 510

Multiply the last three periods of demand by the appropriate weights, then sum the resulting products.


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52. What is the forecast for this year using exponential smoothing with alpha = .4, if the forecast for two yearsago was 750?A. 163 B. 180 C. 300 D. 420 E. 510

First formulate last year's exponentially smoothed forecast, then proceed.

53.. What is the forecast for this year using the least squares trend line for these data?A. 163 B. 180 C. 300 D. 420 E. 510

Treat the earliest period of demand as period 0, then formulate least squares estimates and proceed.

54. What is the forecast for this year using trend adjusted (double) smoothing with alpha = 0.3 and beta = 0.2, ifthe forecast for last year was 310, the forecast for two years ago was 430, and the trend estimate for last year'sforecast was -150?A. 162.4 B. 180.3 C. 301.4 D. 403.2

E. 510.0

Smooth both the trend and the forecast to get this year's forecast.

55. Which of the following mechanisms for enhancing profitability is most likely to result from improving shortterm forecast performance?A. increased inventory B. reduced flexibility C. higher-quality products D. greater customer satisfaction E. greater seasonality

Short term forecast performance won't necessarily improve product quality, but it does allow firms to bettersatisfy their customers.


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56. Which of the following changes would tend to shorten the time frame for short term forecasting?A. bringing greater variety into the product mix B. increasing the flexibility of the production system C. ordering fewer weather-sensitive items D. adding more special-purpose equipment E. none of the above

An increasingly flexible system permits more rapid responses to changing conditions, which allows firms to

reduce their forecast time horizon.

57. Which of the following helps improve supply chain forecasting performance?A. contracts that require supply chain members to formulate long term forecasts B. penalties for supply chain members that adjust forecasts C. sharing forecasts or demand data across the supply chain D. increasing lead times for critical supply chain members E. increasing the number of suppliers at critical junctures in the supply chain

.Sharing forecasts and/or demand data is a means of ensuring that the supply chain's overall forecast is asaccurate as it can be.

58. Inaccuracies in forecasts along the supply chain lead to:A. shortages or excesses of materials B. reduced customer service C. excess capacity D. missed deliveries E. all of the above

Firms often react to poor forecasts by building safety capacity into their systems.

59. Which of the following is the most valuable piece of information the sales force can bring into forecastingsituations?A. what customers are most likely to do in the future B. what customers most want to do in the future C. what customers' future plans are D. whether customers are satisfied or dissatisfied with their performance in the past E. what the salesperson's appropriate sales quota should be

Knowledge about what customers are likely to do is much more valuable than information regarding whatcustomers plan or want to do.

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