Fall 2021_Mgt 2070: Midterm Review Questions

A company has introduced a process improvement that reduces processing time for each unit, so that output,
which had been at 80 units per hour, increases by 25%. The cost for material per unit of output has dropped
from $30 per unit of output to $20 per unit of output. Labor costs have remined constant at $25 per worker
per hour. However, the new process requires seven workers, which is two more than needed previously.
Overhead is charged at 1.6 times direct labor cost. Finished units sell for $40 each.

1. What are the labor productivity (in units/Worker/hour) before the process Improvement and the
total factor Productivity (in dollars of output per dollars of input) after the process improvement
respectively?

A. 17-1.54
B. 16-1.63
C. 16-1.72
D. 17-1.63
E. 15-1.43

/
a) Labor Productivity 16
/

$ ∗$
b) Multi Factor Productivity 1.63
$ ∗$ . ∗ ∗$ ∗$

2. The Elora Bowling Ball Company has designed a new bowling pin, which they have aptly named
the Strike Master I. Production data has shown an 89% yield on recent runs with only 55% of off
spec output suitable for rework. If the initial starting quantity is 500 bowling balls, the direct
manufacturing charge is $65 and the cost to rework their off–spec production is $32, what is their
current QPR and current product cost per unit respectively?

A. 1.5- 69.32
B. 1.42-70.42
C. 2.20-79.32
D. 2.43-79.32
E. 1.37-70.42

𝑃𝑟𝑜𝑑𝑢𝑐𝑡 𝑌𝑖𝑒𝑙𝑑
𝑄𝑃𝑅 ∗ 100
𝐼𝑛𝑝𝑢𝑡 𝑝𝑟𝑜𝑐𝑒𝑠𝑠𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 𝑟𝑒𝑤𝑜𝑟𝑘𝑒𝑑 𝑢𝑛𝑖𝑡𝑠 𝑟𝑒𝑤𝑜𝑟𝑘 𝑐𝑜𝑠𝑡

500 .89 500 .11 .55

𝑄𝑃𝑅 ∗ 100 1.42
500 65 500 .011 55 32

direct costs (from the initial run)+ costs to rework product

Cost per Unit =
∗ ∗ .
= 70.42
.

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Fall 2021_Mgt 2070: Midterm Review Questions

3. Backwoods Canada, Inc. produces expensive water-repellent, down-lined parkas. The company
implemented a total quality-management program in 2008. Following are quality-related
accounting data that have been accumulated for the three-year period after the program's start.

2009 2010 2011

Prevention $3.2 10.7 28.3
Appraisal 26.3 29.2 30.6
Internal failure 39.1 51.3 48.4
External failure 118.6 110.5 105.2
Total quality Cost (000s) 187.2 201.7 212.5
Sales (000s) $2,700.6 2,690.1 2,705.3
Manufacturing cost (000s) 420.9 423.4 424.7

Making comparisons from one year to the next based on the quality-sale index and quality-cost index
showing that:

A. Both quality indices increase from 2009 to 2011

B. The company had the maximum quality-sale index in 2010
C. Both quality indices decrease from 2009 to 2011
D. The company had the minimum quality-cost index in 2010
E. The company had the minimum quality-sale index in 2011

𝑇𝑜𝑡𝑎𝑙 𝑄𝑢𝑎𝑙𝑖𝑡𝑦 𝐶𝑜𝑠𝑡𝑠

𝑄𝑢𝑎𝑙𝑖𝑡𝑦 𝑆𝑎𝑙𝑒 𝐼𝑛𝑑𝑒𝑥 ∗ 100
𝑆𝑎𝑙𝑒𝑠
𝑇𝑜𝑡𝑎𝑙 𝑄𝑢𝑎𝑙𝑖𝑡𝑦 𝐶𝑜𝑠𝑡𝑠
𝑄𝑢𝑎𝑙𝑖𝑡𝑦 𝐶𝑜𝑠𝑡 𝐼𝑛𝑑𝑒𝑥 ∗ 100
𝐶𝑜𝑠𝑡

2009 2010 2011

Total quality Cost (000s) 187.2 201.7 212.5
Sales (000s) $2,700.6 2,690.1 2,705.3
Manufacturing cost (000s) 420.9 423.4 424.7
Quality Sales Index 6.93 7.5 7.73
Quality Cost index 44.48 47.64 50.04

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Fall 2021_Mgt 2070: Midterm Review Questions

4. The Elora Brush Company (EBC) produces paint brushes for the commercial house painting
industry. Their latest model, the Super Swiper, must go through a four-stage sequential
manufacturing process with individual yields of 0.95, 0.92, 0.87 & 0.95, respectively. If one of
their best distributors has ordered 500 brushes that must be manufactured and ready for shipment
by the end of the month, how many brushes must be started at the beginning the production cycle?

A. 500
B. 586
C. 577
D. 692
E. 614
Product Yield = INS*G1%*G2%*G3%*G4%
500 = INS*0.95*0.92*0.87*0.95
INS=692

5. The Elora Cake Company takes quality control of its products seriously. Historical data on the
weight of their Double Chocolate Pyramid Cake has a grand mean of 875 grams with a standard
deviation of 45 grams. If they typically take 25-cake samples, what three sigma control limits
should they be using as part of their ongoing QC programme?

A. {902, 848}
B. {915, 867}
C. {858, 812}
D. {875, 830}
E. None of the above

𝑥̿ 875 n=25 𝜎 45

𝜎 45
𝜎 ̅ 9
√𝑛 √25

LCL = 𝑥̿ 𝑧𝜎 ̅ 875 – 3(9) =848

UCL = 𝑥̿ 𝑧𝜎 ̅ = 875 + 3(9) =902

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Fall 2021_Mgt 2070: Midterm Review Questions

A design engineer wants to construct a sample mean chart for controlling the service life of one of the
types of light bulbs her company produces. She knows from numerous previous observations over many
years that the output of the process is normally distributed with a mean service life of 400 hours and a
standard deviation of 20 hours. On four recent production batches, she tested service life on random
samples of ten bulbs.

6. What is the standard deviation of sampling distribution of sample mean?

A. 6.46
B. 5.86
C. 5.77
D. 6.32
E. 6.14

𝑥̿ 400 n=10 𝜎 45

𝜎 20
𝜎 ̅ 6.32
√𝑛 √10

7. 4.What are the lower control limit (LCL) and upper control limit (UCL) of the control chart
(Z=3)?

A. {371.1, 428.78}
B. {381.04, 418.96}
C. {382.69, 417.31}
D. {381.58, 418.42}
E. None of the above

LCL = 𝑥̿ 𝑧𝜎 ̅ = 400– 3(6.32) = 381.04

UCL = 𝑥̿ 𝑧𝜎 ̅ = 400 + 3(6.32) =418.96

8. A company selects 100 light bulbs every day for 30 days from its production process. If 500
defective light bulbs are found in the sampled bulbs, what are the standard deviation and 3-
sigma upper control limit respectively?

A. 0.053-0.326
B. 0.045-0.302
C. 0.037-0.278
D. 0.021-0.23
E. 0.055-0.332

𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑓𝑒𝑐𝑡𝑖𝑣𝑒𝑠 500

𝑃 ≅ 0.166
𝑇𝑜𝑡𝑎𝑙 𝑆𝑎𝑚𝑝𝑙𝑒 𝑂𝑏𝑠𝑒𝑟𝑣𝑎𝑡𝑖𝑜𝑛𝑠 30 ∗ 100
. .
𝜎 √0.00138 ≅0.037

UCL = 𝑃 𝑧𝜎 = 0.166+ 3(0.037) =0.278

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Fall 2021_Mgt 2070: Midterm Review Questions

9. The Salem Bread Company has decided to introduce a new line of bread crumbs that have been
designed to be sold in 450-gram plastic bags with a tolerance of 25 grams. If the process has
been monitored and found to have an average net weight of 427.6 grams with a standard
deviation of 6.8 grams, what is the capability ratio and is the current process capable?

A. 1.02- yes
B. 1.22- yes
C. 1.02-No
D. 1.22-No
E. 0.77-No

Process capability ratio = 𝐶

𝐶 = (Upper design spec – Lower design spec)/6σ

𝐶 = ((450+25) – (450 – 25))/6(6.8)
𝐶 = (475-425)/40.8
𝐶 = 1.225>1

Process Capability Index = 𝐶

̿ ̿
𝐶 = min ,
. .
𝐶 = min ,
. .
𝐶 = min [0.127, 2.32]
𝐶 = 0.127<1

Although 𝐶 >1, but 𝐶 <1 shows that the process mean has moved away from the mean (towards
lower specification limit) and thus it will generate defects. This means that the process is not
meeting the design specifications and thus it is not capable.

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Fall 2021_Mgt 2070: Midterm Review Questions

10. Peter Paddler, the owner of the Salem Canoe Company, needs to relocate the firm and must
decide between five different locations. If canoes sell for $ 285 each and given the information
in the following table, where should he locate, if forecast demand is 495 canoes?

Location Fixed Cost Variable Cost

A 45,000 80

B 57,500 40

C 62,500 35

D 54,500 85

E 60,000 38

A. A
B. B
C. C
D. D
E. E

Step 1: Sort/place the options in accordance to fixed costs from minimum to maximum:

Location Fixed Cost Variable Cost

A 45,000 80
D 54,500 85
B 57,500 40
E 60,000 38
C 62,500 35

Step 2: By comparing the fixed cost and variable cost of different options, select the option that there is
no reason to be preferred over the other options (here Option D) and then remove it.
[The convention is that when the fixed cost increases, the variable cost should decrease: For option D,
both fixed and variable costs are increased in comparison to option A]

Location Fixed Cost Variable Cost

A 45,000 80
D 54,500 85
B 57,500 40
E 60,000 38
C 62,500 35

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Fall 2021_Mgt 2070: Midterm Review Questions

Step 3: Write the equations:

Starting from top to down, for every available option (A, B, E, C), compare the option with the remaining
option/options with the higher fixed cost in the table:

 Option A: Comparison with B, E, and C

 𝑇𝐶 𝑇𝐶 45000 80𝑉 57500 40𝑉 𝑉 312.5

V 312.5 (1) A
V 312.5 B

 𝑇𝐶 𝑇𝐶 45000 80𝑉 60000 38𝑉 𝑉 357.10

V 357.1 (2) A
V 357.1 E

 𝑇𝐶 𝑇𝐶 45000 80𝑉 62500 35𝑉 𝑉 388.9

V 388.9 (3) A
V 388.9 C

From (1-3 ), we conclude that for V 312.5 option A is always better: we choose Machine A.

 Option B: Comparison with E and C

 𝑇𝐶 𝑇𝐶 57500 40𝑉 60000 38𝑉 𝑉 1250

V 1250 (4) B
V 1250 E

 𝑇𝐶 𝑇𝐶 57500 40𝑉 62500 35𝑉 𝑉 1000

V 1000 (5) B
V 1000 (6) C

From (4-5), we conclude that for 312.5 V 1000 option B is always better: we choose Machine B.

 Option E: Comparison with C

 𝑇𝐶 𝑇𝐶 60000 38𝑉 62500 35𝑉 𝑉 833.33

V 833.33 E
V 833.33 (7) C

For V 1000, we are certain that either option A (for V 312.5 ) or option B (for 312.5 V 1000 ) is the
best option.
Moreover, from (6-7) we can conclude that when V 1000 option C is the best one.

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Fall 2021_Mgt 2070: Midterm Review Questions

Thus, there is no area under which E can be considered as the best option.

Therefore:

𝑉 312.5 A
312.5 𝑉 1000 B
𝑉 1000 C

Since the demand is equal to 495, option B works best for the company.

11. The Elora Furniture Company (EFC) sells kitchen tables and chairs. The operations manager
has a choice of either making the chairs they need or simply buying them from the Alma Chair
Factory at a cost of $ 25 each. Demand is 35,000 chairs per year. EFC has estimated variable
costs of producing their own chairs at $ 5 each. In addition, they will need to invest $ 525,000
annually for fixed costs. At what point are they indifferent between buying the chairs from
Alma and making them themselves?

A. 26,250
B. 25,600
C. 14,585
D. 12,550
E. None of the Above

𝑇𝐶 𝑇𝐶 525000 5𝑉 25𝑣

Break-even volume =v= 525,000 ÷ (25 – 5) = 26250 units

V 26250 buy
V 26250 Make

 With 35000 units of demand it is more profitable to make

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Fall 2021_Mgt 2070: Midterm Review Questions

12. Process time at a workstation is monitored using sample means and range control charts. Six
samples of 6 observations have been obtained and the sample mean and ranges have been
calculated and reported in minutes. They are shown in the table below. What are the upper
control limits for the 𝑋 chart, the lower limit for the R-chart and is process is in control?

Sample 1 2 3 4 5 6
Mean 3.06 3.15 3.11 3.13 3.06 3.09
Range .42 .50 .41 .46 .46 .45

A. 3.317, 0, No
B. 2.883,0, Yes
C. 3.317, 0, Yes
D. 2.883,0.5018, Yes
E. 3.317, 0.5018, No

. . . . . .
𝑥̿ 3.1
. . . . . .
𝑅 0.45

Number of observations in each sample=n=6 𝐴 .483

𝑈𝐶𝐿 ̅ 𝑥̿ 𝐴 𝑅
𝐿𝐶𝐿 ̅ 𝑥̿ 𝐴 𝑅
𝐿𝐶𝐿 ̅ = 3.1 – (0.45) (.483) ≈ 3.317

𝑈𝐶𝐿 ̅ = 3.1 + (0.45) (.483) ≈ 2.88

n=6
𝐷 0
𝐷 2.004

𝑈𝐶𝐿 𝐷 𝑅
𝐿𝐶𝐿 𝐷 𝑅

𝐿𝐶𝐿 = 0 (0.45) =0

𝑈𝐶𝐿 = 2.004 (0.45) = 0.9018

The sample means are within the control limits for 𝑥̅ chart
The sample ranges are within the control limits for R chart

So, the process appears to be in control.

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Fall 2021_Mgt 2070: Midterm Review Questions

13. If the average proportion of good product from some process is 92% and the sample size is 49,
what is the standard deviation of the appropriate quality control method?

A. 0.0105
B. 0.0387
C. 0.1155
D. 1.1150
E. None of the above

100-.92=.18 → The proportion of defective products

𝑝̅ 1 𝑝̅ . 18 . 92
𝜎 0.0387
𝑛 49

14. Consider a production process producing cars. The quality manager has taken 25 individual cars
and counted the number of defects on each of them. The total number of defects reported across
the 25 samples is 200. The UCL for a control chart constructed using 3-sigma is:

A. 8.05
B. 10.83
C. 13.66
D. 16.49
E. 17.25

𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑓𝑒𝑐𝑡𝑖𝑣𝑒𝑠 200

𝑐̅ 8
𝑇𝑜𝑡𝑎𝑙 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑆𝑎𝑚𝑝𝑙𝑒 25
𝜎 √𝑐̅=√8 ≅ 2.83

𝑈𝐶𝐿 𝑐̅ 𝑧𝜎 =8+2.83 ∗ 3 16.49

𝐿𝐶𝐿 𝑐̅ 𝑧𝜎 =8-2.83 ∗ 3 .49 𝐿𝐶𝐿 0

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Fall 2021_Mgt 2070: Midterm Review Questions

Peter Paddler, the owner of the Salem Canoe Company, wants to buy a new machine for one of
its production lines and must decide between five different machines. Given the information in
the following table:

Machine Fixed Cost Variable Cost

A 4,000 30
B 4,100 33
C 4,450 27
D 4,900 24
E 5,350 21

15. Over what range of production machine A would be the best choice?

A. 0-150
B. >150
C. 100-200
D. 200-250
E. None of the above

A 4,000 30
B 4,100 33
C 4,450 27
D 4,900 24
E 5,350 21

Step 1: sort from minimum to maximum based on fixed cost

Step 2: By comparing the fixed cost and variable cost of different options, select the option that there is
no reason to be preferred over other options (here Option B) and remove it.

Step 3: Write the equations:

 𝑇𝐶 𝑇𝐶 4000 30𝑉 4450 27𝑉 𝑉 150

V 150 A
V 150 C

 𝑇𝐶 𝑇𝐶 4450 27𝑉 4900 24𝑉 𝑉 150

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Fall 2021_Mgt 2070: Midterm Review Questions

V 150 C
V 150 D

 𝑇𝐶 𝑇𝐶 4900 24𝑉 5350 21𝑉 𝑉 150

V 150 D
V 150 E

⟹ V 150 A, C or D

Machine A has the minimum fixed cost

V 150 C, D or E

Machine E has the minimum variable cost

So, machine A would be the best choice for V 150

Note:

The results are unchanged if you would follow the approach used in question 10. However, you
need to solve more equations (6 equations).
In this question, moving from top to down in the table, fixed cost and variable cost experience an
equal increase (here +450) and decrease (here -3) respectively. So, all the break-even points are same. In
other words, all the options have an identical indifference point.

This shows that this approach is only applicable under certain conditions:
if after sorting the options (in accordance to fixed costs from minimum to maximum) and removing
the undesirable one, you face with a number of options that (by moving from top to down) experience an
equal increase in their fixed cost and an equal decrease in their variable cost, then the above approach
works.

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