Tax Remedies Summary

Since
1977
MANAGEMENT ADVISORY SERVICES BOBADILLA/TAN/URO

MAS. Quantitative Techniques MAY 2011
What is Quantitative Analysis?
Quantitative analysis is a scientific approach to

managerial decision making whereby raw data
are processed and manipulated resulting in
meaningful information
Quantitative Meaningful
Raw Data Analysis Information
I. Rationale in using quantitative techniques
1 . Quantitative analysis is
a. Logical approach to decision making
b. Rational approach to decision making
c. Scientific approach to decision making
d. All of the above
Answer :d
Also known as Management Science, Decision Science, Operations Research. Was
pioneered by Frederick W. Taylor , a military researcher in the 1900.
2 . The first step in quantitative analysis
a. Defining a problem
b. Developing a model
c. Acquiring input data
d. Developing a solution
Answer :a
Other steps in order:
1. Testing the solution.
2. Analyzing the result.
3. Implementing the result.
The Quantitative Analysis Approach
Defining the Problem
Developing a Model
Acquiring Input Data
Developing a Solution
Testing the Solution
Analyzing the Results
Figure 1.1 Implementing the Results

How To Develop a Quantitative
Analysis Model
 An important part of the quantitative

analysis approach
 Let’s look at a simple mathematical
model of profit
Profit = Revenue – Expenses

Analysis Model
Expenses can be represented as the sum of fixed and
variable costs and variable costs are the product of
unit costs times the number of units
Profit = Revenue – (Fixed cost + Variable cost)
Profit = (Selling price per unit)(number of units
sold) – [Fixed cost + (Variable costs per
unit)(Number of units sold)]
Profit = sX – [f + vX]
Profit = sX – f – vX
where
s = selling price per unit v = variable cost per unit
f = fixed cost X = number of units sold
Analysis Model
Expenses can be represented as the sum of fixed and
variable costs and variable costs are the
The parameters product
of this modelof
unit costs times the number
are f, v,of units
and s as these are the
inputscost
Profit = Revenue – (Fixed inherent in the cost)
+ Variable model
Profit = (Selling priceThe
perdecision variable
unit)(number of of
units
sold) – [Fixedinterest
cost +is(Variable
X costs per
unit)(Number of units sold)]
Profit = sX – [f + vX]
Profit = sX – f – vX
where
s = selling price per unit v = variable cost per unit
f = fixed cost X = number of units sold
Pritchett’s Precious Time Pieces
The company buys, sells, and repairs old clocks.
Rebuilt springs sell for $10 per unit. Fixed cost of
equipment to build springs is $1,000. Variable cost
for spring material is $5 per unit.
s = 10 f = 1,000 v=5
Number of spring sets sold = X
Profits = sX – f – vX
If sales = 0, profits = –$1,000

If sales = 1,000, profits = [(10)(1,000) – 1,000 – (5)(1,000)]
= $4,000
Pritchett’s Precious Time Pieces
Companies are often interested in their break-even
point (BEP). The BEP is the number of units sold
that will result in $0 profit.
0 = sX – f – vX, or 0 = (s – v)X – f
Solving for X, we have

f = (s – v)X
f
X= s–v
Fixed cost
BEP = (Selling price per unit) – (Variable cost per unit)
3 . An input such as variable cost per unit and fixed costs for a model is an example of
a(an)
a. Decision variable
b. parameter
c. algorithm
d. Stochastic variable
Answer :b
4 . A deterministic model is one in which
a. There is some uncertainty about the parameters used in the model
b. There is a measurable outcome
c. There is complete certainty about the parameters used in the model
d. Outcome is known
Answer :c
An example of deterministic model is costs reduction if we reduce operating costs by 20%
then the value is known for certain.
Probabilistic model – is the model with chance or risks. An example would be if we market a
new product there is a 60% chance that the market wil be favorable and 40% chance
5 . Algorithm means
a. Based from Algebra
b. Was named after the mathematician Algo
c. Series of steps or procedures to be repeated
d. All of the above
Answer :d
6 . An analysis to determine how a solution would change if there are changes in the model
or input data is called
a. Sensitivity or postoptimality analysis
b. Schematic analysis
c. Iconic analysis
d. All of the above
Answer :a
BEP = FC/CMU =P300,000/P60= 5,000 Units, what happens to BEP if fixed costs doubles.
P600,000/P60=10,000 Units, all things being equal BEP wil increase if fixed costs increase.
I . Decision theory And Decision Making Under Certainty, Risk and Uncertainty
7 . Decision theory is
a. An analytical and systematic approach to decision making.
b. A non-mathematical analysis of decision making
c. Is the study of historical decision
d. None of the above
Answer :a
8 . A good decision should be
a. Based on logic
b. Considers all available data
c. Considers all possible alternatives
d. All of the above
Answer :d
9 . What is the second step in decision theory
a. Define the problem
b. List possible alternatives
c. Identify possible outcomes or state of nature
d. List profit or payoff of each combination of alternatives or oucomes
Answer :b
1. Select one of the mathematical decision theory models.
2. Apply the model and make your decision.
10 . Is a type of decision making environment
a. Decision making under certainty
b. Decision making under risk
c. Decision making under uncertainty
d. All of the above
Answer :d
Decision making under certainty
If you win the lotto and invest at a 6% government security then you are certain
that the return will be 6% of your investment.
Decision making under risk
If you win the lotto and go to the casino and play blackjack with all your
winnings there is a 50% chance of doubling the earnings and a 50% risk of
loosing all the earnings. Here there are two possible outcomes and their
probabilities are known.
Decision making under uncertainty
Deciding to embark on a new business endeavor without any feasibility studies.
11 . Expected monetary value is defined. as
a. The expected value or mean value
b. The long run average value that would result if the decision is
repeated a large number of times
c. Sum of the possible payoffs of the alternative, each weighted by that
payoff occuring
d. All of the above
12 . Mr. Chubby Lito is considering putting a photocopying shop near a university. He
has the option to open a small shop, medium shop or no shop at all. The market
for the shop can be good, average or bad and the probabilities are .20 for good
market, .50 for average and .30 for bad market. The profit and loss for each option
are shown in the table below. What action will you recommend?
Alternative Good Market(P) Average Bad Market(P)

Market(P)
Small Shop 75,000 25,000 -40,000
Medium Shop 100,000 35,000 -60,000
No Shop 0 0 0
a. Put up a small shop
b. Put up a medium shop
c. Don’t put up the shop
d. All actions will be the same so any action will do
Answer :b
State of Nature Good Average Bad Total
EMV - Small shop
Payoff 75,000 25,000 (40,000)
Probability 20% 50% 30%
Expected Monetary Value 15,000 12,500 (12,000) 15,500

EMV - Medium shop
Payoff 100,000 35,000 (60,000)
Expected Monetary Value 20,000 17,500 (18,000) 19,500

EMV - No shop
Payoff - - -
13 Dough and Ghull are two friends who wants to put up a
. business that will provide word processing services to students
who are doing their term paper and other academic
requirements. They have identified three strategies. Strategy 1,
involves purchasing expensive computer and laser printer
which could give them P10,000 net profit over the next two
years if the market is favorable. If however, the market is
unfavorable they can lose P8,000. Strategy 2 on the other hand
will require purchase of cheaper computer and printer which
could result to a P8,000 profit and P4,000 lose for the same
period. Finally, strategy 3 is to do nothing. Dough is a risk taker
while Ghull is risk averse. What type of decision criteria should
Dough use?
a. Maximax
b. Maximin
c. Equallly likely approach
d. Any type would do
Answer :a
Maximax is an optimistic decision approach which selects the
highest or maximum value.
Decision Table for 13 to 18
State of Nature
Strategy Favorable Market Unfavorable Market Average
1 10,000 (8,000) 1,000
2 8,000 (4,000) 2,000
3 - - -
10,000+(8,000)/2 8,000+(4,000)/2
while Ghull is risk averse. What strategy would Dough choose?
a. Strategy 1
b. Strategy 2
c. Strategy 3
d. Any strategy will do
Answer :a Strategy 1 gives maximum value at P10,000

State of Nature
1 10,000 (8,000) 1,000
2 8,000 (4,000) 2,000
3 - - -
10,000+(8,000)/2 8,000+(4,000)/2
while Ghull is risk averse. What type of decision criteria should
Ghull use?
a. Maximax
b. Maximin
Answer :b Maximin is a pessimistic decision approach it selects the

minimum of the worst outcome in this case its 0.
State of Nature
1 10,000 (8,000) 1,000
2 8,000 (4,000) 2,000
3 - - -
10,000+(8,000)/2 8,000+(4,000)/2
while Ghull is risk averse. What strategy would Ghull choose?
a. Strategy 1
b. Strategy 2
c. Strategy 3
Answer :c Strategy 3 is equal to zero which is better than –P8,000 an

–P4,000 of Strategey 1 and 2 respectively.
State of Nature
1 10,000 (8,000) 1,000
2 8,000 (4,000) 2,000
3 - - -
10,000+(8,000)/2 8,000+(4,000)/2
period. Finally, strategy 3 is to do nothing. If Dough and Ghull
were indifferent to risk,. What criteria would they choose?
a. Maximax
b. Maximin
Answer :c This approach selects the alternative that maximizes the

averages
State of Nature
1 10,000 (8,000) 1,000
2 8,000 (4,000) 2,000
3 - - -
10,000+(8,000)/2 8,000+(4,000)/2
period. Finally, strategy 3 is to do nothing. If Dough and Ghull
were indifferent to risk,. What strategy would they choose?
a. Strategy 1
b. Strategy 2
c. Strategy 3
Answer :b
State of Nature
1 10,000 (8,000) 1,000
2 8,000 (4,000) 2,000
3 - - -
10,000+(8,000)/2 8,000+(4,000)/2
19 An optimistic decision making which choose the alternative
. with the highest return
a. Maximax
b. Maximin
d. Marginal analysis
Answer :a
20 An outcome or occurrence over which the decision maker has
. little or no control
a. State of nature
b. Opportunity loss or regret
c. Minimax regret
d. Expected value of perfect information
Answer :a
21 A graphical presentation of a decision is a
.
a. Decision tree
b. Decision matrix
c. Decision table
d. Decision graph
22 A decision node is represented by
.
a.
b.
c.
d. None of the above
Answer :a
b. is a state of the nature node c. is a flowcharting symbol for
decision
23 Which of the following is a step in a decision tree
.
a. Define the problem
b. Structure or draw the decision tree
c. Assign probabilities to the states of nature
d. All of the above
Answer :d
1. Estimate payoffs for each possible combination of alternatives
and states of nature
2. Solve the problem by computing expected monetary values
(EMVs) for each state of nature node.
24 A group of CPA’s is considering constructing a firm. If the
. demand for accounting services is high (favorable market) the
accountants will realize a profit of P100,000. If the market will be
unfavorable they could lose P40,000. in the absence of market
data, the accountants guess is that there is a 50-50 chance of
the success of the firm. What should the CPA’s do? What is the
Expected Value With Perfect Information? What is the Expected
Value Of Perfect Information? If an Economic Reasearch Firm
approached the CPA’s and charge them P50,000 to provide
them with accurate data as to the favorableness of the market
towards accounting services what should the CPA’s do?
Payoff
Favorable 50% 100,000
30,000
Construct firm
Unfavorable 50%
-40,000
Do nothing
P0
EMV Construct = (.50)(P100,000)+(.50)(-P40,000) = P30,000

Construct the firm
EMV Construct = (.50)(P100,000)+(.50)(-P40,000) = P30,000
EVwPI = (.50)(P100,000)+(.50)(-P0) = P50,000
EVPI = P50,000)+P30,000 = P20,000
EVPI 20,000
Consultancy Fee 50,000
Excess of Cost Over Benefit - Reject -30,000
25 . The pay off table of two mutual funds for investment are shown below:
Investments State Of Nature

Good Fair Economy(P) Poor
Economy(P) Economy(P)
Fund A 10,000 2,000 -5,000
Fund B 6,000 4,000 0
Probability 0.2 0.3 0.5
Requirement:
a. Draw the decision tree
b. Which fund is better?
c. What amount of peso return of Fund A in a good economy be to make
an investor indifferent to both funds?
Payoff
Good 20% P10,000
A Fair 30% P2,000
Poor 50%
(P5,000)
Good 20% P6,000
B Fair 30% P4,000
Poor 50% P0
EMV Fund A = (.20)(P10,000)+(.30)(P2,000)+(.50)(-P5,000) = P100
EMV Fund B = (.20)(P6,000)+(.30)(P4,000)+(.50)(P0) = P2,400
EMV Fund B = EMV Fund A

EMV Fund A = (.20)(X)+(.30)(P2,000)+(.50)(-P5,000)
P2,400 = .20X+P600 -P2,500
P2,400 + P1,900 = .20X
X = P4,300/.20
X = P21,500
26 The overall worth or value of a particular outcome
.
a. Utility
b. Utility Theory
c. Utility Curve
d. Utility Assessment
Answer :a
Utility- The overall value or worth of a particular outcome
Utility Theory- A theory that allows decision makers to incorporate
their risk preference and other factors iin their decision
Utility Curve- A graph that shows that shows the relationship
between utility and monetary values
Utility Assessment- process of determining the utility of any
outcome
27 . In the past few years the traffic problem in Roel’s town have gotten worse.
Now Broad Street is congested about half of the time. The normal travel
time to work for Roel is only 15 minutes when Broad St. is used and there
are no congestions. With congestion it takes 40 minutes to get to work. If
Roel decides to take the expressway, it will 30 minutes regardless of the
traffic condition. Roel’s utility for travel time is 15 minutes=0.9, 30
minutes=0.7 and 40 minutes = . 20.
a. Which route will minimize Roel’s travel time?
Broadstreet 27.5 minnutes = (40x.50)+(15X.5)
b. Which route will maximize Roel’s utility?
Expressway = .70
Broadstreet = .55 = (.20)(.50)+(.90)(.50)
c. When it comes to travel time, is Roel a risk seeker or a risk
avoider?Risk Avoider
Decision Tree Example
p = 0.50 15 Mins
U(.90) = 0.50
(1 – p) = 0.50 40 Mins
U(.20) = 0.50
30 Mins
Figure 3.8
U.(0.70) = p = 1.0
Utility for Broad St = (0.5)(.90) + (0.5)(.2) = 0.55

Utility for Expressway = (1)(.70)=0.70
28 . 1. A risk avoider is a person for whom the utility of an outcome
a. decreases as the monetary value increases.

b. stays the same as monetary value increases.
c. increases as the monetary value increases.
d. increases at a decreasing rate as monetary value increases.
Answer :d
Utility Curve
Risk
Avoider
Utility
Risk
Seeker
Monetary Outcome
Figure 3.10
29 . Jacquie is planning to put up a grocery store either at the downtown or the
mall or the busy traffic circle. The following are the peso values she
calculated:
Location Profits If Losses If Chance Of

Successful Unsuccessful Success
Downtown 250,000 100,000 50%
Mall 300,000 100,000 60%
Busy Traffic 400,000 200,000 75%
Circle
Draw a decision tree and select the best alternative.

Sucessful 50% P250,000
Downtown
75,000
A
Unsucessful 50% (P100,000)
Mall Sucessful 60% P300,000

140,000
B
Sucessful 75% P400,000

Traffic Circle
250,000
C

No Grocery
D
P0
IV. Linear Programming
30 . The Fair Furniture Company produces tables and chairs. Each table takes
4 hours of carpentry department and 2 hours in painting and varnishing
shop. Each chair requires 3 hours of carpentry and 1 hour of painting and
varnishing. During the current production period, 240 hours of carpentry
time are available and 100 hours in painting and varnishing time are
available. Each table and chair sold yields a profit of P7 and P5,
respectively. Find the best possible combination of tables and chairs to
manufacture in order to maximize profit.
Step1: Summarize the information
Dept Tables Chairs Available Hours
Carpentry 4 3 240
Painting and 2 1 100
Varnishing
Profit per unit 7 5
Step 2:Restate the problem mathematically
Maximize profit=P7T + P5C

Subject to constraints=
4T + 3C<240 ( carpentry constraint)
2T + 1C <100 (painting and varnishing constraint)
T> 0 (you cannot produce negative table)
C > 0 (you cannot produce negative chairs)
Step 3: Convert the inequalities in step 2 to equalities. This is done in order to be
able to graph the
constraints. This is the GRAPHICAL SOLUTION to linear programming
problems.
4T + 3C = 240 ( carpentry constraint)
2T + 1C= 100 (painting and varnishing constraint)
Step 4: Since the easiest points to find are where the lines intersect T and C
axes, we compute for the
extreme points by assuming 0 production of tables then 0 production of
chairs for both constraints.
carpentry 4T + 3C = 240 4(0) + 3C = 240 C = 80

constraint
4T + 3C = 240 4T + 3(0) = 240 T = 60
painting and 2T + 1C = 100 2(0) + 1C = 100 C = 100

varnishing
constraint
2T + 1C = 100 2T + 1(0) = 100 T = 50
Simultaneous Equation Method:
1. List constraints
4T + 3C  240 ( carpentry constraint)
2T + 1C  100 (painting and varnishing constraint)
2. Multiply -2 to the second equation
-2(2T + 1C  100)= -4T + -2C  -200
3. Add it to the first equation
-4T + -2C -200
4T + 3C  240
1C  40 C=40
3. We have eliminated one unknown variable and can solve for T using either of the
two
Equation. We will use the first, then the second both will yield the same result
4T + 3C  240 2T + 1C = 100
4T + 3(40)=240 2T + 1(40)= 100
T =30 T = 30
a. We compute for the optimal solution which is found at point 3
P7(T)+P5©= Maximize profit
P7(30)+P5(40)= Maximize profit
P210+P200= P410
Step 4: We graph the constraints in the 1st or North east quadrant ( no negative values).
31 . The Fat Co. has manufactures products X and Y with a contribution margin
of P15 and P25 respectively. Each uses materials A and B. Product X uses
3 pounds of material A and Y uses 6 pounds. Product X requires 6 feet of
material B while Y uses 4 feet. The Co. can purchase 600 pounds of
material A and 880 feet of material b. The optimal mix of product to
manufacture is:
a. X=148; Y=0
b. X=0; Y=100
c. X=120; Y=40
d. X=40; Y=120
Answer :c
Maximize profit=P15X + P25Y
Subject to constraints=
3X + 6Y < 600 ( mat a)
6X + 4Y < 880 (mat b)
Use trial and error by computing the contribution margin for all
choices. The choice that give the highest CM without violating the 2
constraint is the answer.
A violates 2nd constraint:
6(148)+4(0)=888
B CM is only P2,500= 15(0)+25(100)
C CM is P2,800 = 15(120)+25(40)
D violates 1st constraint:
=840
Second alternative is to graph the constraint and get the feasible area
32 . The dean of Chubby University must plan the school’s course offerings for
the first semester. Student demands make it necessary to offer at least 30
undergraduate and 20 graduate courses in the term. Faculty contracts also
dictate that at least 60 courses be offered in total. Each undergraduate
course taught costs the college an average of P2,500 in faculty wages, and
each graduate course costs P3,000. How many undergraduate and
graduate courses should be taught in the first semester so that total
faculty salaries should be kept at a minimum?
33. Which of the following is not a property of all linear programming
problems?
(a) the presence of restrictions

(b) optimization of some objective
(c) a computer program
(d) alternate courses of action to choose from
ANSWER: c
34. Which of the following is not a basic assumption of linear

programming?
(a) The condition of certainty exists.
(b) Proportionality exists in the objective function and constraints.
(c) -1 to + 1.
(d) Divisibility exists, allowing non-integer solutions.
ANSWER: c
35. The simultaneous equation method is

(a) an alternative to the corner-point method.
(b) useful only in minimization methods.
(c) an algebraic means for solving the intersection of two constraint
equations.
(d) useful only when more than two product variables exist in a
product mix
problem.
ANSWER: c
36. Chubby Foundry Example of
PERT/CPM
• General Foundry, Inc. has long been trying to avoid the
expense of installing air pollution control equipment
• The local environmental protection group has recently
given the foundry 16 weeks to install a complex air filter
system on its main smokestack
• General Foundry was warned that it will be forced to
close unless the device is installed in the allotted period
• They want to make sure that installation of the filtering
system progresses smoothly and on time
Chubby Foundry Example of
PERT/CPM
• Activities and immediate predecessors for Chubby
Foundry
IMMEDIATE
ACTIVITY DESCRIPTION
PREDECESSORS
A Build internal components —
B Modify roof and floor —
C Construct collection stack A
D Pour concrete and install frame B
E Build high-temperature burner C
F Install control system C
G Install air pollution device D, E
H Inspect and test F, G
Table 13.1
Drawing the PERT/CPM Network
• There are two common techniques for drawing PERT

networks
• Activity-on-node (AON) where the nodes represent
activities
• Activity-on-arc (AOA) where the arcs are used to
represent the activities
• The AON approach is easier and more commonly
found in software packages
• One node represents the start of the project, one
node for the end of the project, and nodes for each of
the activities
• The arcs are used to show the predecessors for each
activity
How to Find the Critical Path
• In the nodes, the activity time and the early and late
start and finish times are represented in the following
manner
ACTIVITY t
ES EF
LS LF
• Earliest times are computed as

Earliest finish time = Earliest start time
+ Expected activity time
EF = ES + t
Earliest start = Largest of the earliest finish times of
immediate predecessors
ES = Largest EF of immediate predecessors
Drawing the PERT/CPM Network
• There are two common techniques for drawing PERT

networks
• Activity-on-node (AON) where the nodes represent
activities
• Activity-on-arc (AOA) where the arcs are used to
represent the activities
• The AON approach is easier and more commonly
found in software packages
• One node represents the start of the project, one
node for the end of the project, and nodes for each of
the activities
• The arcs are used to show the predecessors for each
activity
General Foundry Example of
PERT/CPM
• Network for General Foundry
A C F
Build Internal Construct Install Control
Components Collection Stack System
E H
Start Inspect Finish
Build Burner
and Test
B D G
Modify Roof Pour Concrete and Install Pollution
and Floor Install Frame Device
Figure 13.1
Activity Times
• In some situations, activity times are known with
certainty
• CPM assigns just one time estimate to each activity and
this is used to find the critical path
• In many projects there is uncertainty about activity times
• PERT employs a probability distribution based on three
time estimates for each activity
• A weighted average of these estimates is used for the
time estimate and this is used to determine the critical
path
Activity Times
• The time estimates in PERT are
Optimistic time (a) = time an activity will take if everything

goes as well as possible. There
should be only a small probability
(say, 1/100) of this occurring.
Pessimistic time (b) = time an activity would take assuming
very unfavorable conditions. There
should also be only a small
probability that the activity will really
take this long.
Most likely time (m) = most realistic time estimate to
complete the activity
Activity Times
• PERT often assumes time estimates follow a beta
probability distribution
Probability of 1 in 100
of a Occurring
Probability
Probability of 1 in 100
of b Occurring
Activity Time
Most Most Most
Optimistic Likely Pessimistic
Time Time Time
(a) (m) (b)
Figure 13.2
Activity Times
• To find the expected activity time (t), the beta distribution
weights the estimates as follows
a  4m  b
t
6
• To compute the dispersion or variance of activity

completion time, we use the formula
ba
2
Variance   
 6 
Activity Times
• Time estimates (weeks) for General Foundry
EXPECTED
MOST TIME, VARIANC
ACTIVIT OPTIMISTIC PROBABL PESSIMISTI t = [(a + 4m + E,
Y ,a E, m C, b b)/6] [(b – a)/6]2
A 1 2 3 2 4/36
B 2 3 4 3 4/36
C 1 2 3 2 4/36
D 2 4 6 4 16/36
E 1 4 7 4 36/36
F 1 2 9 3 64/36
G 3 4 11 5 64/36
H 1 2 3 2 4/36
Table 13.2
25
• We accept the expected completion time for each task
as the actual time for now
• The total of 25 weeks in Table 13.2 does not take into
account the obvious fact that some of the tasks could be
taking place at the same time
• To find out how long the project will take we perform the
critical path analysis for the network
• The critical path is the longest path through the network
• General Foundry’s network with expected activity
times
A 2 C 2 F 3
E 4 H 2
Start Finish
B 3 D 4 G 5
Figure 13.3
• To find the critical path, need to determine the following
quantities for each activity in the network
1. Earliest start time (ES): the earliest time an activity can
begin without violation of immediate predecessor
requirements
2. Earliest finish time (EF): the earliest time at which an
activity can end
3. Latest start time (LS): the latest time an activity can
begin without delaying the entire project
4. Latest finish time (LF): the latest time an activity can
end without delaying the entire project
• In the nodes, the activity time and the early and late
start and finish times are represented in the following
manner
ACTIVITY t
ES EF
LS LF
• Earliest times are computed as

Earliest finish time = Earliest start time
+ Expected activity time
EF = ES + t
Earliest start = Largest of the earliest finish times of
immediate predecessors
ES = Largest EF of immediate predecessors
• At the start of the project we set the time to zero
• Thus ES = 0 for both A and B
A t=2
ES = 0 EF = 0 + 2 = 2
Start
B t=3
ES = 0 EF = 0 + 3 = 3
• General Foundry’s ES and EF times
A 2 C 2 F 3
0 2 2 4 4 7
E 4 H 2
Start 4 8 13 15 Finish
B 3 D 4 G 5
0 3 3 7 8 13
Figure 13.4
• Latest times are computed as
Latest start time = Latest finish time

– Expected activity time
LS = LF – t
Latest finish time = Smallest of latest start times

for following activities
LF = Smallest LS of following activities
• For activity H
LS = LF – t = 15 – 2 = 13 weeks
• General Foundry’s LS and LF times
A 2 C 2 F 3
0 2 2 4 4 7
0 2 2 4 10 13
E 4 H 2
4 8 13 15
B 3 D 4 G 5
0 3 3 7 8 13
1 4 4 8 8 13
Figure 13.5
• Once ES, LS, EF, and LF have been determined, it is a
simple matter to find the amount of slack time that each
activity has
Slack = LS – ES, or Slack = LF – EF
• From Table 13.3 we see activities A, C, E, G, and H

have no slack time
• These are called critical activities and they are said to be
on the critical path
• The total project completion time is 15 weeks
• Industrial managers call this a boundary timetable
• Chubby Foundry’s schedule and slack times
EARLIEST EARLIEST LATEST LATEST ON

START, FINISH, START, FINISH, SLACK, CRITICAL
ACTIVITY ES EF LS LF LS – ES PATH?
A 0 2 0 2 0 Yes
B 0 3 1 4 1 No
C 2 4 2 4 0 Yes
D 3 7 4 8 1 No
E 4 8 4 8 0 Yes
F 4 7 10 13 6 No
G 8 13 8 13 0 Yes
H 13 15 13 15 0 Yes
Table 13.3
• Chubby Foundry’s critical path
A 2 C 2 F 3
0 2 2 4 4 7
0 2 2 4 10 13
E 4 H 2
4 8 13 15
B 3 D 4 G 5
0 3 3 7 8 13
1 4 4 8 8 13
Figure 13.6
Probability of Project Completion
• The critical path analysis helped determine the
expected project completion time of 15 weeks
• But variation in activities on the critical path can affect
overall project completion, and this is a major
concern
• If the project is not complete in 16 weeks, the foundry
will have to close
• PERT uses the variance of critical path activities to
help determine the variance of the overall project
Project variance = ∑ variances of activities

on the critical path
• From Table 13.2 we know that
ACTIVITY VARIANCE
A 4/36
B 4/36
C 4/36
D 16/36
E 36/36
F 64/36
G 64/36
H 4/36
• Hence, the project variance is
Project variance = 4/36 + 4/36 + 36/36 + 64/36 + 4/36 = 112/36 = 3.111
• We know the standard deviation is just the square root of
the variance, so
Project standard deviation   T  Project variance

 3.11  1.76 weeks
• We assume activity times are independent and total

project completion time is normally distributed
• Probability distribution for project completion times
Standard Deviation = 1.76 Weeks
15 Weeks
(Expected Completion Time)
Figure 13.7
• The standard normal equation can be applied as
follows
Due date  Expected date of completion
Z
T
16 weeks  15 weeks
  0.57
1.76 weeks
• From Appendix A we find the probability of 0.71566

associated with this Z value
• That means there is a 71.6% probability this project
can be completed in 16 weeks or less
• Probability of General Foundry meeting the 16-week
deadline
Expected Time is 15 Weeks 0.57 Standard Deviations
Probability
(T ≤ 16 Weeks)
is 71.6%
15 16
Time
Weeks Weeks
Figure 13.8
What PERT Was Able to Provide
• PERT has been able to provide the project manager
with several valuable pieces of information
• The project’s expected completion date is 15 weeks
• There is a 71.6% chance that the equipment will be in
place within the 16-week deadline
• Five activities (A, C, E, G, H) are on the critical path
• Three activities (B, D, F) are not critical but have
some slack time built in
• A detailed schedule of activity starting and ending
dates has been made available
37. The project described by
Activit Immediate Time

y Predecessor
(
d
a
y
s
)
A - 6
B A 2
C - 8
D B, C 5
E D 7
has a critical path of length

(a) 15 days (b) 20 days (c) 17 days (d) 18 days
ANSWER: b
A=6 B=2
Start D=5 E=7 Finish
C=8
38. Development of a new deluxe version of a particular software product is
being considered. The activities necessary for the completion of this are
listed in the table below.
Activit Norm Cras Normal Crash Immediate

y al h Cost Cost Predecessor
Time Time
A 4 3 2000 2600 -
B 2 1 2200 2800 -
C 3 3 500 500 -
D 8 4 2300 2600 A
E 6 3 900 1200 B
F 3 2 3000 4200 C
G 4 2 1400 2000 D,E
(a) What is the project completion date?

(b) What is the total cost required for completing this project on normal
time?
(c) If you wish to reduce the time required to complete this project by one
week, which activity should be crashed, and how much will this
increase the total cost?
ANSWER:
(a) Project completion time = 16 (Activities A-D-G)
(b) Total cost = $12,300
(c) Crash D one week at an additional cost of $75
A=4 D=8
Start B=2 E=6 G=4 Finish
C=3 F=2
V. Learning Curve
39 . A measure of increased efficiency
a. Learning curve
b. Learning rate
c. Continuous improvement
d. Value added activity
Answer :a
40. Chubby Manufacturing is making a new product. The expected labor time
for the first batch is 10 hours, and the expected learning rate is 80%.
Prepare a schedule that illustrates the learning curve.
(a) (b) (a) x (b)
Output Average Time Total Time
1 10(given) 10
2 8(10 x .80) 16 (8X2)
4 6.4(8 x .80) 25.6 (6.4X4)
8 5.12(6.4x .80) 40.96(5.12X8)
41 . Chubby Co. is bidding a contract to make eight batches of landing gear
assemblies for an aircraft co. Chubby’s engineers expects direct labor and
variable overhead for the first batch to be P80,000. Variable overhead is related to
direct labor. Chubby usually achieves an 80% learning rate.
a. Determine the expected average cost for direct labor and variable overhead
for the eight batches.
b. Determine the expected total cost for direct labor and variable overhead for
the eight batches.
a. and b. P40,960 and P327,680
(a) (b) (a) x (b)

Output Average Cost Total Cost
1 P80,000 P 80,000
2 64,000 (P80,000 x .80) 128,000
4 51,200 (P64,000 x .80) 204,800
8 40,960 (P51,200 x .80) 327,680
b -.3219
Y = aX , Y = P80,000 x 8
Y = P40,960 rounded
The natural logarithm of .80 is -.2231, of 2 is .69315, for

b = -.3219.
42 . Chubby’s managers expect the cost of materials and purchased
components to be P25,000 per batch not subject to learning curve. They
also want an average contribution margin of P15,000 per batch.
a. Determine the price that Chubby must bid to earn P15,000 average
contribution margin per batch for the eight batches.
b. Suppose now that the contract for 16 batches , redo a.
c. Suppose that the contract is stil for eight batches, but the learning
rate wil actually be 85%, redo a.
a. P80,960
Materials and components P25,000

Average direct labor and variable overhead (from 1) 40,960
Total variable cost P65,960
Desired contribution margin 15,000
Required price P80,960
It is also possible to use the totals.
Materials and components (P25,000 x 8) P200,000

Direct labor and variable overhead (from 16-11) 327,680
Desired contribution margin (P15,000 x 8) 120,000
Dividing P647,680 by 8 gives P80,960.

b. P72,768 All we need to do is extend the analysis in assignment 42
by one row, from 8 to 16 batches. At 8 batches we had an average cost
of P40,960, so after 16 batches we have P32,768 (P40,960 x .80)

Direct labor and variable overhead 32,768
c. P89,130 We must first redo the learning curve using the 85% rate.
We show the total costs, even though they are not needed for the
solution.
Output Average Cost Total Cost

1 P80,000 P 80,000
2 68,000 (P80,000 x .85) 136,000
4 57,800 (P68,000 x .85) 231,200
8 49,130 (P57,800 x .85) 393,040

Direct labor and variable overhead, above 49,130
VI. WAITING LINES OR QUEUING THEORY
43 . The Chubby Burger gets an average of 50 customers per shift. The
manager of Chubby wants to calculate whether she should hire 1,2,3,or 4
crew. The average waiting time is 7 minutes per person with one crew, 4
minutes with two crew, 3 minutes with three crew, and 2 minutes with four
crew. The estimated cost per minute that customers wait is P1. The cost
per crew per shift including benefits is P70. How many crew should she
hire?
Chubby Burger Company Example
• Chubbby Burgers waiting line cost analysis
NUMBER OF CREW WORKING
1 2 3 4
(a) Average number of customers per 50 50 50 50
shift
(b) Average waiting time per customer 7 4 3 2
(minutes)
(c) Total waiting time per shift 350 200 150 100
(a x b)
(d) Estimated cost per minute of waiting $1 $1 $1 $1
(e) Value of lost time or waiting cost (c x $350 $200 $150 $100
d)
(f) Salary cost per shift $70 $140 $210 $280
(g) Total expected cost (e + f) $420 $340 $360 $380

Optimal cost
Table 14.1
44. The expected cost to the firm of having customers or objects waiting in line to be
serviced is termed the
(a) expected service cost (c) total expected cost.
(b) expected waiting cost (d) expected balking cost.
(e) expected reneging cost
45. Three parts of a queuing system are

(a) the inputs, the queue, and the service facility.
(b) the calling population, the queue, and the service facility.
(c) the calling population, the waiting line, and the service facility.
(d) All of the above are appropriate labels for the three parts of a queuing
system.
46. In queuing theory, the objective is to

(a) maximize productivity.
(b) minimize customer dissatisfaction as measured in balking and reneging.
(c) minimize the sum of the costs of waiting time and providing service.
(d) minimize the percent of idle time.
(e) minimize queue length.

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Since

MANAGEMENT ADVISORY SERVICES BOBADILLA/TAN/URO

Quantitative analysis is a scientific approach to

Acquiring Input Data

Testing the Solution

Analyzing the Results

Figure 1.1 Implementing the Results

 An important part of the quantitative

Profit = Revenue – Expenses

If sales = 0, profits = –$1,000

Solving for X, we have

Alternative Good Market(P) Average Bad Market(P)

State of Nature Good Average Bad Total

State of Nature Good Average Bad Total

Answer :a Strategy 1 gives maximum value at P10,000

Answer :b Maximin is a pessimistic decision approach it selects the

Answer :c Strategy 3 is equal to zero which is better than –P8,000 an

Answer :c This approach selects the alternative that maximizes the

d. None of the above

EMV Construct = (.50)(P100,000)+(.50)(-P40,000) = P30,000

EVwPI = (.50)(P100,000)+(.50)(-P0) = P50,000

EVPI = P50,000)+P30,000 = P20,000

Investments State Of Nature

A Fair 30% P2,000

Good 20% P6,000

B Fair 30% P4,000

EMV Fund B = (.20)(P6,000)+(.30)(P4,000)+(.50)(P0) = P2,400

EMV Fund B = EMV Fund A

Utility for Broad St = (0.5)(.90) + (0.5)(.2) = 0.55

a. decreases as the monetary value increases.

Location Profits If Losses If Chance Of

Draw a decision tree and select the best alternative.

Mall Sucessful 60% P300,000

Sucessful 75% P400,000

Unsucessful 25% (P200,000)

Maximize profit=P7T + P5C

carpentry 4T + 3C = 240 4(0) + 3C = 240 C = 80

painting and 2T + 1C = 100 2(0) + 1C = 100 C = 100

(a) the presence of restrictions

34. Which of the following is not a basic assumption of linear

35. The simultaneous equation method is

• There are two common techniques for drawing PERT

• Earliest times are computed as

• There are two common techniques for drawing PERT

Optimistic time (a) = time an activity will take if everything

• To compute the dispersion or variance of activity

• Earliest times are computed as

Latest start time = Latest finish time

Latest finish time = Smallest of latest start times

Slack = LS – ES, or Slack = LF – EF

• From Table 13.3 we see activities A, C, E, G, and H

EARLIEST EARLIEST LATEST LATEST ON

Project variance = ∑ variances of activities

Project standard deviation   T  Project variance

• We assume activity times are independent and total

Standard Deviation = 1.76 Weeks

• From Appendix A we find the probability of 0.71566

Expected Time is 15 Weeks 0.57 Standard Deviations