Part I: Multiple Choice (30 marks)

• This part contains 15 multiple-choice questions.

• Each correct response will earn 2 marks. Incorrect responses will be worth zero marks, without
additional deduction.
• There is only 1 correct answer for each question. If more than one answer appears correct, one will
be more generally correct or better than the others; If none appear correct, one will be the best or
closest to being correct.

1. Under what condition is the exponential smoothing method turned into the naïve method?
a. Smoothing constant != 1
b. Smoothing constant ! = 0
c. Both (a) and (b)
d. None of the above

2. Consider the following demand over 6 months. Which of the following methods will best forecast
the demand for month 7?

a. 2-month simple moving average

b. 6-month simple moving average
c. Exponential smoothing with ! = 0
3. Which of the time series forecasting methods uses all the available data to determine the forecast?
a. Simple moving average
b. Weighted moving average
c. Exponential Smoothing
d. Naïve method

4. Which of the following statements is incorrect regarding the performance criteria, i.e., error
measures, used in forecasting?
a. MAD, MSE, and MAPE cannot be negative
b. MSE can be calculated as the square of the MAD
c. The sign of the forecast error does not impact the MAD
5. If the lead-time for receiving the orders from the supplier doubles, the order quantity in the fixed
order quantity model
a. Halves.
b. Doubles.
c. Increase by a factor of √2.
d. None of the above.

6. In the fixed order quantity model, if the standard deviation of the daily demand ("!) increases
(while other system parameters are kept the same), then
a. The optimal order quantity increases
b. The average number of orders placed every year increases
c. The annual holding cost increases
d. The safety stock decreases
7. Consider a fixed order quantity model whose demand has a normal distribution. Assume the lead
time is L days and the average daily demand rate is d. What service level does the reorder point of
#$% = & × ' correspond to?
a. 0
b. 1
c. 0.5
d. 0.75

8. In a fixed time period model of inventory management,

a. The order quantity depends on the current inventory level
b. Safety stock is needed when demand is uncertain
c. The inventory is only reviewed at pre-determined points in time
d. All of the above

9. Consider a company that uses a periodic review inventory system. The daily demand has a
normal distribution with mean 30 and standard deviation 5. Moreover, the lead-time is 3 days, the
review period is 7 days, and the service level is 95%. What is the required safety stock level?
a. 130.44
b. 326.1
c. 430.44
d. 26.09

10. Consider a newsvendor model with normally distributed demand. Suppose that the cost of
overage is greater than the cost of underage. If the demand variance is reduced,
a. The optimal order quantity increases.
b. The optimal order quantity stays the same.
c. The optimal order quantity decreases.
d. Cannot say.

11. Imagine you are booking your luxury hotel for advanced-booking versus late-booking customers.
Assume you charge advanced-booking customers 150 dollars and your critical fractile is 0.75.
What must be the price for late-booking customers to justify the critical fractile of 0.75?
 a. 600
b. 562
c. 900
d. 750

12. Which of the following statements about a linear programming problem is correct?
a. If a linear programming problem has a solution, its solution is unique.
b. Removing a non-redundant constraint always changes the optimal point.
c. None of the above.

13. The shadow price of a constraint cannot be negative

a. True
b. False

Consider the following Sensitivity Analysis report, where we decide on the amount of three activities:
activity 1, activity 2, and activity 3. We use three resources: A, B, and C.

14. If the right-hand side of Resource A (A totals) changes to 10, then the optimal objective function
value
a. Decreases by $12.50.
b. Decreases by $125.
c. Decreases by $77.80.
d. Remains the same.
e. Can only be discovered by resolving the problem.

15. If the right-hand side of Resource B (B totals) changes to 10, then the optimal objective function
value
a. Decreases by $120.
b. Decreases by $60.
c. Decreases by $20.
d. Remain the same.
e. We cannot answer this question using the Sensitivity Report.

Part II: Written Questions (70 marks)

See Sample Written Questions in Sample Final Summer 2016.pdf

Question 15 (16 points) !20‫ ־‬minutes]

Consider the following linear programming problem:

Max 3A + 3 B

Subject to:
2A + 4B < 12
6A + 4B < 24
2A + 3B < 12
a>0,b > 0

a) (4 points) Plot the feasible region of the solutions.

b) (3 points) Is there any redundant constraint in this linear program? Give your reason.
c) (4 points) Find the optimal solution and optimal value of the objective using the graphical
method.
d) (4 points) If the objective function is changed to 2A + 6B, what will the optimal solution and
optimal value be?

Question 2 (12 points) !"12 minutes]

Tracy owns an ice cream shop and wants to apply the forecast methods she learned from RSM270
to predict the demand for her business. The daily demand for the past 6 days are shown:
Day Demand
1 119
2 129
3 121
4 126
5 127
6 130

a) (4 point) Compute the 3 day moving average forecast for the demand for days 4 to 6.

b) (4 point) Compute the exponentially smoothed forecasts for day 2 to 6 using a =0.7.

c) (4 points) Calculate the MAD and MAPE for each method, use only the forecasts from days 4 to
6. Which forecast method provides the better forecast for the demand?

RSM 270H1S - Final Exam Page 7 of 12

Question 3 (14 points) \18 minutes]

The management of Hart-House Company is trying to determine the amount of each of two
products to produce over the coming planning period. The following information concerns labor
availability, labor utilization, and product profitability:

Product (hours/unit) Labor-Hours

Department 1 2 Available
A 1.00 0.35 100
B 0.30 0.20 36
C 0.20 0.50 50
Profit contribution/unit $30.00 $15.00

a) (6 points) Develop a linear programming model of the Hart-House Company problem.

b) (8 points) Suppose that a maximum of 10, 6, and 8 hours of overtime may be scheduled in
departments A, B, and C, respectively. The cost per hour of overtime is $18 in department A,
$22.50 in department B, and $12 in department C. Formulate a linear programming model that
can be used to determine the optimal production quantities if overtime is made available.
Hint: You do not need to find an optimum solution (neither in part (a) nor in part (b))!

Question 4 (15 points) !"20 minutes!

a) (6 points) Early Bird Discount Tickets for "Disney On Ice" on Saturday, December 22, 4pm, at
the Rogers Centre in Toronto (capacity: 19,800 seats) are being sold for $63 per ticket. Demand
for those tickets is high; it is known that all seats could sell out through advance tickets.
However, some tickets should be kept for "last minute" sales because last minute buyers have to
pay a higher price ($80 per ticket). But the number of last-minute buyers is uncertain. It is
estimated to be normally distributed with mean 500 and standard deviation 130. Using the
newsvendor model, how many tickets need to be set aside for last minute sales? Show all steps
of your calculation!
b) (6 points) Two newsvendors, Chris and Ryan, sell newspapers on adjacent corners of a busy
intersection in Toronto. Both sell their papers at the same price (p = $2.50) and dispose of their
newspapers at the same recycling facility (the facility pays Chris and Ryan 25 cents per old
RSM 270H1S - Final Exam Page 4 of 12
 newspaper). Chris and Ryan have discussed strategy in the past and both agree that demand for
newspapers on their corners has the same distribution; that is, normally distributed with mean 40
and standard deviation 15. In the past, both Chris and Ryan bought papers wholesale from the
same distributor, but recently Chris has found a new distributor, which he is keeping a secret
from Ryan. Ryan is jealous of Chris's new situation and wants to estimate what purchase cost c
Chris is now buying newspapers. Ryan notices that Chris now brings Q = 49 papers each
morning to sell.
Show how Ryan can use this information to estimate Chris's new purchase cost c. Assume Ryan
solves a newsvendor problem to find Q using the above information,
c) (3 points) In general, in the newsvendor model, if the cost of under-stocking goes up, then the
optimal order quantity would . .. (Choose one of the following and give your reasoning.)
A. Decrease
B. Increase
C. Remain Unchanged
D. Not enough information to answer this question

Question 5 (28 points) T35 minutes]

Interplanetary Supply Chain Management

The Earthlings opened three settlements on planet Mars so far: Mars Head Quarter (MHQ), Psi, and
Omega.
Arnold Schwarzenegger cannot recall how to activate the alien machine that creates a breathable
atmosphere on Mars. Therefore, the United Nations Space Agency (UNSA) is sending out a space
transporter every 4 weeks from Earth to Mars. Before each space transporter leaves Earth, MHQ has
to decide how much oxygen (and other things) to order. The travel time from Earth to Mars is 6
months (= 26 weeks). Assume 52 weeks in a year.
MHQ places each order for all three settlements on Mars together. MHQ also serves as a distribution
center on Mars, which means that Psi and Omega receive their oxygen from MHQ (Psi and Omega
use the fixed order-quantity model to order from MHQ). The lead times from MHQ to Psi and Omega
are two weeks and three weeks, respectively.
Each cubic meter (m3) oxygen costs 10 space dollars (currency symbol: (J)) and carrying costs are
26% of the purchase cost per year.
RSM 270H1S - Final Exam Page 5 of 12
At all extraterrestrial settlements of Earthlings, the required service probability of oxygen is 99.99%,
so z = 3.72.
Psi's weekly demand is 100 m3 with a standard deviation of 30 m3. A computer-based system is
managing the inventory, and orders to MHQ are placed automatically. The order setup cost is only
4> 10.

a) (2 points) What is Psi's optimal order quantity?

b) (2 points) How often per year (= 52 weeks) does Psi order oxygen from MHQ, and what is the
average time between two orders (in weeks)?

c) (2 points) What is the annual setup order setup cost for Psi?

d) (3 points) What is the annual inventory holding cost for Psi?

e) (3 points) What is the reorder point (ROP) for Psi?

Omega's weekly demand is 300 m 3 with a standard deviation of 40 m3. Omega's cost for placing an
order is <}) 120.

Assume that MHQ offers all-units discounts to Omega:

For quantities of at least 2,000 m 3 oxygen there is a price reduction of (J) 1 from the full price, and
for quantities of at least 4,000 m 3 oxygen there is a price reduction of $ 2 from the full price. The
price reduction is given with respect to unit cost of 1 m3 oxygen.

f) (10 points) What is Omega's optimal order quantity?

MHQ's own weekly demand is 1000 m3 with a standard deviation of 49 m3.

g) (3 points) Only considering its own demand, (i.e., MHQ is not holding safety stock for Psi and
Omega) how much safety stock does MHQ hold?

h) (3 points) On average how many m3 oxygen are in all transporters together that are on their way
from Earth to Mars? Hint: MHQ also needs to satisfy the demand of Psi and Omega.

RSM 270H1S - Final Exam Page 1 of 12

Question 6 (16 points) !20‫ ־‬minutes]
Two Seventy, Inc. produces two products, X and Y. The firm hires you to develop a linear
programming model to decide the optimal production quantity for the two products. The feasible
region of the linear program is shown in the following figure. In addition to the nonnegativity
constraints, the constraints for the production quantities of X and Y are given as follows.

Constraint A: Y < 6

Constraint B: X + Y <9

Constraint C: X<5

Constraint D: X~Y<3

The unit profit for X is Sa and the unit profit for Y is $b. TwoSeventy, Inc. has not revealed the
values of a and b to you yet. There are four specific points in the figure, labeled e,f g, and h.

1 2 3 4 5
RSM 270H1S - Final Exam Page 7 of 12
a) (4 points) Suppose that the optimal solution is point f . Which of the four constraints (A, B, C, D)
are the active constraints? What are the non-active constraints?
b) (4 points) Suppose that the shadow price on Constraint A is 5 and the shadow price on Constraint
B is 7. From this information, is it possible to determine which point is the optimal solution? If
not, why not? If yes, which point is it?
c) (4 points) Can point h be the unique optimal solution? Why or why not?
d) (4 points) Suppose that point g is the optimal solution. Is it possible to determine the value of the
shadow price of Constraint A? If not, why not? If yes, what is it?

- END OF REQUIRED QUESTIONS

BONUS QUESTION —
This question is a bonus/challenge question. You are not required to solve this question, but
you will receive a bonus towards the examination mark for solving it.
Continued front Question 5!

Bonus Question
Continuedfrom Question 5
(4 points (bonus)) Consider the average pipeline inventory that you just calculated in part h) of
Question 5 to be a part of the current inventory level of MHQ. So, MHQ calculates its current
inventory position as average pipeline inventory + current MHQ storage inventory (including MHQ
safety stock). [If you did not solve Q5 h), use an assumed value of the average pipeline inventory.]
Consider one review cycle.
Day 1 : Assume that the arriving transporter has been unloaded, orders from Psi and Omega have
been fulfilled, and a new order to the UNS A has been placed, who promptly sent out the next
transporter from Earth. Although the order to Earth has already been placed, Colin Farrell, the
manager of MHQ double checks the amount of oxygen once more and measures a total volume of
6000 m3 in the MHQ storage (not including the pipeline inventory).
Day 29: The demand on Mars during the past review period was exactly the expected 4-week
demand. Orders from Psi and Omega have been fulfilled - assume here they ordered exactly what
they need for four weeks on average. The nearest space transporter has not yet arrived but it is
already in the Mars orbit. MHQ has to place its next order to Earth. What is the order quantity?
RSM 270H1S - Final Exam Page 8 of 12
 END OF BONUS QUESTION

RSM 270H1S - Final Exam

APPENDIX. z-Score Table. (See next page, 3 pages in total)

z‫־‬Score Table
z 0.09 0.08 0.07 0.06 0.05 0.04 0.03 0.02 0.01 0.00
-3.4 0.0002 0.0003 0.0003 0.0003 0.0003 0.0003 0.0003 0.0003 0.0003 0.0003
-3.3 0.0003 0.0004 0.0004 0.0004 0.0004 0.0004 0.0004 0.0005 0.0005 0.0005
-3.2 0.0005 0.0005 0.0005 0.0006 0.0006 0.0006 0.0006 0.0006 0.0007 0.0007
-3.1 0.0007 0.0007 0.0008 0.0008 0.0008 0.0008 0.0009 0.0009 0.0009 0.0010
-3.0 0.0010 0.0010 0.0011 0.0011 0.0011 0.0012 0.0012 0.0013 0.0013 0.0013
-2.9 0.0014 0.0014 0.0015 0.0015 0.0016 0.0016 0.0017 0.0018 0.0018 0.0019
-2.8 0.0019 0.0020 0.0021 0.0021 0.0022 0.0023 0.0023 0.0024 0.0025 0.0026
-2.7 0.0026 0.0027 0.0028 0.0029 0.0030 0.0031 0.0032 0.0033 0.0034 0.0035
-2.6 0.0036 0.0037 0.0038 0.0039 0.0040 0.0041 0.0043 0.0044 0.0045 0.0047
-2.5 0.0048 0.0049 0.0051 0.0052 0.0054 0.0055 0.0057 0.0059 0.0060 0.0062
-2.4 0.0064 0.0066 0.0068 0.0069 0.0071 0.0073 0.0075 0.0078 0.0080 0.0082
-2.3 0.0084 0.0087 0.0089 0.0091 0.0094 0.0096 0.0099 0.0102 0.0104 0.0107
-2.2 0.0110 0.0113 0.0116 0.0119 0.0122 0.0125 0.0129 0.0132 0.0136 0.0139
-2.1 0.0143 0.0146 0.0150 0.0154 0.0158 0.0162 0.0166 0.0170 0.0174 0.0179
-2.0 0.0183 0.0188 0.0192 0.0197 0.0202 0.0207 0.0212 0.0217 0.0222 0.0228
-1.9 0.0233 0.0239 0.0244 0.0250 0.0256 0.0262 0.0268 0.0274 0.0281 0.0287
-1.8 0.0294 0.0301 0.0307 0.0314 0.0322 0.0329 0.0336 0.0344 0.0351 0.0359
-1.7 0.0367 0.0375 0.0384 0.0392 0.0401 0.0409 0.0418 0.0427 0.0436 0.0446
-1.6 0.0455 0.0465 0.0475 0.0485 0.0495 0.0505 0.0516 0.0526 0.0537 0.0548
-1.5 0.0559 0.0571 0.0582 0.0594 0.0606 0.0618 0.0630 0.0643 0.0655 0.0668
-1.4 0.0681 0.0694 0.0708 0.0721 0.0735 0.0749 0.0764 0.0778 0.0793 0.0808
-1.3 0.0823 0.0838 0.0853 0.0869 0.0885 0.0901 0.0918 0.0934 0.0951 0.0968
-1.2 0.0985 0.1003 0.1020 0.1038 0.1056 0.1075 0.1093 0.1112 0.1131 0.1151
-1.1 0.1170 0.1190 0.1210 0.1230 0.1251 0.1271 0.1292 0.1314 0.1335 0.1357
-1.0 0.1379 0.1401 0.1423 0.1446 0.1469 0.1492 0.1515 0.1539 0.1562 0.1587
-0.9 0.1611 0.1635 0.1660 0.1685 0.1711 0.1736 0.1762 0.1788 0.1814 0.1841
-0.8 0.1867 0.1894 0.1922 0.1949 0.1977 0.2005 0.2033 0.2061 0.2090 0.2119
-0.7 0.2148 0.2177 0.2206 0.2236 0.2266 0.2296 0.2327 0.2358 0.2389 0.2420
-0.6 0.2451 0.2483 0.2514 0.2546 0.2578 0.2611 0.2643 0.2676 0.2709 0.2743
-0.5 0.2776 0.2810 0.2843 0.2877 0.2912 0.2946 0.2981 0.3015 0.3050 0.3085
-0.4 0.3121 0.3156 0.3192 0.3228 0.3264 0.3300 0.3336 0.3372 0.3409 0.3446
-0.3 0.3483 0.3520 0.3557 0.3594 0.3632 0.3669 0.3707 0.3745 0.3783 0.3821
-0.2 0.3859 0.3897 0.3936 0.3974 0.4013 0.4052 0.4090 0.4129 0.4168 0.4207
-0.1 0.4247 0.4286 0.4325 0.4364 0.4404 0.4443 0.4483 0.4522 0.4562 0.4602
-0.0 0.4641 0.4681 0.4721 0.4761 0.4801 0.4840 0.4880 0.4920 0.4960 0.5000

RSM 270H1S - Final Exam Page 10 of 12

 PLEASE HAND IN.

z 0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09
0.0 0.5000 0.5040 0.5080 0.5120 0.5160 0.5199 0.5239 0.5279 0.5319 0.5359
0.1 0.5398 0.5438 0.5478 0.5517 0.5557 0.5596 0.5636 0.5675 0.5714 0.5753
0.2 0.5793 0.5832 0.5871 0.5910 0.5948 0.5987 0.6026 0.6064 0.6103 0.6141
0.3 0.6179 0.6217 0.6255 0.6293 0.6331 0.6368 0.6406 0.6443 0.6480 0.6517
0.4 0.6554 0.6591 0.6628 0.6664 0.6700 0.6736 0.6772 0.6808 0.6844 0.6879
0.5 0.6915 0.6950 0.6985 0.7019 0.7054 0.7088 0.7123 0.7157 0.7190 0.7224
0.6 0.7257 0.7291 0.7324 0.7357 0.7389 0.7422 0.7454 0.7486 0.7517 0.7549
0.7 0.7580 0.7611 0.7642 0.7673 0.7704 0.7734 0.7764 0.7794 0.7823 0.7852
0.8 0.7881 0.7910 0.7939 0.7967 0.7995 0.8023 0.8051 0.8078 0.8106 0.8133
0.9 0.8159 0.8186 0.8212 0.8238 0.8264 0.8289 0.8315 0.8340 0.8365 0.8389
1.0 0.8413 0.8438 0.8461 0.8485 0.8508 0.8531 0.8554 0.8577 0.8599 0.8621
1.1 0.8643 0.8665 0.8686 0.8708 0.8729 0.8749 0.8770 0.8790 0.8810 0.8830
1.2 0.8849 0.8869 0.8888 0.8907 0.8925 0.8944 0.8962 0.8980 0.8997 0.9015
1.3 0.9032 0.9049 0.9066 0.9082 0.9099 0.9115 0.9131 0.9147 0.9162 0.9177
1.4 0.9192 0.9207 0.9222 0.9236 0.9251 0.9265 0.9279 0.9292 0.9306 0.9319
1.5 0.9332 0.9345 0.9357 0.9370 0.9382 0.9394 0.9406 0.9418 0.9429 0.9441
1.6 0.9452 0.9463 0.9474 0.9484 0.9495 0.9505 0.9515 0.9525 0.9535 0.9545
1.7 0.9554 0.9564 0.9573 0.9582 0.9591 0.9599 0.9608 0.9616 0.9625 0.9633
1.8 0.9641 0.9649 0.9656 0.9664 0.9671 0.9678 0.9686 0.9693 0.9699 0.9706
1.9 0.9713 0.9719 0.9726 0.9732 0.9738 0.9744 0.9750 0.9756 0.9761 0.9767
2.0 0.9772 0.9778 0.9783 0.9788 0.9793 0.9798 0.9803 0.9808 0.9812 0.9817
2.1 0.9821 0.9826 0.9830 0.9834 0.9838 0.9842 0.9846 0.9850 0.9854 0.9857
2.2 0.9861 0.9864 0.9868 0.9871 0.9875 0.9878 0.9881 0.9884 0.9887 0.9890
2.3 0.9893 0.9896 0.9898 0.9901 0.9904 0.9906 0.9909 0.9911 0.9913 0.9916
2.4 0.9918 0.9920 0.9922 0.9925 0.9927 0.9929 0.9931 0.9932 0.9934 0.9936
2.5 0.9938 0.9940 0.9941 0.9943 0.9945 0.9946 0.9948 0.9949 0.9951 0.9952
2.6 0.9953 0.9955 0.9956 0.9957 0.9959 0.9960 0.9961 0.9962 0.9963 0.9964
2.7 0.9965 0.9966 0.9967 0.9968 0.9969 0.9970 0.9971 0.9972 0.9973 0.9974
2.8 0.9974 0.9975 0.9976 0.9977 0.9977 0.9978 0.9979 0.9979 0.9980 0.9981
2.9 0.9981 0.9982 0.9982 0.9983 0.9984 0.9984 0.9985 0.9985 0.9986 0.9986
3.0 0.9987 0.9987 0.9987 0.9988 0.9988 0.9989 0.9989 0.9989 0.9990 0.9990
3.1 0.9990 0.9991 0.9991 0.9991 0.9992 0.9992 0.9992 0.9992 0.9993 0.9993
RSM 270H1S - LOlOl Final E Page 11 of 12
 PLEASE HAND IN.

Z 0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09
3.2 0.9993 0.9993 0.9994 0.9994 0.9994 0.9994 0.9994 0.9995 0.9995 0.9995
3.3 0.9995 0.9995 0.9995 0.9996 0.9996 0.9996 0.9996 0.9996 0.9996 0.9997
3.4 0.9997 0.9997 0.9997 0.9997 0.9997 0.9997 0.9997 0.9997 0.9997 0.9998

•THE END•

RSM 270H1S - LOlOl Final Exam Page 12 of 12