PM C Decision-making techniques

A product mix is 2 units of A (contribution $8) to 1 unit of B (contribution $12). Fixed costs are $56,000. What are the total break-even units for the mix?

• 1 5,600 units
• 2 4,667 units
• 3 6,000 units
• 4 7,000 units

Product X earns $12 contribution using 2 hours of the scarce resource and product Y earns $15 using 3 hours. Which should be made first?

• 1 X, at $6 an hour
• 2 Y, at $5 an hour
• 3 Y, at $15 a unit
• 4 Both equally

With two or more scarce resources, the best production plan is usually found by:

• 1 Simple ranking by contribution per unit
• 2 Variance analysis
• 3 Linear programming
• 4 Break-even analysis

What is the shadow price of a scarce resource?

• 1 The extra contribution from one more unit of the resource
• 2 The market price of the resource
• 3 The cost of the resource per unit
• 4 The total contribution from all of the resource

A 4 percent rise in price cuts quantity demanded by 10 percent. What is the price elasticity of demand?

• 1 2.5
• 2 -14
• 3 -2.5
• 4 -0.4

Profit is maximised where:

• 1 Total revenue is highest
• 2 Marginal revenue is zero
• 3 Price equals average cost
• 4 Marginal revenue equals marginal cost

Demand is P = 100 - 0.02Q and marginal cost is $20. What is the profit-maximising price?

• 1 $20
• 2 $100
• 3 $60
• 4 $80

A new product is launched at a high price which is later lowered. This is:

• 1 Cost-plus pricing
• 2 Market skimming
• 3 Market penetration
• 4 Loss leader pricing

A division is at full capacity. The marginal cost of an item is $14 and it can be sold outside for $22. What is the minimum transfer price?

• 1 $14
• 2 $8
• 3 $22
• 4 $36

A company has spare capacity and receives a special order. Which costs are relevant?

• 1 Fixed overheads absorbed
• 2 All production costs
• 3 Costs already incurred
• 4 Only the extra costs caused by the order

Payoffs for three plans in a good, medium and poor market are A: 120, 80, 20; B: 90, 70, 50; C: 60, 60, 60. Which plan does maximin choose?

• 1 C
• 2 A
• 3 B
• 4 None of them

Using the same payoffs (A: 120, 80, 20; B: 90, 70, 50; C: 60, 60, 60), which plan does maximax choose?

• 1 A
• 2 B
• 3 C
• 4 None of them

Payoffs for three plans are A: 120, 80, 20; B: 90, 70, 50; C: 60, 60, 60. Which plan does the minimax regret rule choose?

• 1 B
• 2 A
• 3 C
• 4 None of them

The probabilities of a good, medium and poor market are 0.3, 0.5 and 0.2. Plan A pays 120, 80 and 20. What is the expected value of plan A?

• 1 60
• 2 40
• 3 73
• 4 80

The expected value with perfect information is 88 and the best expected value without it is 80. What is the value of perfect information?

• 1 80
• 2 88
• 3 168
• 4 8

What does sensitivity analysis show?

• 1 The probability of each outcome
• 2 The best decision in every case
• 3 How far a variable can change before the decision changes
• 4 The cost of a project