Model Test Paper - 1

CMA Inter Group- II

Paper - 9
Operations Management & Strategic Management
Section - A
(Operations Management)
1. (a) For each part below, choose the most appropriate answer out of the
four options given against each part:
(i) Rotable Spares are:
(a) Repairable and reusable;
(b) not repairable;
(c) not reusable;
(d) supplied by OEM.
(ii) Job Evaluation Techniques do not include
(a) Job Ranking;
(b) Job Classification;
(c) Point Rating;
(d) Retaining Needs.
(iii) Which of the following Industries can not hold an inventory of its
outputs?
(a) Manufacturing Industry;
(b) Transport Industry;
(c) Supply Industry;
(d) Restaurant Kitchen.
(iv) The activity of specifying when to start the job and when to end
the job is known as:
(a) Planning
(b) Scheduling
(c) Timing
(d) Follow-up
(v) Most suitable layout for job production is:
(a) Line layout
(b) Matrix layout
(c) Process layout
(d) Product layout

9.1
 9.2 O Solved Scanner CMA Inter Gr. II Paper 9 (New Syllabus)
(vi) The act of assessing the future and making provisions for it is
known as:
(a) Planning,
(b) Forecasting,
(c) Assessment,
(d) Scheduling
(vii) One of the important charts used in programme control is :
(a) Material chart,
(b) Gantt chart,
(c) Route chart,
(d) Inspection chart.
(viii) Most suitable layout for continuous production is:
(a) process layout,
(b) group technology,
(c) line layout,
(d) matrix layout.
(ix) To decide workload for men and machines:
(a) medium range forecasting is used,
(b) short term forecasting is used,
(c) long range forecasting is used,
(d) combination of long range and medium range forecasting is
used.
(x) In solving a problem on Line of Balance, the number of
workstations required is given by:
(a) Cycle Time/Total Time,
(b) Cycle Time/Element Time,
(c) Total Time/Element Time,
(d) Total Time/Cycle Time. (1 × 10 = 10 marks)
Answer:
(i) (a)
(ii) (d)
(iii) (d)
(iv) (a)
(v) (c)
(vi) (b)
 Model Test Paper O 9.3

(vii) (b)
(viii) (c)
(ix) (b)
(x) (d)

(b) Put an appropriate word or two in blank position:

(i) _____ uses algebraic procedure to solve any problem, which
satisfies the test of linearity and certainty.
(ii) Under preventive maintenance “(hours worked for
maintenance)/(Scheduled hours) ×100 = ________.”
(iii) Trend values of all years of the series may be obtained
advantageously using the ______.
(iv) _______ is the degree to which a firm’s own production system
handles the entire supply chain starting from procurement of raw
materials to distribution of finished goods.
(v) _______ layout is used for mass production.
(vi) Factor comparison is a method of _______.
(1 × 6 = 6 marks)
Answer:
(i) Simple Method
(ii) Performance of Department
(iii) Least Squares
(iv) Vertical Integration
(v) Product
(vi) Job evaluation

(c) Examine each statement and indicate whether it is ‘True’ or ‘False’:

(i) Industrial Engineering is not a line function.
(ii) Ranking is one of the Job Evaluation Techniques.
(iii) Results available from work sampling study is 100% accurate.
(iv) Standard time does not allow for relaxation of the operators.
(v) Incentives are substitutes for lower wages.
(vi) Gantt chart is used for production control.
(1 × 6 = 6 marks)
 9.4 O Solved Scanner CMA Inter Gr. II Paper 9 (New Syllabus)
Answer:
(i) True
(ii) True
(iii) False
(iv) False
(v) False
(vi) True

2. (a) A Co. is engaged in manufacturing spark plugs for automobiles. The

operations are performed on a CNC 3-axis drilling cum tapping
centre. The operation cycle time is as follows :
Drilling time : 45 secs;
Tapping time : 90 secs;
Tool change time : 25 secs;
For feeding the spark plugs the Co. designed a fixture holding
10 sparks plugs at a time and set up time for the 10 plugs in the
fixture is 80 secs. The Co. decided to augment Capacity due to an
additional order to the extent of 1.10 lakhs sparks plugs per year.
Assuming that manpower is no constraint, how many additional
drilling tapping centers the Co. should procure under the
augmentation plan?
Average rejection is 2 % of the produced good spark plugs.
Assume 300 working days per year of 8 hrs. per day shift. 20%
time, the drilling tapping centers are not available due to preventive
maintenance and the utilization is 70% of the available time due to
power and service line shutdown. (10 marks)
Answer:
Drilling Time – 45 sec.
Tapping Time – 90 sec.
Tool change time of – 25 sec.
Cycle time of operations per spark plugs = 45 + 90 + 25 = 160 sec.
Set up time for 10 spark plugs = 80 sec.
Set up time per nozzles = 8 sec.
Total Set up time & operation time per nozzle = 168 sec.
 Model Test Paper O 9.5

Order received = 110000 nozzles

Average rejection = 2%
Hence, total input spark plugs to be produced = 110000 × 100/98=112245
Total time required for the above production = 168 ×112245 sec. per year
Effective time per drilling tapping
center per year = 300day × 8 hrs/ day × 0.8 × 0.7
= 2,400 x 0,56 hrs. per year
= 2,400 × 0.56 × 60 × 60 sec. per year
Hence to cope up with the additional load, no. of centers required
= (168 ×112245)/(2400 × 0.56 × 3600)
= 18857160 / 4838400
= 3.897 i.e.4 Hence, four centers should be installed.

(b) A manager has to decide about the number of machines to be

purchased. He has three options i.e. purchasing one, or two, or
three machines. The data is given below:
Number of Annual Fixed cost Corresponding range
machines (`) of output (units)
1 10,000 0 to 400
2 12,000 401 to 700
3 20,000 701 to 1000
Variable cost is ` 20 and revenue is ` 40 per unit.
(i) Determine the break-even point for each range;
(ii) If projected demand is between 600 and 750 units, how many
machines should the manager purchase? (6 marks)
Answer:
(i) BEP =

0-400 = = 500 Units

401-700 = = 600 Units

701-1000 = = 1,000 Units

 9.6 O Solved Scanner CMA Inter Gr. II Paper 9 (New Syllabus)
(ii) The break even point for single machine option (i.e.,500 units) is not
feasible because it exceeds the range of volume that can be produced
with one machine(i.e.,0 to 400). Also, the break even point for 3
machines is 1000 units which is more than the upper limit of projected
demand of 600 to 750 units and hence not feasible. For 2 machine
option the break even volume is 600 units and volume range is 401 to
700. Hence, the demand of 600 to 700 can be met with 2 machines
and profit is earned because the production volume of 600 to 700 is
more than break even volume of 600. If the manager wants to
produce 750 units with 3 machines, there will be a loss because the
break even volume with 3 machines is 1000 units. Hence, the
manager would choose 2 machines and produce 600 to 700 units.

3. (a) Four products A, B, C and D have ` 5, ` 7, ` 3 and ` 9 profitability

respectively. First type of material (limited supply of 800 kg) is
required by A, B, C and D at 4 kg, 3 kg, 8 kg and 2 kg, respectively
per unit. Second type of material has a limited supply of 300 kg, and
is for A, B, C and D at 1 kg, 2 kg, 0 kg and 1 kg per unit. Supply of
other types of material consumed is unlimited. Machine hours
available are 500 hours and requirements are 8, 5, 0 and 4 hours for
A, B, C and D each per unit. Labour hours are limited to 900 hours
and requirements are 3, 2, 1 and 5 hours for A, B, C and D
respectively. How should a firm approach so as to maximize it
profitability? Formulate this as Linear Programming Problem. You
are not required to solve the LPP. (10 marks)
Answer:
Material I Material II Machine hours Labour Hours
A 4 1 8 3
B 3 2 5 2
C 8 0 0 1
D 2 1 4 5
Max. availability 800 300 500 900
 Model Test Paper O 9.7

Let X1 , X2 , X3 , and X4 are the quantity produced for products A,B,C and
D respectively.
The objective function is:
Max. Z= 5X1 + 7X2 + 3X3 + 9X4
Subject to constraints
4X1 + 3X2 + 8X3 +2 X4800 (Material I constraint)
1X1 + 2X2 + 0X3 + X4300 (Material II constraint)
8X1 + 2X2 + 0X3 + 4X4 500(Machine hours constraint)
3X1 +2 X2 + X3 +5 X4 900 (Labour hours constraint)
And non –negativity constraints
X1 , X2 , X3 , X40

(b) Please describe the situation where ‘Assembly Line Balancing’ is

required. What are the factors that cause problems in Line
Balancing? Suggest the steps in solving the issue. (6 marks)
Answer:
Assembly Line  It is assigning number of operators or machines to
Balancing each operation of an assembly line so as to meet the
required production rate with a minimum of idle time.
 An assembly line can be considered as a “production
sequence” where parts are assembled together to
form an end product. The operations are carried out
at different workstations situated along the line.
For example, the production capacity of two machine X and Y is as under
for a particular job:
Machine X 90 pieces/ hour
Machine Y 45 pieces/hour
Now, if one machine of each is provided, then machine Y will produce 45
units/hour where as the machine X can produce 90 units. But because of
the sequence, only 45 units are produced per hour, i.e., machine X will work
only 50% of its capacity and the remaining half hour in one hour, it is idle.
This idle time can be minimized by introducing one more machine of kind
Y in production line.
 9.8 O Solved Scanner CMA Inter Gr. II Paper 9 (New Syllabus)
The Problem of Line Balancing:
It arises due to the following factors:
1. The finished product is the result of many sequential operations.
2. There is a difference in production capacities of different machines Line
balancing is the apportionment of sequential work activities into
workstations in order to gain a high utilisation of labour and equipment
so as to minimize the idle time.
Steps in Solving Line Balancing Problems:
1. Define task.
2. Identify precedence requirements.
3. Calculate minimum number of workstations required to produce desired
output.
4. Apply heuristics to assign task to each station.
5. Evaluate effectiveness and efficiency.
6. Seek further improvement.

4. (a) A sample of 10 pieces is drawn from the production of last two hours
of an automatic screw machine and each unit is inspected for
several characteristics and is classified as “OK” or “Not OK”. The
number of units marked “Not OK” for the last 20 samples are given
in the following table in succession:
Sl. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
No.

Not 0 2 1 1 0 3 0 1 1 2 1 0 2 3 0 0 2 0 0 1
ok
Units
Find and the control limits. Comment on the automatic machine condition.
(8 marks)
Answer:
Number of sample inspected K = 20
Sample size n = 10
Total Number of units inspected = 200
Total No. of units inspected = n × K= 20 × 10 = 200
Total number of defective units observed = 20 ( d)
 Model Test Paper O 9.9

The average proportion p = d / n × K= 20/200 = 0.1

Lower Control Limit (LCD) = p 3 = 0.1 +0.285 = .385
= 0.1 – 0.285 i.e. Negative. Hence, LCD = 0
Upper Control limit= p +3 = 0.1 + 0.285 = .385
Since the percent of defectives is within limits, the machine is operating OK

(b) A key electric component lasts for a maximum of 3 weeks. The

chances of its failing at the end of first week is 0.1 and the chance
of its failing at the end of second week is 0.3.The cost per
component for individual replacement is ` 5 and cost per component
for bulk replacement is ` 3. What is the optimal replacement period
assuming there are 100 components initially? (8 marks)
Answer:
Chart showing Optimal Replacement Period.
Probability = 0.1 ; 0.3
Individual Replacement: Average life of bulb = 1 × 0.1 + 2 × 0.3 = 0.7
Weekly Replacement = = 142.85 = 143

Group Replacement = 100 × 3 = ` 300

Week Item to be replaced Weekly Cumulative Total Average
Cost Cost Cost Weekly
Cost
1 100 × 0.1 =10 50 50 350 350
2 100 × 0.3 + 10 × 0.1 = 31 155 205 505 252.5*

*Optimal replacement period is at the end of Second week where the

average cost is the lowest.
 9.10 O Solved Scanner CMA Inter Gr. II Paper 9 (New Syllabus)
Section - B
(Strategic Management)

5. In each of the cases/statements given below, one out of four alternatives

is correct. Indicate the correct answer.
(i) Tata Steel’s famous advertising campaign of “we also make steel”
was meant to gain buyer loyalty to its products:
(a) Inform new buyers about its product portfolio
(b) Enhance product quality perception
(c) Achieve corporate social responsibility
(d) Charge a price premium
(ii) The acquisition of IPCL, Vadodara by Reliance Petro- chemicals
would be a good example of :
(a) Horizontal integration
(b) Vertical integration
(c) Concentratic diversification
(d) Diversification
(iii) Brand names such as Coca-Cola, Sony, Mc Donald’s and Nike are
a source of competitive advantage as:
(a) They are owned by global firms
(b) They are more than 50 years old
(c) They are well-managed brands
(d) They are highly innovative firms
(iv) The product life cycle is decreasing for an increasing number of
products, because of:
(a) Technological changes in materials and processes
(b) Changing tastes of consumers
(c) Competitive activity aimed at increasing market share
(d) All of the above
(v) The acquisition of Corus by TISCO is an example of:
(a) Horizontal integration
(b) Vertical integration
(c) Concentric diversification
(d) Forward integration
 Model Test Paper O 9.11

(vi) Most Indian companies did not have a mission statements till
recently because
(a) It was not a statutory requirement
(b) Companies were not professionally managed
(c) Growth options were controlled by the Government
(d) All of the above (1 × 6 = 6 marks)
Answer:
(i) (c)
(ii) (c)
(iii) (c)
(iv) (d)
(v) (a)
(vi) (c)
6. (a) Discuss in brief the elements of a meaningful mission statement of
a corporate organization. (6 marks)
Answer:
The major elements of an effective corporate mission statement are:
(a) The mission statement should be succinct and easy to understand so
that the values, purposes and goals of the organization are clear to
everybody in the organization and will serve as a guide to them.
(b) A mission statement should be appropriate to the organization in terms
of its history, culture and shared values.
(c) A mission statement may become obsolete after some time. As such it
should be reviewed and updated on a regular basis taking into
consideration the changes in environmental and organizational factors.
(d) A mission statement should be capable of inspiring and encouraging
commitment towards fulfilling the mission.
(e) A mission statement should continually guide and inspire and be
challenged in the pursuit of the mission of the organization, ever
achieving the ultimate goal.
(b) What is ‘Portfolio Planning’? What is ‘Boston Classification’? Why
the public sector insurance companies have started using BCG
services of late? (6 marks)
 9.12 O Solved Scanner CMA Inter Gr. II Paper 9 (New Syllabus)
Answer :
Portfolio Planning is a term used in describing methods of analyzing a
product-market portfolio with the following aims:
(a) To identify the current strengths and weaknesses of an organization’s
products in its markets and the share of growth or decline in each of
these markets.
(b) To identify what strategy is needed to maintain a strong position or
improve a weak one.
BCG classification:
 The Boston Consulting Group (BCG), popularly known as the BCG
Matrix or Growth-Share Matrix, have developed a matrix for
evaluation of business portfolio, which analyses products and
business by market share and market growth.
 BCG model is based on two variables, viz., the rate of growth of the
product-market and the market share in that market held by the firm
relative to its competitors.
 This growth/share matrix for the classification of products into four
groups, like stars, Question Marks, Cash Cows and Dogs is known
as Boston classification.
(a) Stars are the promising products with high share and high growth.
These require capital expenditure, possibly in excess of the cash
they generate, in order to maintain their market position, but promise
high returns in the future. In this case of stars the high volume is
likely to yield the benefits of the experience curve and a reduction in
the cost.
(b) Cash Cows with a high share of a low growth market. It needs very
little capital expenditure and generates high level of cash income. In
this case the high volume would lead to the benefits of the
experience curve yielding higher potential profits. Being in slow
growth industries, they do not normally require significant
reinvestment.
(c) A Question Mark sometimes called Problem Child. It is a product in
high/fast growing market but has a low market share. A decision
needs to be taken about whether the product justifies. Considerable
 Model Test Paper O 9.13

expenditure in the hope of increasing its market share. The benefit

of Stars and Cash Cows would not be available in case of Question
Marks.
(d) Dogs are the products with a low market share of a low growth
market. They may be ex-cash cows that have now fallen on hard
times. Dogs should be allowed to die or should be killed off. Dogs
are the worst of all combinations. It may produce low profit or loss.
They are often a cash drain and use up a disproportionate share of
management time and resources. It may be harvested before
liquidation.
There are also other three stages:
(a) Infants – products in an early stage of development;
(b) Warhorse – products that have been cash cows in the past and still are
making acceptable sales and profits even now;
(c) Dodos – low share, negative growth and negative cash flow.
The product life cycle concept can be added to market share/market growth
classification of products. The market growth rate is an indicator of the
attractiveness of the industry and the relative market share is an indicator of
the strength of the firm in that industry relative to its competitors. In today’s
market competition the BCG matrix services are being used by the public
sector Insurance Companies to analyze their market share, service levels
and its improvements.

7. (a) What are the ways of strengthening a company's position relative to

that of its competitors? Discuss. (6 marks)
Answer :
The following are some of the different ways of strengthening a
company’s position relative to that of its competitors:
1. Cost leadership A cost leadership strategy seeks to achieve the
position of lowest cost producer in the industry. The
competitive advantage that results from producing
the lowest cost is that the manufacturer can compete
on price with every other producer in the industry
9.14 O Solved Scanner CMA Inter Gr. II Paper 9 (New Syllabus)
and can earn the highest unit profits. Bajaj Auto
Limited and Telco appear to be following this
strategy in India.
2. Differentiation A differentiation strategy attempts to make the
product unique in terms of attributes which are
derivable to the customer, including customer
service. The assumption is that competitive
advantage can be gained through the particular
characteristics of a firm’s products will build up and
customers are not so price sensitive. The firm can
then sell its products at prices that are higher than
the low cost producers. Bata shoe, Otis Elevators,
Cini fans are some examples where the strategy
seems to be dominant guiding force.
3. Focus Focus strategy is based on segmenting the market
and targeting particular segments instead of trying to
serve the entire market with a single product. It has
been described as a ‘pistol’ approach as distinct from
a ‘short gun’ approach. The competitive advantage
which results is that the firm is thus able to serve its
narrow strategic target more effectively and
efficiently than competitors who are more broadly.
4. Intensify the In the event of limited resources, it may be wise to
key factors of concentrate on key functional areas that are the
success determinant of success. This calls for correctly
identifying the key factors of success in a given
industry.
5. Exploit A firm can compare its product with that of its
competitor’s competitors in order to identify the product
weaknesses superiority. Critically analyzing each and every
component used to identify the areas of strength and
weaknesses.
 Model Test Paper O 9.15

6. Aggressive This technique involves challenging relentlessly the

initiative ness prevailing assumption that with a single question why
still major breakthroughs are achieved. This
approach has enabled spectacular breakthroughs in
product, processes and services in many companies.

(b) M/s. XYZ Ltd., is business organized as three divisions and Head
office. The divisions are based on market groupings, which are
Retail, Wholesale and Government. The divisions do not trade with
each other. The main method of control of the divisions has been
the requirement to earn a return on investment (ROI) of 15% per
annum. The definition of return and capital employed is provided by
Head office, as is the criterion rate of 15%.
The recent experience of M/s. XYZ Ltd., is that the group, as a
whole, has been able to earn 15% ROI but there have been wide
variations between the results obtained by different divisions. This
infringes upon another group policy that forbids cross-subsidization
i.e., each and every division must earn the criterion ROI.
M/s. XYZ Ltd., is now considering divestment strategies and this
could include the closure of one or more of its divisions.
The Head office is aware that the Boston Product Market
Portfolio Matrix (BPMPM) is widely used within the divisions in the
formulation and review of marketing strategies. As it is so widely
known within the group and is generally regarded by the divisions as
being useful, the Head office is considering employing this approach
to assist in the divestment decision.
You are required to :
(i) Evaluate the use by M/s. XYZ Ltd, of the ROI and its policy that
forbids cross-subsidization.
(ii) Describe the extent to which the BPMPM could be applied by
M/s. XYZ Ltd., in its divestment decision.
Evaluate the appropriateness of the use of BPMPM for this purpose.
(6 marks)
 9.16 O Solved Scanner CMA Inter Gr. II Paper 9 (New Syllabus)
Answer:
(i) Evaluation of the use of the concept of ROI by M/s. XYZ Ltd. : ROI
is an accounting measure that estimates the level of profits as a
proportion of the capital employed over the year. The concept of ROI
is widely used by different companies to measure its performance.
Therefore M/s. XYZ Ltd. is not unusual in using this concept of ROI as
a means of performance monitoring of its divisions. Perhaps one
division of BB Ltd., may have failed to meet its ROI because it might
have recently purchased new fixed assets. Perhaps another division
might be using old assets that have been written off. Further one
division might be riskier than another division.
ROI and Cross Subsidization : There could be a lot of problems with
cross subsidy. This issue of cross subsidies is more complex than it
first appears. We do not know how the investment funds have been
allocated if the head office allocates them, and the divisions cannot
take their own investment decisions, there is a cross subsidization by
the back door as it were. Further one division’s hard earned cash
might be used to buy another division’s assets. Arguably, cross
subsidization is the advantage for a business like M/s. XYZ Ltd.
Further, if the businesses have different business cycle, they are able
to bail each other out when appropriate, whilst ensuring that the
shareholders receive a fairly constant return.
(ii) Application of BPMPM by M/s. XYZ Ltd. in its divestment
decision: BPMPM aims to link the overall growth of the market for a
product, the growth in the market share of a product, with the product’s
cash generative activities. BPMPM classifies a company’s products in
terms of potential cash generation and cash expenditure requirements
into cash cows, dogs, stars and question marks.
Stars are products with a high share of a high growth, market. In the
short term, these require capital expenditure, possibly in excess of the
cash they generate, in order to maintain their market position, but
promise high returns in the future. In due course, however, stars will
become cash cows, which are characterized by a high market share
but low sales growth.
 Model Test Paper O 9.17

Cash cows need very little capital expenditure and generate high
levels of cash income. The important strategic feature of cash cows
is that they are generating high cash returns, which can be used to
finance the stars.
A question mark (sometimes called problem child) is a product in a
high growth market, but has a low market share. A decision needs to
be taken about whether the product justifies considerable expenditure
in the hope of increasing its market share, or whether it should be
allowed to die quietly as it has been squeezed out of the expanding
market by rival products.
Dogs are products with a low share of a low growth market. They may
be ex-cash cows that have now fallen on hard times. Dogs should be
allowed to die or should be killed off.