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CMA Inter Paper 9: OMSM study materials
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CMA Inter Paper 9: OMSM practice questions

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Question 1Introduction to Operations Management

Which of the following best describes the primary focus of operations management in a manufacturing organisation?

  1. Managing the transformation of inputs into finished goods and services efficiently Correct answer.
  2. Maximising the company's share price through investor relations
  3. Designing advertising campaigns to build brand awareness
  4. Preparing statutory financial statements for external reporting

Explanation

Operations management concerns the design, planning and control of the processes that convert inputs such as materials, labour and energy into outputs of goods and services. It is therefore centred on the transformation process itself rather than on finance or marketing activities.

Question 2Introduction to Operations Management

In the input–transformation–output model of operations, which element is best classified as a transforming resource rather than a transformed resource?

  1. Components stored in the warehouse
  2. Customer orders held in a queue
  3. Raw materials awaiting machining
  4. Machinery and equipment used in production Correct answer.

Explanation

Transformed resources are the materials, information and customers that operations act upon, while transforming resources are the facilities and staff that perform the action. Machinery and equipment are facilities, so they act on other resources rather than being acted upon.

Question 3Introduction to Operations Management

A firm that competes by offering a wider variety of product options than its rivals is emphasising which operations performance objective?

  1. Flexibility Correct answer.
  2. Speed
  3. Dependability
  4. Cost

Explanation

Flexibility is the objective concerned with an operation's ability to change what it does, including offering a broad range of products and adjusting to customer requirements. Variety of output is a classic dimension of flexibility.

Question 4Introduction to Operations Management

Which of the following is the most appropriate classification for a hospital, a university and a bank in operations terms?

  1. Service operations with a high degree of customer contact Correct answer.
  2. Project operations producing one-off unique outputs
  3. Pure manufacturing operations with tangible outputs
  4. Extractive operations dealing with natural resources

Explanation

Hospitals, universities and banks all deliver largely intangible outputs with significant customer involvement in the delivery process. They are therefore best described as service operations with high customer contact, even though they also use physical resources.

Question 5Introduction to Operations Management

A car manufacturer and a wedding planner both deliver outputs, but they differ in which key operations characteristic?

  1. Whether facilities are needed
  2. Whether labour is employed
  3. Whether any inputs are required
  4. Whether the output is a good or a service Correct answer.

Explanation

The essential distinction is tangibility: cars are tangible goods that can be stored, whereas a wedding is an intangible experience consumed as it is produced. Both use inputs, labour and facilities, so those are not differentiating characteristics.

Question 6Introduction to Operations Management

Which performance objective is most directly supported by an operation that consistently delivers orders on the promised date?

  1. Cost
  2. Quality
  3. Flexibility
  4. Dependability Correct answer.

Explanation

Dependability means doing things on time and keeping promises to customers, so consistent on-time delivery directly demonstrates this objective. Quality concerns conformance to specification, flexibility concerns change, and cost concerns efficiency.

Question 7Introduction to Operations Management

A firm redesigns its process so that each unit requires less labour and material while maintaining the same output level. Which performance objective has been improved?

  1. Speed
  2. Flexibility
  3. Cost Correct answer.
  4. Dependability

Explanation

Reducing the resource input per unit of output lowers the unit cost of production, which is the cost objective. The improvement stems from efficiency gains rather than from changes in timing or variety.

Question 8Introduction to Operations Management

Which of the following statements about the relationship between operations management and other business functions is most accurate?

  1. Operations must be coordinated with marketing, finance and human resources Correct answer.
  2. Operations is the only function that creates value for customers
  3. Operations is subordinate to marketing in all organisations
  4. Operations operates in isolation from the rest of the organisation

Explanation

Operations is a core function but it depends on and supplies other functions, so coordination with marketing, finance and human resources is essential. No single function creates value alone, and no universal hierarchy makes one function subordinate to another.

Question 9Introduction to Operations Management

Which of the following is the best example of a project-type operation?

  1. A mass-production assembly line
  2. A continuous chemical refinery
  3. A fast-food outlet serving standard items
  4. Constructing a one-off bridge to a bespoke design Correct answer.

Explanation

A project operation deals with a high variety of tasks, low volume and a defined start and finish, which fits a bespoke bridge construction. Continuous and mass processes involve high volume and low variety.

Question 10Introduction to Operations Management

In the four Vs of operations, a high-volume operation typically exhibits which combination of characteristics?

  1. Low volume and high flexibility
  2. High variety and high customer contact
  3. Low repetition, low specialisation and high unit cost
  4. High repetition, high specialisation and low unit cost Correct answer.

Explanation

High volume means the same tasks are repeated many times, allowing specialisation of labour and equipment and spreading fixed costs over many units, which lowers unit cost. Low variety and standardisation usually accompany high volume.

Question 11Introduction to Operations Management

An operation that handles a very high variety of outputs will generally find which of the following to be true?

  1. Its unit costs will tend to be higher Correct answer.
  2. Its unit costs will tend to be lower
  3. Its flexibility will tend to be lower
  4. Its processes will tend to be more standardised

Explanation

High variety reduces the opportunity for repetition and standardisation, so each task is performed less frequently and costs per unit are higher. Variety and cost therefore usually trade off against each other.

Question 12Introduction to Operations Management

Which of the following pairs correctly matches an operation with the dominant process type it most closely resembles?

  1. Oil refinery - continuous process Correct answer.
  2. Custom furniture maker - mass process
  3. Car assembly line - project process
  4. Fast-food chain - jobbing process

Explanation

An oil refinery runs without interruption on a single product family at very high volume, which is the defining feature of a continuous process. The other pairings misalign volume and variety characteristics.

Question 13Introduction to Operations Management

Which of the following best explains why operations management is important for an organisation's competitive position?

  1. It controls how efficiently resources are converted into customer value Correct answer.
  2. It determines the organisation's tax liability
  3. It decides the interest rate at which the firm borrows
  4. It sets the level of employee wages across the industry

Explanation

Operations management governs the conversion of resources into outputs, so it directly affects cost, quality, speed and dependability, which underpin competitiveness. Tax, industry wages and borrowing rates are outside its scope.

Question 14Introduction to Operations Management

A firm offers a standard product but allows customers to choose from several optional features at the point of order. This is best described as which approach to variety?

  1. Mass customisation through postponement of variety Correct answer.
  2. Full customisation from first principles
  3. Continuous process production
  4. Pure standardisation with no customer choice

Explanation

Mass customisation combines standardised base production with customer-specific options, often by postponing the point at which variety is added. This captures some flexibility benefits while retaining much of the efficiency of standard production.

Question 15Introduction to Operations Management

Which of the following statements about the speed objective is most accurate?

  1. Speed is irrelevant when quality is high
  2. Speed concerns only the movement of goods between warehouses
  3. Speed always increases unit cost by requiring more resources
  4. Speed reduces the time between a customer request and delivery of the product Correct answer.

Explanation

The speed objective is about minimising the elapsed time between a customer request and the availability of the product or service. Faster response can also reduce inventory and administrative overhead, so it need not raise unit cost.

Question 16Introduction to Operations Management

A company's operations strategy emphasises low cost, while its marketing strategy emphasises premium quality and exclusivity. What is the most likely consequence?

  1. Operations will automatically become more flexible
  2. The firm will achieve both objectives without trade-offs
  3. The two strategies reinforce each other perfectly
  4. There is a strategic mismatch that can confuse operational priorities Correct answer.

Explanation

Operations strategy must be aligned with the competitive priorities set by marketing; a low-cost operations approach conflicts with a premium-quality positioning. Such misalignment creates confusion over priorities and can undermine both goals.

Question 17Introduction to Operations Management

Which of the following best describes the role of feedback in the operations control cycle?

  1. It guarantees that no deviations will ever occur
  2. It eliminates the need for performance standards
  3. It measures actual performance and compares it with the plan Correct answer.
  4. It replaces the need for any planning activity

Explanation

Control involves setting standards, measuring actual performance and comparing the two so that corrective action can be taken. Feedback supplies the measurement and comparison step in this cycle.

Question 18Introduction to Operations Management

A firm measures both the number of defective units produced and the percentage of orders delivered on time. These two measures primarily reflect which pair of performance objectives?

  1. Speed and cost
  2. Cost and flexibility
  3. Flexibility and quality
  4. Quality and dependability Correct answer.

Explanation

Defect counts indicate conformance to specification, which is the quality objective, while on-time delivery indicates reliability, which is the dependability objective. Speed and flexibility are measured differently, such as lead time and range of products.

Question 19Introduction to Operations Management

Which of the following situations best illustrates the trade-off between the quality and cost objectives?

  1. Reducing lead time also reduces work-in-progress inventory
  2. Offering more product options increases flexibility
  3. Increasing inspection activity reduces defects but adds inspection cost Correct answer.
  4. Training staff improves both skill and morale

Explanation

A trade-off exists when improving one objective requires sacrificing another; extra inspection lowers defects but raises cost. The other examples describe improvements that do not involve a clear sacrifice of a competing objective.

Question 20Introduction to Operations Management

A jobbing process is typically characterised by which combination of volume and variety?

  1. High volume and high variety
  2. Low volume and low variety
  3. High volume and low variety
  4. Low volume and high variety Correct answer.

Explanation

Jobbing operations handle small quantities of many different, often bespoke products, so volume is low and variety is high. This contrasts with line and continuous processes, which combine high volume with low variety.

Question 21Operations Planning and Control

In a manufacturing organisation, which of the following best describes the primary objective of production planning and control (PPC)?

  1. To prepare the annual financial statements of the factory
  2. To ensure that all purchase requisitions are approved by the stores department
  3. To maximise the number of units produced regardless of cost
  4. To coordinate men, machines and materials so that products are delivered on time at minimum cost Correct answer.

Explanation

PPC aims to plan and control the flow of work so that customer orders are met on time, with the best utilisation of capacity and minimum total cost. It coordinates materials, machines and manpower rather than simply maximising output or handling finance and stores paperwork.

Question 22Operations Planning and Control

Which of the following is a function of production control rather than of production planning?

  1. Estimating future demand for the product
  2. Deciding the plant layout
  3. Routing of the work through the shop floor
  4. Dispatching work orders to the operators Correct answer.

Explanation

Production control is concerned with executing the plan, and dispatching releases work orders to the shop floor as part of that execution. Routing, layout and demand estimation are planning decisions taken before execution begins.

Question 23Operations Planning and Control

A firm produces a single standard product for stock and the demand is stable. Which production planning approach is most appropriate?

  1. Make-to-order planning with project scheduling
  2. Batch planning triggered only by confirmed customer orders
  3. Continuous planning with level production and finished-goods inventory Correct answer.
  4. Job-order planning based on individual customer orders

Explanation

When demand is stable and the product is standard, a continuous or flow system with level production builds stock to absorb fluctuations. Customer-specific scheduling is unnecessary and would add cost without benefit.

Question 24Operations Planning and Control

In the context of production planning, 'routing' refers to:

  1. Releasing materials from the store to the shop floor
  2. Determining the path and sequence of operations through which a product passes Correct answer.
  3. Recording actual hours spent on a job
  4. Assigning time standards to each operation

Explanation

Routing establishes the sequence of operations and the path a product follows through the plant, together with the departments involved. Time standards, material release and time recording are separate PPC functions.

Question 25Operations Planning and Control

A machine is available for 8 hours a shift. The standard time allowed for the product is 4 minutes per unit and 90 units are produced in the shift. What is the machine utilisation in terms of standard hours achieved as a percentage of available hours?

  1. 90%
  2. 100%
  3. 80%
  4. 75% Correct answer.

Explanation

Standard hours produced = 90 × 4 minutes = 360 minutes = 6 hours. Utilisation = 6 ÷ 8 × 100 = 75%. The calculation compares standard hours of work done with the hours the machine was available.

Question 26Operations Planning and Control

Which scheduling rule is designed to minimise the average flow time of jobs waiting at a single machine?

  1. Longest processing time (LPT)
  2. Shortest processing time (SPT) Correct answer.
  3. First come, first served (FCFS)
  4. Earliest due date (EDD)

Explanation

Sequencing jobs by shortest processing time first minimises the average flow time and average waiting time for a single machine. EDD minimises maximum lateness rather than average flow time.

Question 27Operations Planning and Control

Three jobs A, B and C are processed on one machine with processing times of 5, 2 and 8 days respectively, all available at time zero. Using the shortest processing time rule, what is the average flow time?

  1. 9 days
  2. 5 days Correct answer.
  3. 6 days
  4. 15 days

Explanation

SPT sequence is B (2), A (5), C (8). Completion times are 2, 7 and 15 days, giving a total of 24 and an average of 8 days per job... let me restate: the sum of completion times is 2 + 7 + 15 = 24, so the average flow time is 24 ÷ 3 = 8 days.

Question 28Operations Planning and Control

Johnson's rule is used in production planning to:

  1. Minimise total processing cost on a single machine
  2. Balance an assembly line with a given cycle time
  3. Determine the economic order quantity of raw materials
  4. Minimise makespan for a set of jobs processed through two machines in the same order Correct answer.

Explanation

Johnson's rule sequences jobs through two machines in series to minimise the total elapsed time, or makespan. It does not address cost, inventory ordering or line balancing.

Question 29Operations Planning and Control

Which of the following best explains the difference between loading and scheduling in PPC?

  1. Loading fixes the start and finish time of each job, while scheduling assigns work to machines
  2. Loading determines the product design, while scheduling determines the process
  3. Loading assigns work to machines or work centres, while scheduling fixes the timing and sequence of the work Correct answer.
  4. Loading and scheduling are identical terms used interchangeably

Explanation

Loading decides how much work is assigned to each machine or work centre, while scheduling determines when each job will be started and finished and in what order. The two are sequential planning steps.

Question 30Operations Planning and Control

A work centre has a capacity of 500 standard hours per week. Planned load is 450 hours. If a new order of 90 standard hours is accepted, what is the resulting load as a percentage of capacity?

  1. 90%
  2. 118%
  3. 100%
  4. 108% Correct answer.

Explanation

Total load becomes 450 + 90 = 540 hours against 500 hours of capacity. 540 ÷ 500 × 100 = 108%, indicating the work centre is overloaded by 8%.

Question 31Operations Planning and Control

Which of the following is the main purpose of a Gantt chart in production planning?

  1. To calculate the standard time for each operation
  2. To compute the economic order quantity
  3. To determine the break-even point of the plant
  4. To show graphically the planned and actual progress of work against time Correct answer.

Explanation

A Gantt chart displays activities or machines along a time axis, allowing planned schedules to be compared with actual progress. It is a visual scheduling and control aid rather than a costing or inventory model.

Question 32Operations Planning and Control

In a Gantt load chart, a work centre is shown with a solid bar extending beyond the current date into the future. What does this most likely indicate?

  1. The work centre has committed work queued that will keep it busy in future periods Correct answer.
  2. The work centre has been shut down for maintenance
  3. The work centre has already completed more work than planned
  4. The work centre is idle and available for new orders

Explanation

Bars extending into future periods represent work already assigned to the centre, showing committed load. This helps planners see where capacity is already absorbed before accepting new orders.

Question 33Operations Planning and Control

Expediting, as a follow-up function in production control, involves:

  1. Chasing and speeding up delayed jobs so that delivery promises are met Correct answer.
  2. Preparing the annual maintenance schedule
  3. Purchasing materials at the lowest possible price
  4. Reducing the standard time of an operation permanently

Explanation

Expediting is the follow-up action of identifying jobs that are falling behind and taking steps to bring them back on schedule. It is a control activity triggered by deviation from plan.

Question 34Operations Planning and Control

A firm uses a chase strategy for aggregate planning. Which action is consistent with this strategy when demand falls?

  1. Increasing advertising to raise demand to the existing output level
  2. Reducing the workforce or working hours to match the lower demand Correct answer.
  3. Maintaining a constant workforce and accumulating backlogs
  4. Building inventory by continuing production at the previous level

Explanation

A chase strategy adjusts capacity, mainly through workforce size or working hours, to match demand period by period. Building inventory or backlogs belongs to level and hybrid strategies.

Question 35Operations Planning and Control

Which of the following pairs correctly matches an aggregate planning option with its cost consequence?

  1. Hiring and layoff - inventory carrying cost
  2. Building inventory in slack periods - inventory holding cost Correct answer.
  3. Subcontracting - reduced purchase cost
  4. Overtime - lower wage cost per unit

Explanation

Producing ahead of demand to build stock creates inventory, so the associated cost is inventory holding cost. The other pairings misstate the cost each option actually generates.

Question 36Operations Planning and Control

In a master production schedule (MPS), which statement is correct?

  1. The MPS fixes the capacity of each machine for the year
  2. The MPS states end-item quantities to be produced in each time period Correct answer.
  3. The MPS lists the raw material requirements for each component
  4. The MPS is prepared only after all shop-floor operations are completed

Explanation

The MPS disaggregates the aggregate plan into specific end items and the quantities due in each time bucket. Material requirements are exploded from the MPS by MRP, and capacity is handled by capacity planning.

Question 37Operations Planning and Control

A product has a bill of materials in which two units of component X are required for each unit of the finished product. If the MPS calls for 300 finished units in week 5, how many units of X are needed before considering on-hand stock?

  1. 300
  2. 150
  3. 600 Correct answer.
  4. 900

Explanation

Gross requirement for X equals the parent quantity multiplied by the usage per parent: 300 × 2 = 600 units. On-hand inventory and scheduled receipts would be netted off afterwards.

Question 38Operations Planning and Control

In MRP terminology, 'lead time offsetting' means:

  1. Scheduling the release of an order earlier than its requirement date by the lead time Correct answer.
  2. Adding safety stock to the order quantity
  3. Delaying the due date of a customer order
  4. Reducing the lot size to the net requirement

Explanation

Lead time offsetting back-schedules planned order releases so that the item is available on the date it is needed by the parent. The offset equals the item's procurement or manufacturing lead time.

Question 39Operations Planning and Control

A component has a gross requirement of 500 units in week 4, an on-hand stock of 120 units and a scheduled receipt of 80 units in week 2. Using lot-for-lot sizing, what is the net requirement to be released?

  1. 380 units
  2. 500 units
  3. 420 units
  4. 300 units Correct answer.

Explanation

Net requirement = gross requirement − on-hand − scheduled receipts = 500 − 120 − 80 = 300 units. Lot-for-lot ordering then releases exactly this net requirement.

Question 40Operations Planning and Control

Which of the following best describes the role of capacity requirements planning (CRP)?

  1. It sets the standard time for each operation on the routing
  2. It forecasts long-term demand for the product family
  3. It determines the economic order quantity of each purchased component
  4. It checks whether the load generated by planned MRP orders can be met by the available capacity at work centres Correct answer.

Explanation

CRP converts planned order releases from MRP into load at each work centre and compares it with available capacity. Where load exceeds capacity, the planner must adjust the schedule or capacity.

Question 41Operations Planning and Control

In the theory of constraints, the 'drum-buffer-rope' method is applied to:

  1. Reduce the number of suppliers to a single source
  2. Schedule the flow of work to protect the bottleneck and pace the release of material Correct answer.
  3. Determine the reorder point for finished goods
  4. Balance all work centres to exactly the same capacity

Explanation

The drum is the bottleneck schedule that sets the pace, the buffer protects the constraint from starvation, and the rope ties material release to the drum. The aim is to exploit and protect the constraint rather than balance all capacities.

Question 42Operations Planning and Control

Which of the following is an example of a 'pull' system in production planning and control?

  1. An aggregate plan that sets the workforce level
  2. A kanban system in which downstream consumption triggers replenishment Correct answer.
  3. A master production schedule that fixes output for the year
  4. A material requirements planning system that pushes orders based on forecasts

Explanation

In a pull system, production is authorised by consumption at the downstream stage, and kanban cards are the classic signal. MRP, MPS and aggregate plans are push or planning mechanisms that authorise work in advance.

Question 43Operations Planning and Control

A firm operates a kanban system. Demand is 200 units per day, lead time for replenishment is 0.5 day, and the policy allows 10% safety stock. Using the formula kanban size = demand × lead time × (1 + safety factor), approximately how many kanban containers are needed if each container holds 25 units?

  1. 6 containers
  2. 5 containers Correct answer.
  3. 4 containers
  4. 8 containers

Explanation

Required quantity = 200 × 0.5 × 1.10 = 110 units. Dividing by 25 units per container gives 4.4, which must be rounded up to 5 containers to cover demand during lead time plus safety.

Question 44Operations Planning and Control

Which of the following best describes the purpose of a line balancing exercise in an assembly line?

  1. To assign tasks to workstations so that idle time is minimised for a given cycle time Correct answer.
  2. To set the selling price of the finished product
  3. To decide the number of suppliers for each component
  4. To determine the most economical order quantity for components

Explanation

Line balancing allocates elemental tasks among workstations so that each station's work does not exceed the cycle time and the total idle time is minimised. It is a layout and scheduling technique for flow production.

Question 45Operations Planning and Control

An assembly line must produce 480 units in an 8-hour shift. What is the cycle time in minutes per unit?

  1. 1 minute Correct answer.
  2. 2 minutes
  3. 0.5 minute
  4. 1.5 minutes

Explanation

Available time = 8 × 60 = 480 minutes. Cycle time = 480 minutes ÷ 480 units = 1 minute per unit. The cycle time is the maximum time each workstation may take.

Question 46Operations Planning and Control

A firm classifies its production system as intermittent job-shop production rather than continuous flow. Which characteristic most directly justifies that classification?

  1. The plant is dedicated to a single standard product made on a fixed sequence of special-purpose machines
  2. Work moves through the shop in small, varied batches with general-purpose equipment and changing routings Correct answer.
  3. Demand is smoothed by holding finished goods inventory produced to stock in long runs
  4. Output is measured in standard hours per week and capacity is fixed by the bottleneck machine

Explanation

Intermittent (job-shop and batch) systems are characterised by general-purpose plant, varied products, low volume per order and routings that differ from job to job, so the equipment must be flexible rather than dedicated. Continuous and mass production instead use special-purpose machinery and a fixed sequence for a standardised product. The distinguishing test is therefore variety and routing variability, not capacity measurement.

Question 47Operations Planning and Control

A product passes through four operations with the following standard times per unit: turning 6 minutes, milling 4 minutes, drilling 3 minutes and grinding 5 minutes. One machine is available at each operation. Ignoring set-ups and waiting, what is the maximum output rate of the line in units per hour?

  1. 12 units per hour
  2. 15 units per hour
  3. 6 units per hour
  4. 10 units per hour Correct answer.

Explanation

The output of a multi-stage line is governed by its bottleneck, the operation with the longest cycle time. Here turning takes 6 minutes per unit, the largest of the four times, so the line can complete at most 60 / 6 = 10 units per hour. The other operations have idle capacity and cannot raise this rate.

Question 48Operations Planning and Control

A company uses a periodic review (P) system for a purchased item. The review period is 2 weeks, the replenishment lead time is 3 weeks and average weekly usage is 100 units. Using a safety stock of 150 units, what is the maximum stock level that the order-up-to rule targets?

  1. 800 units
  2. 650 units Correct answer.
  3. 350 units
  4. 450 units

Explanation

In a periodic review system the order-up-to level must cover demand over the review period plus the lead time, with safety stock added: (2 + 3) weeks x 100 units = 500 units, plus 150 units of safety stock = 650 units. Each review orders the difference between this target and the stock position. Using only the lead time, or only the review period, understates the protection actually required.

Question 49Operations Planning and Control

In value stream mapping of a plant being prepared for lean conversion, which entry is normally recorded for each process box in the current-state map?

  1. The supplier's price list and the payment terms negotiated for purchased parts
  2. The number of kanban cards and the container quantity for each finished item
  3. The standard cost of the operation and its share of factory overhead absorption
  4. Cycle time, changeover time, uptime and available operating time for the process Correct answer.

Explanation

A current-state value stream map records, for every process box, the data that determine flow and delay: cycle time, changeover (set-up) time, uptime or availability, and available working time, together with inventory between processes. These parameters allow calculation of takt time, bottlenecks and the delays that make up the value-added ratio. Cost absorption, supplier pricing and kanban counts are not the standard process-box data set.

Question 50Operations Planning and Control

A planner is choosing between a level capacity plan and a chase plan for a seasonal product. Holding cost is Rs 40 per unit per quarter, hiring and training cost is Rs 900 per worker, and each worker can make 100 units per quarter. Demand varies from 800 units in the peak quarter to 400 units in the slack quarter. Which comparison correctly reflects the economics of the two plans?

  1. The chase plan avoids the 400 units of seasonal inventory, saving Rs 16,000, but needs 4 extra workers for the peak, costing Rs 3,600, so chase is cheaper by Rs 12,400 Correct answer.
  2. The chase plan is cheaper only if the holding cost per unit exceeds the cost of hiring and training one worker
  3. The level plan is always cheaper because inventory holding costs are lower than the cost of changing the workforce in every case
  4. The two plans cost the same because the total annual output is identical under either strategy

Explanation

Under a level plan the 400-unit gap between peak and slack demand is produced in the slack period and held, costing 400 x Rs 40 = Rs 16,000. Under a chase plan the peak requires 800 / 100 = 8 workers against 4 for the slack level, so 4 workers are hired at 4 x Rs 900 = Rs 3,600. Comparing the two identifiable costs, chase is cheaper by Rs 12,400, although a full analysis would also weigh lay-off, idle-time and goodwill effects.