4TRN7A7/7A8 SPECIMEN TEST 1

PLEASE NOTE
Logistics students will have a test similar to this one. It will last two hours and
students attempt any 4 out of the 6 questions.

Planning students will have a two section paper, each section meant to take one
hour. Section A will give a choice of 2 out of 4 questions, which will be similar
to the first 4 questions below. Section B will give a choice of 1 out of 3
questions and Professor White will be circulating specimen questions.

Calculators which have not been pre-programmed may be used

Formula sheets are provided

1. The ‘Bunchem’ bus company has to decide whether to use single-decker,

double-decker or ‘bendy’ buses on a new route. An investment in single-
decker buses would have a ‘years of return’ of 3 years. This is the time
taken for the capital expenditure to be recovered and includes the value
of operational benefits discounted into net present value terms.

Double-decker buses would give 2.6 years of return if the market grows
and 3.2 years if it does not. ‘Bendy’ buses give 4.9 years of return
because fare evasion is a problem. If the government pass suitable laws
then the years of return comes down to 1.9 .The probability of this
happening is 60%.

(a) Draw a decision tree to illustrate the information given in the

question. (10 marks)

(b) Economists believe that the probability of market growth is 30%.

Analyse your tree diagram to advise the company. Notice that the
smaller the years of return is the better the investment. Relate
your advice to the various attitudes to risk the company might
have. (10 marks)

(c) Comment briefly on the suitability of your analysis to this

particular type of decision and on the use of probabilities and
expectations. (5 marks)
4TRN7A7/8 SPECIMEN TEST 1 2/18

2. A coach company owns a fleet of 84 coaches. Last week the average cost
of fuel used by a coach was £1.38 per km with standard deviation £0.21
per km. Since the coaches were purchased, 8 of them have developed
serious mechanical faults.

(a) Calculate a 95% confidence interval for the average fuel cost per
km for a coach. Hence comment on the manager’s claim that last
week was exceptional and the true average is only £1.25 per km.
(5 marks)

(b) Calculate a 95% confidence interval for the percentage of coaches

developing serious mechanical faults. Hence comment on the coach
manufacturer’s claim that is only 7%.
(5 marks)

(c) Heavy snowfalls affect the coach company’s operations. If there is

an average of 17.6 heavy snowfalls per year, calculate a 95%
prediction interval for the number of them next year.
(5 marks)

(d) A coach has a probability of 3% of developing a minor defect on a

trip. Calculate a 95% prediction interval for the number of minor
defects there will be if the coaches make a total of 520 trips next
week.
(5 marks)

(e) Comment briefly on the suitability of the probability distributions

you have used to describe snowfalls and accidents.
(5 marks)
4TRN7A7/8 SPECIMEN TEST 1 3/18

3. For each of the last 24 months, the number of delays during the month to
an underground train system was recorded together with the percentage
of staff absent from work (‘absent%’), the number of cancelled buses in
the city during the month (‘buses’) and the number of defective trains
during the month (‘deftrains’).

(a) A regression of the number of delays against the other three

variables gave the following results:
F ratio 6.604 p = 0.003
predictor coefficient t-ratio probability
constant 39.28 3.10 0.006
absent% 0.39 3.68 0.001
buses 0.04 0.33 0.748
deftrains 0.28 2.95 0.008

Explain the conclusions that can be drawn from this information.

Write down the statistical model for the number of delays that it
implies. (7 marks)

(b) The number of delays was regressed against each of the predictors
alone:

F ratio 7.65 p = 0.011

predictor coefficient t-ratio probability
constant 64.64 7.75 0.000
absent% 0.33 2.77 0.011

F ratio 0.26 p = 0.617

predictor coefficient t-ratio probability
constant 81.57 7.44 0.000
buses 0.07 0.51 0.617
4TRN7A7/8 SPECIMEN TEST 1 4/18

F ratio 4.10 p = 0.055

predictor coefficient t-ratio probability
constant 71.38 8.90 0.000
deftrains 0.23 2.03 0.055

Compare these regressions with each other and with the original three
predictor model. Write out with reasons which of them you consider to
be the ‘best’ model. Use your suggested model to forecast the number of
delays during a month in which 40% of staff are absent, there are 70
cancelled buses and 44 defective trains. Discuss any other regressions
which could be performed.
(9 marks)

(c) Following a delay, the trains are assumed to form a simple queue to
enter a station. If trains arrive to the queue at an average rate of
3.2 per minute and the station can process trains at an average
rate of 4.1 per minute, calculate the expected number of trains in
the queue. Comment on the assumption that the trains form a
simple queue.
(9 marks)

4. The number of cruise liners arriving at Ruritania over the last few years
was:

Year Number of liners

2000 201
2001 208
2002 212
2003 215
2004 210

(a) Use exponential smoothing to produce a forecast for 2005.

(8 marks)
4TRN7A7/8 SPECIMEN TEST 1 5/18

(b) Explain how exponential smoothing responds to a sudden change in

the underlying level of activity described by a time series.
Describe the warning signs you would look out for and explain the
action you would take to ensure the continued monitoring of the
new level of activity. (7 marks)

(c) The number of liners for the first 5 months of this year were:

Month Number of liners

Jan 26
Feb 22
Mar 18
Apr 17
May 14

Calculate three-month moving averages and hence forecast the

number for next March if the trend value is estimated to be 21 .
(10 marks)

5. [Logistics only]
A bus manufacturer uses 500 electrical switches every week at a
constant rate. The storage cost of a switch is 4p per week and the
ordering cost for any number of them is £20 . There is a lead time of
half a week between placing orders and receiving delivery.

(a) Advise the manufacturer on a least cost stock control strategy.

Sketch a graph of the stock level against time to show how your
strategy would work. (8 marks)

(b) The manufacturer can save 4p per switch by placing orders for
2,000 or more at the same time. Determine whether ordering
2,000 switches at a time gives a cheaper stock control system
than the one you described in part (a). (10 marks)

(c) Assume now that demand is random in time with average 500
switches per week and lost sales penalty 8p per switch. Advise the
manufacturer on a least cost stock control strategy.
(7 marks)
4TRN7A7/8 SPECIMEN TEST 1 6/18

6. [Logisitics only]
The activities which have to be performed at the end of each working
day to a railway locomotive are as follows:

Activity Description Pre-requisites Duration

(minutes)
A Drain oil - 9
B Uncover engine - 8
C Check seals B 5
D Fill with oil A, C 7
E Re-fuel B 11
F Check lights D 4
G Cover engine E, F 6

(a) Draw a network diagram for the project, determine

the shortest possible total project time and
identify which activities are critical to the
completion of the project in that time.
(17 marks)

(b) Modifications can be made to the locomotive in order to reduce the

durations of some of these activities:

Activity Maximum reduction Cost

(minutes) (£/minute)
A 3 20
B 2 30
C 3 25
E 2 25
F 1 40

Determine the new shortest total project time and the minimum
cost of achieving this.
(8 marks)
4TRN7A7/8 SPECIMEN TEST 1 7/18

FORMULA SHEET

1. Expectation

Expectation = sum of (probability * payoff)

2. The Normal Distribution

95% prediction interval : mean ± ( 1.96 * standard deviation )

Other multipliers:

Prediction Level % Number of standard deviations from average

50 0.67
55 0.76
60 0.84
65 0.93
70 1.04
75 1.15
80 1.28
85 1.44
90 1.64
95 1.96
99 2.58

3. Binomial Distribution

mean = p*n standard deviation = n ×p ×(1 −p)

4. The Poisson Distribution

standard deviation = average

4TRN7A7/8 SPECIMEN TEST 1 8/18

5. Negative Exponential Distribution

–λ*t
P(waiting longer than t) = e

6. Large Sample Sampling

95% sampling error for a mean is ±1.96 ×s / n

p ×(1 −p)
95% sampling error for a proportion is ±1.96 ×
n

7. Simple Queues

Traffic intensity, ρ = arrival rate / service rate

r
P( r or more items in the system) = ρ

2
Expected number in the queue = ρ / (1 - ρ )

Expected number in the channel = ρ

Expected time in queue or channel = expected number / arrival rate

8. Exponential Smoothing

new smoothed value = old smoothed value + α * error

4TRN7A7/8 SPECIMEN TEST 1 9/18

STOCK CONTROL FORMULAE

2* P*d
Economic order quantity, EOQ:
S

where P is the ordering or production setup cost

d is the average demand for the stock item
S is the storage cost of the stock item per unit time period

Minimum cost lost sales penalty

level of service:
(lost sales penalty + storage cost during risk period)

Safety stock: z × demand during the risk period

Level of z Level of z Level of z Level of z

service scor service scor service scor service score
% e % e % e %
99 2.33 86 1.08 73 0.61 60 0.25
98 2.05 85 1.04 72 0.58 59 0.23
97 1.88 84 0.99 71 0.55 58 0.2
96 1.75 83 0.95 70 0.52 57 0.18
95 1.64 82 0.92 69 0.5 56 0.15
94 1.55 81 0.88 68 0.47 55 0.13
93 1.48 80 0.84 67 0.44 54 0.1
92 1.41 79 0.81 66 0.41 53 0.08
91 1.34 78 0.77 65 0.39 52 0.05
90 1.28 77 0.74 64 0.36 51 0.03
89 1.23 76 0.71 63 0.33 50 0
88 1.17 75 0.67 62 0.31
87 1.13 74 0.64 61 0.28
4TRN7A7/8 SPECIMEN TEST 2

PLEASE NOTE
Logistics students will have a test similar to this one. It will last two hours and
students attempt any 4 out of the 6 questions.

Planning students will have a two section paper, each section meant to take one
hour. Section A will give a choice of 2 out of 4 questions, which will be similar
to the first 4 questions below. Section B will give a choice of 1 out of 3
questions and Professor White will be circulating specimen questions.

1. A train company is considering whether to advertise on television or in a

newspaper. A television advertisement will reach 3.2 million people with
probability 30% and 2.1 million with probability 70%. A newspaper
advertisement can either be in the 'Daily Blah' reaching 2.5 million or in
the 'Clarion'. An advertisement in the 'Clarion' will reach 2.3 million
people with probability 40% or 2.8 million with probability 60%.

(a) Draw a decision tree to display this information.

(10 marks)

(b) Analyse your tree diagram and hence advise the company on where
to advertise to achieve the largest audience remembering that it
can adopt one of various attitudes to risk.
(10 marks)

(c) Discuss briefly the assumptions made in your analysis.

(5 marks)
4TRN7A7/8 SPECIMEN TEST 2 11/18

2. The times 344 drivers left their cars in a car park were measured. Here
is part of a computer report on them:

Parking time (minutes)

Mean 36.63662791
Median 37
Mode 39
Standard Deviation 13.88725725
Sample Variance 192.855914
Range 74
Minimum 1
Maximum 75
Confidence Level(95.0%) 1.472721612

(a) Calculate a 95% confidence interval for the population average

parking time. Comment on a planning officer’s claim that it is
greater than 40 minutes.
(5 marks)

(b) At present, the car park does not admit cars towing caravans. It is
thought that if this restriction is lifted, 10% of arriving cars would
be towing a caravan. Calculate a 95% prediction interval for the
number of cars with caravans when there are 165 cars parked.
(10 marks)

(c) In a similar car park it is observed that 63 cars in a sample of 500

cars were towing caravans. Calculate a 95% confidence interval for
the population proportion of cars towing caravans and hence
comment on the assumption made above that it is 10%.
(10 marks)
4TRN7A7/8 SPECIMEN TEST 2 12/18

3. The numbers of ships arriving each year to unload cargo at a port are
observed to be:

Year (‘1’ is 1997) 1 2 3 4 5 6 7 8 9

Number of ships 690 688 688 697 696 694 721 700 710

A regression of the number of ships against the year gave the following
results:

F ratio 8.74 p = 0.021

predictor coefficient t-ratio probability
constant 683.31 120.35 0.000
year 2.98 2.96 0.021

(a) Discuss the overall conclusions that can be drawn from this
analysis. Write down a regression model for the number of ships
arriving each year and use the model to make a forecast of the
number for next year, year 10.
(10 marks)

(b) Use a suitable probability distribution to calculate a 95%

prediction interval for the number of ships arriving next year.
(5 marks)

(c) The port authorities are planning a new dock to handle an average
of 16 ships per week. Use your forecast to predict the average
number of ships arriving per week assuming that there are 50
working weeks in a full year. Use simple queue formulae to predict
the average number of ships in the queue and the average time a
ship will spend in the system. Hence comment on the plan.
(10 marks)
4TRN7A7/8 SPECIMEN TEST 2 13/18

4. The numbers of unidentified flying objects reported during the last 3

years in Ruritania was:

Year/Quarter Number reported

2003/1 32
2003/2 49
2003/3 33
2003/4 30
2004/1 36
2004/2 51
2004/3 31
2004/4 35
2005/1 38
2005/2 52
2005/3 40
2005/4 35

(a) Without performing any calculations, discuss why single exponential

smoothing on this time series would not be appropriate.
(5 marks)

(b) Calculate appropriate moving averages to remove the seasonality

from the series. Hence calculate the average percentage
adjustment to trend for a quarter 1 .
(15 marks)

(c) The trend estimate for the first quarter of 2006 is 40.7 reports.
Produce a forecast for this quarter based on your previous answer.

(5 marks)
4TRN7A7/8 SPECIMEN TEST 2 14/18

5. [Logisitics test only]

Demand for ‘Healit’ aspirin in a hospital averages 7.2 cases per week. It
costs 15p per week to store a case and £5 to place an order for any
number of cases. Delivery occurs exactly one week after an order is
placed.

(a) Assuming that demand is constant, advise the hospital on a least

cost stock control strategy. Calculate the cost of this strategy.
(8 marks)

(b) Assume now that demand is random. The penalty cost of not having
a case of aspirin when it is needed is £3 because a special delivery
has to be made. Advise the hospital on a least cost stock control
strategy.
(8 marks)

(c) The Area Health Authority is considering a system in which orders

are placed every 4 weeks. Advise the hospital on a least cost stock
control strategy assuming that demand is random in time and the
penalty cost for not having a case when it is needed is £3.
Compare this strategy with your previous answers and comment.
(9 marks)
4TRN7A7/8 SPECIMEN TEST 2 15/18

6. [Logisitics test only]

(a) The distance between two stations on the London Underground can
be measured by the number of stations a passenger passes through
in travelling between them on the same line. Here is a distance
matrix for a selection of stations with dashes showing that the two
stations are not on the same line:

O K H V B
Oxford Circus (O) 0 - 2 2 -
Knightsbridge (K) - 0 6 - -
Holborn (H) 2 6 0 - 5
Victoria (V) 2 - - 0 -
Bethnal Green (B) - - 5 - 0

Produce a ‘two step’ distance matrix showing distances for a

passenger who changes trains just once.
(15 marks)

(b) A haulage company runs 5 ton and 10 ton trucks. The manager
wants a total carrying capacity of at least 275 tons from at most
36 trucks. It costs £160 per day to run a 5 ton truck and £240
per day to run a 10 ton truck. Do not solve this problem but
explain how the ‘Solver’ facility on an Excel spreadsheet can be
used to find the numbers of 5 ton trucks and 10 ton trucks the
company should have in order to minimise the total cost.
(10 marks)
4TRN7A7/8 SPECIMEN TEST 2 16/18

FORMULA SHEET

1. Expectation

Expectation = sum of (probability * payoff)

2. The Normal Distribution

95% prediction interval : mean ± ( 1.96 * standard deviation )

Other multipliers:

Prediction Level % Number of standard deviations from average

50 0.67
55 0.76
60 0.84
65 0.93
70 1.04
75 1.15
80 1.28
85 1.44
90 1.64
95 1.96
99 2.58

3. Binomial Distribution

mean = p*n standard deviation = n ×p ×(1 −p)

4. The Poisson Distribution

standard deviation = average

4TRN7A7/8 SPECIMEN TEST 2 17/18

5. Negative Exponential Distribution

–λ*t
P(waiting longer than t) = e

6. Large Sample Sampling

95% sampling error for a mean is ±1.96 ×s / n

p ×(1 −p)
95% sampling error for a proportion is ±1.96 ×
n

7. Simple Queues

Traffic intensity, ρ = arrival rate / service rate

r
P( r or more items in the system) = ρ

2
Expected number in the queue = ρ / (1 - ρ )

Expected number in the channel = ρ

Expected time in queue or channel = expected number / arrival rate

8. Exponential Smoothing

new smoothed value = old smoothed value + α * error

4TRN7A7/8 SPECIMEN TEST 2 18/18

STOCK CONTROL FORMULAE

2* P*d
Economic order quantity, EOQ:
S

where P is the ordering or production setup cost

d is the average demand for the stock item
S is the storage cost of the stock item per unit time period

Minimum cost lost sales penalty

level of service:
(lost sales penalty + storage cost during risk period)

Safety stock: z × demand during the risk period

Level of z Level of z Level of z Level of z

service scor service scor service scor service score
% e % e % e %
99 2.33 86 1.08 73 0.61 60 0.25
98 2.05 85 1.04 72 0.58 59 0.23
97 1.88 84 0.99 71 0.55 58 0.2
96 1.75 83 0.95 70 0.52 57 0.18
95 1.64 82 0.92 69 0.5 56 0.15
94 1.55 81 0.88 68 0.47 55 0.13
93 1.48 80 0.84 67 0.44 54 0.1
92 1.41 79 0.81 66 0.41 53 0.08
91 1.34 78 0.77 65 0.39 52 0.05
90 1.28 77 0.74 64 0.36 51 0.03
89 1.23 76 0.71 63 0.33 50 0
88 1.17 75 0.67 62 0.31
87 1.13 74 0.64 61 0.28