INSTITUTE FOR TECHNOLOGY & MANAGEMENT

Decision Sciences Max. Marks: 60

End term Exam Max. Time: 2 ½
Paper - A
Batch 2017-2019 hrs.

Note: 1.Question paper consists of 2 sections.

2. Calculators are allowed.
3. All questions carry equal marks (10 marks)
4. Graphs will be provided.

Section I
Attempt any 4 questions

Q1. The following table gives the relationship between sales (in lacs) of a product in different territories (of
almost equal sizes) and the number of dealers appointed. We also have another variable in terms of the number
of direct sales employees in the territories who support the dealers in their effort. Now predict the sales if the
number of dealers are 10 and number of direct employees are 20.

Sales Number of Number of direct sales

(Y) dealers employees in the territory
(in lacs) (X1) (X2)
50 1 6
600 12 27
200 5 15
110 2 9
450 11 19
60 3 8
150 5 17
220 7 15
290 4 15
30 1 6

Ans:

After solving three equations

Equation, = b0 +b1x1+b2x2

b0 =
The equation now becomes,

Y = (-84.63) + 24.93x1 + 12.66 x2

If the number of dealers is 10 and the number of employees is 20 the sales,
Y = (-84.63) + (24.93 x 10) + (12.66 x 20)
Y = (-84.63) + 249.3 + 253.2
Y = -84.63 + 502.5
Y = 417.87 lacs

Q2. Domestic sales of New Zealand wine have reached their highest level ever with 51 million liters of wine
sold in 2007. Government policies have also been put in place to support the industry and achieve sustained
growth. However, an important question is whether, ultimately, there is enough land devoted to grape
cultivation, since the quantity of grapes crushed predominately determines how much wine is produced.
Therefore, it might be useful to investigate the relationship between domestic sales of wine and area of land
devoted to wine production.
The following excel output displays the results of a regression predicting domestic sales of New
Zealand wine (in millions of liters) by producing area (in hectares). Suppose you were asked by the Wine
Institute of New Zealand to analyze this data and write a brief report. On the basis of the results below, what
would you find?

SUMMARY OUTPUT .
Regression Statistics
Multiple R 0.658102884
R Square 0.433099406
Adjusted 0.370110451
R Square
Standard Error 4.801382127
Observations 11
ANOVA
df SS MS F Significance
F
Regression 1 158.5096579 158.5097 6.875799 0.027712
Residual 9 207.479433 23.05327
Total 10 365.9890909

Coefficients Standard t. stat P-value Lower 95% Upper

Error 95%
Intercept 30.85590683 3.849536982 8.015485 2.18E-05 22.14765 39.5641
6
Producing 0.000633111 0.000241445 2.622175 0.027712 8.69E-05 0.001179
Area
a) Frame the necessary hypothesis?
b) Comment on strength of model & Se (Standard Error of the Estimate)
c) Frame the Equation of regression.
d) Comment on Individual Significance of Independent Variables by framing required hypothesis.
 e) Is the hypothesis in (a) accepted or rejected (explain)?
Ans:
a) Ho: Domestic sales is not dependent on area of production. OR H0: R= 0
b) H1: Domestic sales is dependent on area of production

b).R square. = 0.4330 and from the ANOVA table the level of Significance of regression is 0.0277 which is
less than 0.05 hence it is significance and strong.
Means 43.30% of variance in sales can be explained by area of production.
Se = 4.80% since one of assumption of regression model is that positive errors are normally distributed
hence by empirical rule. Hence xx of residuals is zero.
There for 68% of errors lie between xx ± 1Se approx. 7.48 observations of errors terms lie between 0± 4.80
%.
Therefore 95% of errors lie between xx ± 2Se. approx. 10.45 % errors lie between 0 ± 2(4.80) = ± 9.6.
c)Sales = 30.855 + 0.000633 (production area)
d) Variable producing area which has coefficient of 0.00063 Is found to be significance up to 8.69E-05
which is very small value hence less than 0.05. There is no other independent
variable hypothesis can be H0 sales is independent of producing area.

e) H0 is rejected and H1 is accepted.

Q3. In the amount of money spent by companies on advertising a function of the total revenue of the
company? Shown are revenue and advertising cost data for seven companies published by
Advertising Age and Fortune magazine.
Company Advertising Revenues
($ millions) ($ billions)
Wal-Mart 1,073 408.2
Procter & Gamble 4,898 79.7
AT & T 3,345 123.0
General Motors 3,296 104.6
Verizon 2,822 107.8
Ford Motor 2,577 118.3
Hewlett-Packard 829 114.6

Use the data to develop a regression line to predict the amount of advertising by revenues.

Coefficient Standard Lower Upper

s Error t Stat P-value 95% 95% Lower 95.0%
Intercept 277.4743 89.09391 3.114403 0.026419 48.45116 506.4975 48.4511621
X Variable 1 -0.04703 0.02982 -1.57727 0.175559 -0.12369 0.02962 -0.123688254

Y = 277.47 – 0.04703X1 with value 1,073

Y= 280.64 – 0.04703X1 with value 1.073
Q4. (A) A salesman attends to 8 customers to sell his product. Over a period, he has had the ability to identify
customers who would be likely to buy his product and hence considers the probability of success to be 60%.
On any given random day what is the probability that he will be able to sell to more than 6 customers out of 8
that he has attended.
Ans:
n = 8, p= 0.6, q = 0.4
P( X > 6) = P( X = 7) + P ( X = 8) = 8C7 ( 0.6 ) 7 (0.4)1 + 8C8 (0.6)8 (0.4)0
= 8 x (0.6)7 x 0.4 + 1 x (0.6)8 x 1 = 0.106

Q4. (B) The time needed to complete a final exam at a university is normally distributed with mean of 80
minutes and standard deviation of 10 minutes. With the help of table given answer the following questions:

Z value Area under the

curve( cumulative)
-2 0.228
-5 0.3085
1 0.8413
a. What is the probability of completing the exam in 1 hr and less? 0.0228
b. What is the probability that the student will complete the exam in more than 60 min but less than 75
minutes? =0.2875
c. Assume that class has 60 students and exam duration is 90 minutes in length. How many students do
you expect will be unable to complete the exam in allocated time? 60*0.1585 = 9.5 approx. = 10

Q5. A researcher wants to find out the relation between the height and weight of humans. He studies seven
persons and the findings are as follows. Find the Pearson correlation coefficient. Test the coefficient for α =
5%. Comment on the nature of relation. ( T Critical = 2.365)

Height (cm) 150 156 190 124 145 135 158 183
Weight (kgs) 89 67 105 58 66 43 46 78

Ans:
Marking scheme: Finding correlation (7), testing for strength (2), Conclusion (1)

Sum
X 150 156 190 124 145 135 158 183 1241
Y 89 67 105 58 66 43 46 78 552
x*y 13350 10452 19950 7192 9570 5805 7268 14274 87861
x*x 22500 24336 36100 15376 21025 18225 24964 33489 196015
y*y 7921 4489 11025 3364 4356 1849 2116 6084 41204
x bar = 155.125, y bar = 69
r = (87861 – 8*(155.125)*69) / (√(196015-8*155.1252)* √(41204-8*692)) = 0.675

t = r/√((1 – r2)/(n – 2)) = 0.675/√((1 – 0.6752)/(8 – 2)) = 2.241

t < tcritical. Hence it is not a significant correlation.
From this we can conclude that there is no significant correlation.

Q6. Data given bellow indicate the ranks given between branches of a nationalized bank on the basis of their
deposit mobilization and recovery of loans. Calculate the rank correlation and test its significance at 5% of
level. ( T critical = 2.16)
Deposit 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
mobilization
Loan 4 2 9 1 7 10 8 13 5 3 11 6 12 15 14
recovery

A-2
R s = 0.64 t cal = 3 t tab = 2.16
T cal > t tab correlation between the deposit mobilisation and the loan recovery of the fifteen branches under
study is significant
 Section II
Attempt any 2 questions

Q7. A newspaper boy is thinking of selling a special onetime edition of a sports magazine to his regular
newspaper customers. Based on his knowledge of his customers, he believes that he can sell between 9 to 12
copies. The magazines can be purchased at Rs. 8 each and can be sold for Rs. 12 each. Magazine that are not
sold can be returned to the publisher for a refund of 50%.
(a) Construct the decision matrix for the above inventory problem indicating
Possible monetary consequences.
(b) Determine the best decision from the stand point of
(i) Maximin criteria
(ii) Maximax criteria
(iii) Hurwicz α-criterion assuming α = 0.40
(iv) Minimax regret criteria
(v) Laplace criteria
Ans:
The problem contains;
(a) Four strategies (i.e. buy 9, 10, 11 or 12 copies) and four possible events against each strategy (i.e. demand
may be 9, 10, 11 or 12 copies). If X is the quantity stocked and Y is the demand, the payoff for each
combination of strategy and event can be calculated as under :
If Y > X, then Pay off value = P (X)
If Y < X, then Pay off value = P (Y) + L (X – Y)
Two sample calculations are given below:
(i) Qty purchased (X) = 9
Demand (Y) = 10
Since all units will be sold out, the profit to be realized will be
Rs. P (X) = 4 (9) = Rs. 36.
Qty. purchased = 11
Demand = 9
Since demand is less than quantity purchased, profit to be realized will be the sum of “profit earned on
copies sold” and “negative profit on copies not sold”.
i.e. profit = P (Y) – L (X – Y) = 4 (9) – 4 (11 – 9) = 36 – 8 = 28
Based on these calculations payoff matrix is drawn in Table 8.8
Table 8.8 : Payoff matrix for the newspaper boy problem
Event (demand)
Strategy D1 D2 D3 D4
(Qty. purchased)
9 10 11 12
S1 = 9 36 36 36 36
S2 =10 32 40 40 40
S3 =11 28 36 44 44
S4 =12 24 32 40 48
(b) Selection of the optimal strategy according to different criteria.
(i) Maximin gain criterion
Optimal strategy based on maximin (gain) criterion is to buy copies ,
Table 8.9 : Maximin (gain) table
Events Row min Maximin
D1 D2 D3 D4
Strategy 9 10 11 12
S1 = 9 36 36 36 36 36 36
S2 = 10 32 40 40 40 32
S3 = 11 28 36 44 44 28
S4 = 12 24 32 40 48 24
(ii) Maximax (gain) criterion
Optimal strategy based on maximax (gain) criterion is to buy 12 copies
Table 8.10 : Maximax (gain) table

Events
Row
D1 D2 D3 D4 Maximax
Max
Strategy 9 10 11 12
S1 = 9 36 36 36 36 36
S2 = 10 32 40 40 40 40
S3 = 11 28 36 44 44 44
S4 = 12 24 32 40 48 48 48
(iii) Hurwicz alpha criterion
Optimal strategy based on Hurwicz alpha criterion is to buy 9 copies
Table 8.11 : Hurwiez alpha criterion ( = 0.40)
Events Maximum Minimum
Max
D1 D2 D3 D4 payoff payoff EMV = Mi + (1– )mi
EMV
Strategy 9 10 11 12 (Mi) (mi)
S1 = 9 36 36 36 36 36 36 36.00 36
S2 = 10 32 40 40 40 40 32 35.20
S3 = 11 28 36 44 44 44 28 34.80
S4 = 12 24 32 40 48 48 24 33.60
Optimal strategy = Strategy corresponding to highest value of EMV
= 9 copies
(iv) Minimax regret criterion
To select optimal strategy based on minimax regret criterion, a regret matrix is prepared as under
(Table 8.12) from payoff matrix. A regret value has been calculated column wise for each strategy
and it equals highest payoff in the column less actual value of payoff for the strategy under the
column
Table 8.12 : Regret matrix

Events Maximum
MiniMax
D1 D2 D3 D4 Regret
Strategy 9 10 11 12 (Mi)
 S1 = 9 0 4 8 12 12
S2 = 10 4 0 4 8 8 8
S3 = 11 8 4 0 4 8 8
S4 = 12 12 8 4 0 12
Therefore, optimal strategy is to buy either 10 or 11 copies
(v) Laplace criterion
Laplace criterion assumes equal probability of all events and it utilises EMV criterion to select the
optimal strategy. Optimal strategy based on Laplace criterion is to buy 10 or 11, because maximum
EMV is 38.
Table 8.13 : Laplace criterion
Events D1 D2 D3 D4 EMV
9 10 11 12 Max EMV
Probability 0.25 0.25 0.25 0.25
Strategies
S1 = 9 36 36 36 36 36
S2 =10 32 40 40 40 38 38
S3 =11 28 36 44 44 38 38
S4 =12 24 32 40 48 36

Q8. The Sparsha Bakery Shop keeps stock of cream roles. Previous experience indicates the daily demand as given
below:
Daily demand Probability
0 0.01
15 0.15
25 0.20
35 0.50
45 0.12
50 0.02
Consider the following sequence of random numbers:
21, 27, 47, 54, 60, 39, 43, 91, 25, 20
Using this sequence, simulate the demand for the next 10 days. Find out the stock situation, if
the owner of the bakery shop decides to make 30 cream roles every day. Also estimate the daily
average demand for the cream roles based on simulated data.
Ans:
Using the daily demand distribution, we obtain a probability distribution as shown in the following table
15.2.
Table 15.2
Daily Probability Cumulativ Random
demand e Numbers
probability
0 0.01 0.01 0
15 0.15 0.16 1-15
 25 0.20 0.36 16-35
35 0.50 0.86 36-85
45 0.12 0.98 86-97
50 0.02 1.00 98-99
At the start of simulation, the first random number 21 generates a demand of 25 cream roles as shown in
Table 15.2. The demand is determined from the cumulative probability values in table 15.3. At the end of first
day, the closing quantity is (30 – 25) = 5 cream roles.
Similarly, we can calculate the next demand for others.
Table 15.3

Demand Random Numbers Next demand Daily production = 30 cakes

Left out Shortage
1 21 25 5
2 27 25 10
3 47 35 5
4 54 35 0
5 60 35 5
6 39 35 10
7 43 35 15
8 91 45 30
9 25 25 25
10 20 25 20
Total 320 10
Total demand = 320
Average demand = Total demand/no. of days
The daily average demand for the Cream roles = = 32 Cream roles.

Q9. A company manufactures two types of boxes, corrugated and ordinary cartons. The boxes
undergo two major processes: cutting and pinning operations. The profits per unit are Rs. 6 and Rs. 4
respectively. Each corrugated box requires 2 minutes for cutting and 3 minutes for pinning operation,
whereas each carton box requires 2 minutes for cutting and 1 minute for pinning. The available operating
time is 120 minutes and 60 minutes for cutting and pinning machines. Determine the optimum quantities of
the two boxes to maximize the profits using graphical method.

Answer:
Objective Function: Maximize Z = 6x1 + 4x2
Subject to
2x1 + 2x2 ≤ 120, 3x1 + x2 ≤ 60
x1, x2 ≥ 0
Extreme Points

Coordinates Z
(0,0) 0
(0,60) 240
(20,0) 120
Maximum Z value occurs at (0,60). Hence produce 0 units of corrugated boxes and 60 units of
ordinary cartons.

Best of Luck