Line Balancing

S K Mondal Chapter 3
J G 10
K I 7
L J, H 10
M K 6
N L, M 9 [10-Marks]
Solution:
8 7 10
6 A D G J

5 6 10 9
5 B E H L N

4 10 7
4 C F I K M
6
Precedence diagram
The table below shows some possibilities of grouping the tasks in to work stations.
Balancing the work station has been shown in the below table.
The optimum number of work station is 6.
Work Grouping Work Grouping Work Grouping Work Idle
station (First) station (Second) station (Third) station time in
number time in time in time in minutes
minutes minutes minutes
1 A, B, C 15 A, D, B 19 A, B, D 19 1
2 D, E, F 17 C, F, I 18 C, E, F 13 7
3 G, J 17 G, H, E 18 G, K 17 3
4 H, L 16 J, L 20 H, L 16 4
5 I, K 17 K, M 13 I, K 17 3
6 M, N 15 N 9 M, N 15 5

97 97 97

Also the idle time has been shown in the below the table against grouping no 3.
Also the balance delay
Total idle time for the
assembly line
=
Total time taken by a product
from the first work station to
the last work station


100 nC  ti 
=
nC
Where, n = total number of work stations
C = cycle time
ti = time for the ith elemental task
100 6  20  97

6  20
= 19.2%

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 Break Even Analysis
S K Mondal Chapter 4

4. Break Even Analysis

Theory at a Glance (For IES, GATE, PSU)

A. It usually refers to the number of
pieces for which a business neither Revanue=Sales Income

makes a profit nor incurs a loss.

In other words, the selling price of Profit Zone

the product is the total cost of

T=Total cost
production of the component.
V=Variable cost
Cost Revenue

Loss Zone F=Fixed cost

Quantity

(i) No. Profit no loss

Fixed cost + variable cost × Quantity = Selling price × Quantity

F  VQ  SQ
(ii) Fixed profit ‘P’

F  VQ  P  SQ
B. Break-even point analysis
is also used to make a
choice between two
machine tools to produce a
given component.

The intersection of Total

cost line of Machine A and
Machine B is BEP.

At break even point

Total cost of machine = Total cost of machine B

FA  QVA  FB  QVB

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 Break Even Analysis
S K Mondal Chapter 4
FB  FA
 Q
VA  VB
Here note if FA > FB and VA < VB or FA < FB and VA > VB only then Q will be
positive.

But if Q comes out negative then, if

(i) FA = FB but VA ≠ VB : Wh se Variable cost is less that one is economical.
(ii) VA = VB but FA ≠ FB: Whose Fixed cost is less that one is economical.
(iii) FA ≠ FB and VA ≠ VB: Whose both Fixed and Variable cost is less that one is
economical.

 The same type of analysis can also be used to decide whether an item should be
manufactured or purchased and what capacity manufacturing the item would be
more economical then purchasing it.

C ntribution: Contribution is the measure of economic value that tells how much the
sale of one unit of the product will contribute to cover fixed cost, with the remainder going
to profit.

Contribution = Sales – total variable cost (Q.V.)

As Sales = F + QV + P

Therefore contribution = F + P

Since both sales and variable cost vary with output, contribution also vary with output.
At BEP, contribution = F

(A) (i) Capital-intensive industry B) (i) Labour-intensive industry

(ii) High contribution (ii) Low contribution
(iii) High FC, Low VC (iii) Low FC; High VC

C se (A): Requires a large volume of output to reach break even, but once it has
attained its profitability increases rapidly.
C se (B): Profitability after BEP increases slowly.

C se (A): When fixed costs are a large portion of total ost, small changes in volume or
prices can result in significant changes in profit.
C se (B): When variable costs are high a reduction is variable cost may be more
effective in generating profits than changes in the total volume or per-unit
prices.

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 Break Even Analysis
S K Mondal Chapter 4
Margin of safety ratio (M/S) ratio

Margine of safety
(MS) ratio = Present sale

Higher is the ratio, more sound of the economics of the firm. At BEP (M/S) = 0

Angle of incidence: θ
This is the angle between the lines of total
cost and total revenue. Higher is the angle
of incidence faster will be the attainment of
considerable profit for given increase in
production over BEP. Thus the higher value
of θ make system more sensitive to changes
near BEP.

Profit volume ratio:

Sale  Variable cost
Sale
Higher is the profit volume ratio, greater will be angle of incidence and vice-versa.

Page 74 of 318
 Break Even Analysis
S K Mondal Chapter 4

OBJECTIVE QUESTIONS (GATE, IES, IAS)

Previous 20-Years GATE Questions

GATE-1. A standa d machine tool and an automatic machine tool are being
compared for the production of a component. Following data refers
to the two machines. [GATE-2004]

The breakeven production batch size above which the automatic

machine tool will be economical to use, will be
(a) 4 (b) 5 (c) 24 (d) 225

GATE-2. A company produces two types of toys: P and Q. Production time of

Q is twice that of P and the company has a maximum of 2000 time
units per day. The supply of raw material is just sufficient to
produce 1500 toys (of any type) per day. Toy type Q requires an
electric switch wh ch is available @ 600 pieces per day only. The
company makes a profit of Rs. 3 a d Rs. 5 on type P and Q
respectively. For maximization of profits, the daily production
quantities of P and Q toys should respectively be: [GATE-2004]
(a) 100, 500 (b) 500, 1000 (c) 800, 600 (d) 1000, 1000

GATE-3. A component can be produced by any of the four processes I, II, III
and IV. Process I has a fixed cost of Rs. 20 and variable cost of Rs. 3
per piece. Process II has a fixed cost Rs. 50 and variable cost of Re. 1
per piece. Process III has a fixed cost of Rs. 40 and variable cost of
Rs. 2 per piece. Process IV has a fixed cost of Rs. 10 and variable
cost of Rs. 4 per piece. If the company wishes to produce 100 pieces
of the component, from economic point of view it should choose
[GATE-2005]
(a) Process I (b) Process II (c) Process III (d) Process IV

GATE-4. Two machines of the same production rate are available for use. On
machine 1, the fixed cost is Rs. 100 and the variable cost is Rs. 2 per
piece produced. The corresponding numbers for the machine 2 are
Rs. 200 and Re. 1 respectively. For certain strategic reasons both the
machines are to be used concurrently. The sale price of the first 300
units is Rs. 3.50 per unit and subsequently it is only Rs. 3.00. The
breakeven production rate for each machine is: [GATE-2003]
(a) 75 (b) 100 (c) 150 (d) 600

Page 75 of 318
 Break Even Analysis
S K Mondal Chapter 4

Previous 20-Years IES Questions

IES-1. Last year, a manufacturer produced 15000 products which were sold
for Rs. 300 each. At that volume, the fixed costs were Rs. 15.2 lacs
and total variable costs were Rs. 21 lacs. The break even quantity of
product would be: [IES-2000]
(a) 4000 (b) 7800 (c) 8400 (d) 9500

IES-2. Assertion (A): It is possible to have more than one break-even point
in break even charts. [IES-1999]
Reason (R): All variable costs are directly variable with production.
(a) Both A and R are individually true and R is the correct explanation of A
(b) Both A and R are individually true but R is not the correct explanation
of A
(c) A is true but R is false
(d) A is false but R is true

IES-3. On a lathe, the actual machining time required per work piece is 30
minutes. Two types of carbide tools are available, both having a tool
life of 60 minutes. [IES-1998]
Type I : Brazed type of original cost Rs. 50/-.
Type II : Throwaway tip (square) of original cost Rs. 70/-
If the overall cost of grinding the cutting edge is Rs. 10/-, assuming
all the costs are the same for both the types, for break even costs,
the appropriate batch size would be:
(a) 2 pieces (b) 4 pieces (c) 6 pieces (d) 8 pieces

IES-4. Two alternative methods can produce a product first method has a
fixed cost of Rs. 2000/- and variable cost of Rs. 20/- per piece. The
second method has a fixed cost of Rs. 1500/- and a variable cost of
Rs. 30/-. The break even quantity between the two alternatives is:
[IES-1996]
(a) 25 (b) 50 (c) 75 (d) 100

IES-5. For a small scale industry, the fixed cost per month is Rs. 5000/-. The
variable cost per product is Rs. 20/- and sales price is Rs. 30/- per
piece. The break-even production per month will be: [IES-1995]
(a) 300 (b) 460 (c) 500 (d) 10000

IES-6. In the production of a product the fixed costs are Rs. 6,000/- and the
variable cost is Rs. 10/- per product. If the sale price of the product
is Rs. 12/-, the break even volume of products to be made will be:
[IES-2008]
(a) 2000 (b) 3000 (c) 4000 (d) 6000
IES-7. Process I requires 20 units of fixed cost and 3 units of variable cost
per piece, while Process II required 50 units of fixed cost and 1 unit
of variable cost per piece. For a company producing 10 piece per
day [IES-1997]
(a) Process I should be chosen (b) Process II should be chosen
(c) Either of the two processes could be chosen
(d) A combination of process I and process II should be chosen

IES-8. Match List-I (Methods) with List-II (Applications) and select the
correct answer using the codes given below the lists: [IES-1998]
List-I Page 76 of 318 List-II
 Break Even Analysis
S K Mondal Chapter 4
A. Break even analysis 1. To provide different facility at different
locations
B. Transportation problem 2. To take action from among the paths
with uncertainty
C. Assignment problem 3. To choose between different methods of
manufacture
D. Decision tree 4. To determine the location of the
additional plant
Codes: A B C D A B C D
(a) 4 3 1 2 (b) 3 4 1 2
(c) 3 4 2 1 (d) 4 3 2 1

IES-9. M/s. ABC & Co. is planning to use the most competitive
manufacturing process to produce an ultramodern sports shoe.
They can use a fully automatic robot-controlled plant with an
investment of Rs. 100 million; alternately they can go in for a
cellular manufacturing that has a fixed cost of Rs. 80 million. There
is yet another choice of traditional manufacture that needs in
investment of Rs. 75 million only. The fully automatic plant can turn
out a shoe at a unit variable cost of Rs. 25 per unit, whereas the
cellular and the job shop layout would lead to a variable cost of Rs.
40 and Rs. 50 respectively. The break even analysis shows that the
break even quantities using automatic plant vs traditional plant are
in the ratio of 1: 2. The per unit revenue used in the break even
calculation is: [IES-1997]
(a) Rs. 75 (b) Rs. 87 (c) Rs. 57 (d) Rs. 55

IES-10. Process X has fixed cost of Rs. 40,000 and variable cost of Rs. 9 per
unit whereas process Y has fixed cost of Rs.16, 000 and variable cost
of Rs. 24 per unit. At what production quantity, the total cost of X
and Yare equal? [IES-2004]
(a) 1200 units (b) 1600 units (c) 2000 units (d) 2400 units

IES-11. Which one of the following information combinations has lowest

break-even point? [IES-2004]
Fixed cost Variable cost Revenue/units
(in Rs.) / unit (in Rs.) (in Rs.)
(a) 30,000 10 40
(b) 40,000 15 40
(c) 50,000 20 40
(d) 60,000 30 40
IES-12. The indirect cost of a plant is Rs 4,00,000 per year. The direct cost is
Rs 20 per product. If the average revenue per product is Rs 60, the
break-even point is: [IES-2003]
(a) 10000 products (b) 20000 products
(c) 40000 products (d) 60000 products

IES-13. If the fixed cost of the assets for a given period doubles, then how
much will the break-even quantity become? [IES-2007]
(a) Half the original value (b) Same as the original value
(c) Twice the original value (d) Four times the original value

IES-14. Process X has a fixed cost of Rs 40,000 per month and a variable cost
of Rs 9 per unit. Process Y has a fixed cost of Rs 16,000 per month
and a variable cost of Rs 24 per unit. At which value, total costs of
processes X and Y will be equal? [IES-2009]
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 Break Even Analysis
S K Mondal Chapter 4
(a) 800 (b) 1200 (c) 1600 (d) 2000

IES-15. Consider the following statements: [IES-2009]

The break-even point increases
1. If the fixed cost per unit increases
2. If the variable cost per unit decreases
3. If the selling price per unit decreases
Which of the above statements is/are correct?
(a) 1 only (b) 1 and 2 (c) 2 and 3 (d) 1 and 3

IES-16. If the total investment is Rs. 5,00,000 for a target production, the
income for the current year is Rs. 3,00,000 and total operating cost is
Rs. 1,00,000; what is the economic yield? [IES-2006]
(a) 10% (b) 30% (c) 20% (d) 40%

IES-17. Based on the given

graph, the economic
range of batch sizes to
be preferred for
general purpose
machine (OP), NC
machine (NC) and
special purpose
machine (SP) will be:
Codes:
GP NC SP
(a) 2 5 4
(b) 1 4 5
(c) 3 2 4
(d) 1 4 2
[IES-1997]

IES-18. Assertion (A): A larger margin of safety in break-even analysis is

helpful for management decision. [IES-1997]
Reason (R): If the margin of safety is large, it would indicate that
there will be profit even when there is a serious drop in production.
(a) Both A and R are individually true and R is the correct explanation of A
(b) Both A and R are individually true but R is not the correct explanation
of A
(c) A is true but R is false
(d) A is false but R is true

IES-19. Match List-I (Element of cost) with List-II (Nature of cost) and select
the correct answer using the codes given below the lists: [IES-1994]
List-I List-II
A. Interest on capital 1. Variable
B. Direct labour 2. Semi-variable
C. Water and electricity 3. Fixed
Codes: A B C A B C
(a) 3 1 2 (b) 2 1 3
(c) 3 2 1 (d) 2 3 1

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 Break Even Analysis
S K Mondal Chapter 4

Previous 20-Years IAS Questions

IAS-1. Fixed investments for manufacturing a product in a particular year
is Rs. 80,000/- The estimated sales for this period is 2, 00,000/-. The
variable cost per unit for this product is Rs. 4/-. If each unit is sold
at Rs.20/-, then the break even point would be: [IAS-1994]
(a) 4,000 (b) 5,000 (c) 10,000 (d) 20,000

IAS-2. The fixed costs for a year is Rs. 8 lakhs, variable cost per unit is Rs.
40/- and the selling price of each unit is Rs. 200/-. If the annual
estimated sales is Rs. 20,00,000/-, then the break-even volume is:
[IAS-1997]
(a) 2000 (b) 3000 (c) 3333 (d) 5000

IAS-3. Match List-I (Symbols)

with List-II (Meaning) and
select the correct answer
using the codes given
below the Lists; related to
P/V chart on Break-Even
Analysis as shown in the
above figure:

List-I List-II [IAS-2002]

A. OR 1. Profit
B. PQ 2. Break-Even Point
C. SS 3. Profit/Volume Ratio
D. RQ 4. Cost for new design
5. Fixed cost

Codes: A B C D A B C D
(a) 5 4 2 3 (b) 2 1 3 5
(c) 5 1 2 3 (d) 2 4 3 5

IAS-4. If Break-even point = Total fixed cost   1  Variable cost per unit  ,
 X 
 
then X is the [IAS-2000]
(a) Overheads (b) Price per unit
(c) Direct cost (d) Materials cost

IAS-5. A company sells 14,000 units of its product. It has a variable cost of
Rs. 15 per unit. [IAS-1999]
Fixed cost is Rs. 47,000 and the required profit is Rs. 23,000
Per unit product price (in Rs.) will be:
(a) 60 (b) 40 (c) 30 (d) 20

IAS-6. Two jigs are under consideration for a drilling operation to make a
particular part. Jig A costs Rs. 800 and has operating cost of Rs. 0.10
per part. Jig B costs Rs. 1200 and has operating cost of Rs. 0.08 per
part. The quantity of parts to be manufactured at which either jig
will prove equally costly is: [IAS-1998]
(a) 8000 (b) 15000 (c) 20000 (d) 23000
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 Break Even Analysis
S K Mondal Chapter 4
IAS-7. Assertion (A): Marginal cost in linear break-even analysis provides
the management with useful information for price fixing. [IAS-1996]
Reason (R): The marginal cost is the maximum value at which the
product selling price must be fixed to recover all the costs.
(a) Both A and R are individually true and R is the correct explanation of A
(b) Both A and R are individually true but R is not the correct explanation
of A
(c) A is true but R is false
(d) A is false but R is true

IAS-8. The variable cost per unit associated with automated assembly line
(VA), cellular manufacturing (VB), and job shop production (VC) will
be such that [IAS-1995]
(a) VA > VB > VC (b) VB > VA > VC
(c) VC > VB > VA (d) VC > VA > VB

Page 80 of 318
 Break Even Analysis
S K Mondal Chapter 4

Answers with Explanati on (Objective)

Previous 20-Years GATE Answers

GATE-1. Ans. (d) Given data

Total cost of z1 component by using standard

2200 machine tool,
30 22  z1 
(T )    200  100  z
1
C 1 60 
60  30

Total cost of z2 component by using Automatic Machine tool,
 5  2000
(T )  2   z  800  1600  z
C 2  2 30
2
 60 
Let break even point be z number of components
2200 2000
 100  z  1600  z
30 30
200
or z  1500
30
1500  30
or z  225
200
Alternately
Let N be the Break even number
At Break even point
1 22 20N
 1  22  N  200   2  5N   800
   N8
2 60   60  2 60 60
   
15  60
22N 20N 1  22  20  16  1 N  225.
    N
 
60 60 2  60  2 22
GATE-2. Ans. (c) Clearly,
P + 2Q  2000
P  1500
Q  600

GATE-3. Ans. (b) Total cost = fixed cost + (number of piece × variable cost)
GATE-4. Ans. (a) Let both machine produce ‘Q’ unit, so total production 2Q

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 Break Even Analysis
S K Mondal Chapter 4
or Q = 75

Previous 20-Years IES Answers

fixed cost
IES-1. Ans. (d)B.E.Q.=
selling price - variable cost price
IES-2. Ans. (d)
IES-3. Ans. (a)
IES-4. Ans. (b) 2000 + 20n = 1500 + 30n, 10n = 500 and n = 50.
IES-5. Ans. (c) Break even production per month is 500.
F 6000
IES-6. Ans. (b) S  V .x  F  x    3000
S  V 12  10
IES-7. Ans. (a) For 10 pieces, it is economical to use process I.
IES-8. Ans. (b)
IES-9. Ans. (a)
IES-10. Ans. (b) Total cost of X  Total cost of Y or Fx  Q.Vx  Fy  Q.Vy
Fx  Fy 40000  16000
or Q    1600 units
V y  Vx 24  9
IES-11. Ans. (a) Without any calculation we observe that Revenue of each unit is same for
all cases. And Fixed cost and variable cost both are minimum in case of (a).
So, it will give us minimum BFQ.
Alternatively F + Q.V = Q.R or Q   F 
 R  V 
 

 
(a) 1000 units (b) 1600 units (c) 2500 units (d) 6000 units
IES-12. Ans. (a) Sales cost = Fixed cost + variable cost [where, N = Number of variable]
or, 60 × N = 4,00,000 + 20 × N or, 40N = 4,00,000
or, N = 10000 Products
IES-13. Ans. (c) F + V.Q = S.Q or F = Q.(V – S)
If F  2 times Q also  2 times
IES-14. Ans. (c) CF  CV x  CF  CV x  40000  9x  16000  29x
1 1 2 2

24000
 24000  15x x  1600
15
CF
IES-15. Ans. (d) CF  CV x  CSx;  x
CC
S V

Therefore if the Fixed Cost/Unit i.e. CF increases the value of x increased i.e.
B.E.P. increases.
If the variable cost/unit, i.e. CV decreases × decreases i.e. B.E.P. decreases.
If the selling price i.e. CS decreases the value of × increases i.e. B.E.P.
increases. Therefore statements (1) and (3) are correct.
IES-16. Ans. (d) Economic yield =
Profit
100% 
300000 100000 100%  40%
Investment 500000
IES-17. Ans. (b)
IES-18. Ans. (a)
IES-19. Ans. (c)

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 Break Even Analysis
S K Mondal Chapter 4

Previous 20-Years IAS Answers

IAS-1. Ans. (b) For break even point,
Fixed cost (F) + Variable cost (V) × Quantity (Q)
= Selling price (S) × Quantity (Q)
F 80000
or, Q    5000
SV 20  4
IAS-2. Ans. (d) F + Q.V = Q.S or, 700000 + Q × 40 = Q × 200
 Q = 4375 nearest as 5000.
IAS-3. Ans. (c)
IAS-4. Ans. (b) F + VQ = SQ [S is selling cost per unit]
IAS-5. Ans. (d) F + Q.V + P = Q.S
or 4700 + 14000 × 15 + 23000 = 14000 × S or S = 20 per unit.
FB  FA 1200  800
IAS-6. Ans. (c) F  Q.V  F  Q.V or Q    20,000 units
A A B B V V 0.10  0.08
A B

IAS-7. Ans. (a)

IAS-8. Ans. (c) Variable cost per unit in least with automated assembly line, and
maximum with job shop production. Thus VC < VB < VA.

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 Break Even Analysis
S K Mondal Chapter 4

Conventional Questions with Answer

Conventional Question [ESE-2009]
A company is faced with a situation where it can either produce some item by
adding additional infrastructure which will cost them Rs. 15,00,000/- but unit
cost of production will be Rs. 5/- each. Alternatively it can buy the same item
from a vendor at a rate of Rs. 20/- each. When should the company add to its
capacity in terms of demand of items per annum? Draw the diagram to show
the BEP. [2-Marks]
Answer: Let the capacity is x when company will meet its demand, so
1500000 + 5x = 20x
15x = 1500000
 x = 100000

Cost

1500000

100000
Unit

Conventional Question [ESE-2008]

What is meant by break-even point? Draw a figure to illustrate your answer.
[2 Marks]
Solution: Break even point: Break even point is the point at which cost or expenses and revenue
are equal. i.e. there is no loss or gain.
At B.E.P Sales Revenue = Total cost
Sales
Profit

Total cost

Break even point

Loss

Conventional Question [ESE]

Question: The following data refers to a manufacturing unit
Fixed cost = Rs. 100000/-
Variable cost = 100/- per unit Page 84 of 318
 Break Even Analysis
S K Mondal Chapter 4
Selling price = Rs. 200/- per unit
(i) Calculate the BEP
(ii) Calculate the number of component needed to be product to get a profit of
Rs. 20000/-
Solution:
(i) At break even point

F  Q.V  S  Q
F 100000
 Q    1000 pieces
S  V 200  100

(ii) For fixed profit Rs. 20000/-

F  Q.V  P  S  Q
F  P 100000  20000
 Q   1200 units
S V 200  100
Conventional Question [ESE-2006]
What is break-even analysis? How is it useful to the manager?
For a particular product, the following information is given:
Selling price per unit : Rs. 100
Variable cost per unit : Rs. 60
Fixed costs : Rs. 10,00,000
Due to inflation the variable costs have increased by 10% while fixed costs
have increased by 5%. If the break-even quantity is to remain constant by
what percentage should the Sales price be raised? [IES-2006, 15-Marks]

Solution: The break-even point means the level of output or sales at which no profit or loss is
made. It represents the position at which marginal profit or contribution is just
sufficient to cover fixed over heads. When production exceeds the break-even the
business, makes a profit and when production is below the volume of production at
break-even point the business makes a loss.
The break-even analysis helps the manager/management in solving the following
problems.
(i) The total profit of business is ascertained at various levels of activity and
different patterns of production and sales.
(ii) Reporting the top management the effect on net profits of introducing a, new
line or discontinuing the existing line.
(iii) Where severe competition is being met and it is desired to reduce the selling
price, the effect of any reduction on profits can be easily ascertained.
(iv) Where reduction in selling price is intended to increase sales, the increase
necessary to allow to earn the previous profit can be calculated.
(v) The controllability and postponement of expenditure can be worked out from the
break even point.
(vi) It helps in planning and managerial control.
(vii) Break-even point can be helpful in detecting the effect of gradual changes that
may have crept into the operation of budget planning and evaluating new
proposals and alternative courses of action.
Thus, the utility of break-even analysis to the management/manager, lies in the
fact that it represents a cross-sectional view of the profit structure. Also it
highlights the areas of economic strength and weaknesses in the firm.

Solution to the problem:

S1  Rs.100 / unit, V1  Rs.60 / unit

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 Break Even Analysis
S K Mondal Chapter 4
We know N1  S  F  N1V
N1  F 1000000
  25000
S  V 100  60
S2  ?
V2  60  10% of 60  Rs.66
F2  1000000  5% of 1000000
 Rs.1050000

1050000
N2 
S2  V2
1050000
S 2 V 2  42
25000
S2  V2  42
S2  66  42  108 Rs
% change in S2  8%

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5. PERT and CPM

Theory at a Glance (For IES, GATE, PSU)

PROJECT MANAGEMENT

(Project planning and scheduling) — Gantt Chart

(Special Scheduling Techniques: PERT and CPM

Gantt
Chart
PERT
&
CPM

Gantt chart: Is one of the first scientific techniques for project planning and scheduling.
CPM: Critical Path Method.
PERT: Program Evaluation and Review Technique.
The principal feature of PERT is that its activity time estimates are probabilistic. The
activity time in CPM applications were relatively less uncertain and were, thus, of
deterministic nature.

With the passage of time, PERT and CPM applications started overlapping and now they
are used almost as a single techniques and difference between the two is only of the
historical or academic interest.

Difference between PERT and CPM

Main difference: In PERT activity time is probabilistic. In CPM activity time is
deterministic.

The other difference: PERT is Event – Oriented. While the CPM is Activity –
Oriented (in CPM we actually know the Activity time).

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 PERT and CPM
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In CPM all time estimates are assumed to be deterministic for every activity of the
project.
In PERT all activity time is probabilistic.
(i) For PERT. Employs Beta-distribution for the time – expectation for activity.
(ii) Optimistic time (to): If everything in the project goes well.
(iii) Most Likely Time (tm): It is the time for completing an activity that is best.
(iv) Pessimistic Time (tp): If everything in the project goes wrong.

Expected time

 to  4tm  tp 
te  6 
 
In PERT, The completion time for the project has a normal distribution about the
expected completion time.
Critical Path: Critical path is the on the network of project activities which takes
longest time from start to finish. [Definition: ESE-2003]
 The critical path in the network is that sequence of activities and events where
there is no “Slack”.
 If any activity on the critical path gets delayed by tx time, then the total project will
be delayed by tx.
 Same is not true for activities, not lying on critical path.
 Critical path determines the focal activities for which no tolerance in terms of delay
is desirable.

Work Breakdown Structure (W.B.S.)

A project is a combination of interrelated activities which must be performed in a certain
order for its completion. The process of dividing the project into these activities is called
the Work-Break-Down structure (W.B.S.). The activity or a unit of work, also called work
content is a clearly identifiable and manageable work unit. Let us consider a very simple
situation to illustrate the W.B.S. A group of students is given the project of designing,
fabricating and testing a small centrifugal pump. The project can be broken down into the
following sub-parts.
(i) Design, (ii) Fabrication, (iii) Testing

The Network at this level of detail will look as shown in figure.

Design Fabrication Testing

Terminology
Activity: It is a time consuming effort that is required to perform part of a work.

Example: Drilling a hole.

A(5)
1 2

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Activity 1-2 is A and required 5 unit time

An activity with zero slack is known as critical activity.

Event: It is the beginning, completion point, or mile stone accomplishment within the
project. An activity beginning and ends with events. An event triggers on activity of the
project.
An event is a point in time within the project which has significance to the management.
No expenditure of manpower or resources may be associated with an event.
Dummy Activity: An activity that consumes no time but shows precedence among
activities. It is useful for proper representation in the network. [Definition: ESE-1995]
Crashing & Crash Cost: The process of reducing on activity time by adding fresh
resource and hence usually increasing cost. Crashing is needed for finishing the task
before estimated time. Cost associated to crash is crash cost.
Float and Slack: That the float of an activity has the same significance as the slack of the
events. Slack corresponds to events and hence to PERT while Float corresponds to
activities and hence to CPM.
Negative Float and Negative slack: The latest allowable occurrence time (T L) for the
end event in a CPM network is usually assumed to be equal to the earliest expected time
(TE) for that event. But in a PERT network, there is specified a date by which the project is
expected to be complete. This is called the scheduled completion time T S and for the
backward pass computation, T L for the end event is taken equal to T s. Now there may be
three cases: Ts > TE, TS = TE and Ts < TE When TS > TE, a positive float results and the
events have positive slacks.
TS = TE, a zero float results and critical events have zero slacks.
So, when TS < TE, the critical activity will not have zero float. In such cases the critical
path is the path of least float.
Network Construction
(i) What activities must be completed before a particular activity starts?
(ii) What activities follow this?
(iii) What activities must be performed concurrently with this?
Faulty Network
(i) Looping

B C

A D E

(ii) Dangling A B C D

E (Dangling)

Numbering the Events (Fulkersons's Rule)

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5
D G
A B C E 7
2 3 4

F H
6 Fulkerson's Rule

Time (4)
ES = The earliest start time for an activity. The assumption is that all predecessor
activities are started at their earliest start time. [Definition ESE-2003]
EF = The earliest finish time for an activity. The assumption is that the activity starts on
its ES and takes the expected time ‘t’. Therefore EF = ES + t
LF = The latest finish time for an activity, without Delaying the project. The assumption
is that successive activities take their expected time.
LS = The latest start time for an activity, without delaying the project. LS = LF – t
20 34
22 34
12
3 5 38 44
4 38 44
ES O 8 6
12 7 8
16
LS O 12
12 16
1 2 4
4 21 9
5 29
3
6

To Calculate ES
Forward Pass: Start from first event and go upto last end.
ES1 = 0
ES2 = ES1 + t = 0+12 = 12
ES3 = ES2 + t = 12+8 = 20
ES4 = ES2 + t = 12+4 = 16
ES5 = max  ES
4  t  ;  ES3  t  = max
34, 32 = 34
ES6 = max  ES2  3 ;  ES4  5 = max
15, 21 = 21
ES7 = max  ES6  9  ;  ES5  4  = max
30, 38 = 38
ES8 = ES7 +6 = 44

To Calculate LS
Backward Pass: Start from last event and come upto first.

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(i) (LS)8 = ES8 = 44
(ii) (LS)7 = LS8 - 6 = 38
(iii) (LS)5 = LS7 - 4 = 34
(iv) (LS)6 = (LS) 7 -9 = 29
(v) (LS) 4 = min  (LS) 6  5  ; (LS)5 -18
= min (24, 16) = 16
(vi) (LS)3 = (LS) 5-12 = 22
(vii) (LS) 2 = min  LS) 3  8  ; (LS) 4 -4 ;
(LS6 -3) = min (14, 12, 26) = 12
EF = ES + t
LF = LS + t
Activity Time ES LS EF LF Stack
1-2 12 0 0 12 12 0
2-3 8 12 14 20 22 2
2-4 4 12 12 16 16 0
2-6 3 12 26 15 29 14
3-5 12 20 22 32 34 2
4-5 18 16 16 34 34 0
4-6 5 16 24 21 29 8
5-7 4 34 34 38 38 0
6-7 9 21 29 30 38 8
7-8 6 38 38 44 44 0
Critical path: Slack = 0
1–2–4–5–7–8
Same
or, from diagram if ES = LS
Same

Float or slack: It is defined as the amount of time on activity can be delayed without
affecting the duration of the project.
Total Float: It is the maximum time, which is available to complete an activity minus the
actual time which the activity takes.
Total float  (LS)same(i)  (ES)same(i)
[(LF )next(i)  (ES)previous(i) ]  tij
Free Slack: It is used to denote the amount of time an activity can be delayed without
delaying the earliest start of any succeeding activity.
= [(EF) next (j) – (ES) previous(i)] – tij

Independent Float: It is important when the network of the project runs on earliest
time. If an activity reaches next stage at the latest time, independent float will indicate if
the considered activity will reach at the next stage so as to allow the following activity to
begin at the earliest time.

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Independent Float = (EF) j – (LS) j – tij

J K
1. K or L will not start until both I and J
finished.
I
L 2. I or J may or may not end in same time.
3. K and L may or may not start same time

M O 1. Both activity M & N must be finished before O

can start.
X
2. Activity P depends only on N not on activity
M, so when N finish P may start but don’t
N P need to know about M

Frequency Distribution Curve for PERT

It is assumed to be a  - distribution curve with a unimodal point occurring at tm and its
end points occurring at to and tp. The most likely time need not be the midpoint of t0 and tp
and hence the frequency distribution curve may be skewed to the left, skewed to the right
or symmetric.

to tm tp to tm tp to tm tp
Symmetric Skewed to left
Skewed to Right
 - Distribution curve

Though the  - distribution curve is not fully described by the mean (µ) and the standard
deviation (  ), yet in PERT the following relations are approximated for µ and  :

Expected time i.e. to  4tm  tp   i.e. mean if  - distribution

PERT te  
mean (µ) 

6


 
t p  to
Standard deviation ( ) 
6
 t  t 2
Variance (V) o  it is the variance of an activity.
 2  p

6


 
(i) Variance of the expected time of the project, (cp)2 is obtained by adding the variance of
the expected time of all activities along the critical path.

 cp2    i 
2

(ii) The expected time of the project is the sum of the expected time of all activities lying
on the critical path.
tcp   te

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(iii) Probability that the project will be completed in a given time. (T)
a > the expected completion time (tcp)
b > standard deviation (  cp)
 T  tcp 
Calculate  Z   
 
 cp 


Probability, P  (Z ) assuming that the

completion time for the project has a
Normal Distribution about the expected
completion time.
Where (Z)  cumulative distribution
function after the variable Z corresponding
to a standardize normal distribution.
If Z = 0 i.e. T = tcp there is a 50%
probability that the project completing on
Cumulative distribution function
the scheduled time.

What is the probability that the activity will be completed in this expected time?
Variance is the measure of this uncertainty. Greater the value of variance, the larger will
be the uncertainty.

Probability of Meeting the Scheduled Dates

The standard normal distribution curve
Probability tensity

Note:
(i) It has an area equal to unity.
function

(ii) Its standard deviation is one. B S

(iii) It is symmetrical about the mean
A C
value.
TE TS
Project duration

TE = project expected time, i.e. critical path time (or Scheduled completion time)
Ts = Contractual obligation time, (or Schedule completion time)

Therefore, probability of completing a project in time T s is given by

Area under ABS

P(Ts ) 
Area under ABC

Standard deviation for network

σ = Sum of the varience along critical path

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⎛ tp − to ⎞2
= Where varience for an activity, V=⎜ ⎜
∑σ 2
ij
⎝⎜ 6 ⎠⎜

Since the standard deviation for a normal curve is 1, the  calculated above is used as a
scale factor for calculating the normal deviate.
TS  TE
Normal deviation, Z 



The values of probability for a normal distribution curve, corresponding to the different
value of normal deviate are given in a simplified manner.

For a normal deviate of +1, the corresponding probability is 84.1% and for Z = –1
corresponding P = 15.9 %.

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OBJECTIVE QUESTIONS (GATE, IES, IAS)

Previous 20-Years GATE Questions

GATE-1. In PERT analysis a critical activity has [GATE-2004]
(a) Maximum Float (b) Zero Float
(c) Maximum Cost (d) Minimum Cost

GATE-2. A project consists of three parallel paths with durations and

variances of (10, 4), (12, 4) and (12, 9) respectively. According to the
standard PERT assumptions, the distribution of the project
duration is: [GATE-2002]
(a) Beta with mean 10 and standard deviation 2
(b) Beta with mean 12 and standard deviation 2
(c) Normal with mean 10 and standard deviation 3
(d) Normal with mean 12 and standard deviation 3

GATE-3. A dummy activity is used in PERT network to describe [GATE-1997]

(a) Precedence relationship (b) Necessary time delay
(c) Resource restriction (d) Resource idleness

GATE-4. In PERT, the distribution of activity times is assumed to be:

[GATE-1995; IES-2002]
(a) Normal (b) Gamma (c) Beta (d) Exponential

GATE-5. The expected time (te) of a PERT activity in terms of optimistic time
(to), pessimistic time (tp) and most likely time (t1) is given by:
to  4tl  tp to  4tp  tl
(a) te  (b) te  [GATE-2009]
6 6
to  4tl  tp to  4tp  tl
(c) te  (d) te 
3 3

Statement for Linked Answer Questions Q6 & Q7:

Consider a PERT network for a project involving six tasks (a to f)

GATE-6. The expected completion time of the project is: [GATE-2006]

(a) 238 days (b) 224 days (c) 171 days (d) 155 days

GATE-7. The standard deviation of the critical path of the project is:

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[GATE-2006]
(a) 151 days (b) 155 days (c) 200 days (d) 238 days

Common Data for Questions Q8 and Q9:

Consider the following PERT
network:
The optimistic time, most likely time
and pessimistic time of all the
activities are given in the table
below:

Activity Optimistic time Most Likely time Pessimistic time

(Days) (Days) (days)
1 – 2 1 2 3
1 – 3 5 6 7
1 – 4 3 5 7
2 – 5 5 7 9
3 – 5 2 4 6
5 – 6 4 5 6
4 – 7 4 6 8
6 – 7 2 3 4
GATE-8. The critical path duration of the network (in days) is: [GATE-2009]
(a) 11 (b) 14 (c) 17 (d) 18

GATE-9. The standard deviation of the critical path is: [GATE-2009]

(a) 0.33 (b) 0.55 (c) 0.88 (d) 1.66

GATE-10. For the network below, the objective is to find the length of the
shortest path from node P to node G. Let dij be the length of directed
arc from node i to node j. [GATE-2008]
Let sj be the length of
the shortest path from
P to node j. Which of
the following equations
can be used to find sG?
(a) sG = Min{sQ, sR} (b) sG = Min{sQ – DQG,SR – dRG}
(c) sG = Min{sQ + dQG,SR + dRC} (d) sG = Min{dQG, dRG}

GATE-11. A Project consists of activities A to M shown in the net in the

following figure with the duration of the activities marked in days

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The project can be completed: [GATE-2003]

(a) Between 18, 19 days (b) Between 20,22 days
(c) Between 24, 26 days (d) Between 60, 70 days

GATE-12. The project activities, precedence relationships and durations are

described in the table. The critical path of the project is:
[GATE-2010]
Activity Precedence Duration (in days)
P – 3
Q – 4
R P 5
S Q 5
T R, S 7
U R, S 5
V T 2
W U 10
(a) P-R-T-V (b) Q-S-T-V (c) P-R-U-W (d) Q-S-U-W

CPM
GATE-13. A project has six activities (A to F) with respective activity
durations 7, 5, 6, 6, 8, 4 days. The network has three paths A-B, C-D
and E-F. All the activities can be crashed with the same crash cost
per day. The number of activities that need to be crashed to reduce
the project duration by 1 day is: [GATE-2005]
(a) 1 (b) 2 (c) 3 (d) 6

Previous 20-Years IES Questions

IES-1. Consider the following statements: [IES-2007]
PERT considers the following time estimates
1. Optimistic time 2. Pessimistic time 3. Most likely time
Which of the statements given above are correct?
(a) 1, 2 and 3 (b) 1 and 2 only
(c) 3 only (d) 1 and 3 only
IES-2. Consider the following statements with respect to PERT [IES-2004]
1. It consists of activities with uncertain time phases
2. This is evolved from Gantt chart

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3. Total slack along the critical path is not zero
4. There can be more than one critical path in PERT network
5. It is similar to electrical network
Which of the statements given above are correct?
(a) 1, 2 and 5 (b) 1, 3 and 5 (c) 2, 4 and 5 (d) 1, 2 and 4

IES-3. Dummy activities are used in a network to: IES-1992, 2000]

(a) Facilitate computation of slacks
(b) Satisfy precedence requirements
(c) Determine project completion time
(d) Avoid use of resources

IES-4. A PERT activity has an optimistic time estimate of 3 days, a

pessimistic time estimate of 8 days, and a most likely time estimate
of 10 days. What is the expected time of this activity? [IES-2008]
(a) 5·0 days (b) 7·5 days (c) 8·0 days (d) 8.5 days

IES-5. Which one of the following statements is not correct? [IES-2008]

(a) PERT is activity oriented and CPM is event oriented
(b) In PERT, three time estimates are made, whereas in CPM only one time
estimate is made
(c) In PERT slack is calculated whereas in CPM floats are calculated
(d) Both PERT and CPM are used for project situations

IES-6. If the earliest starting time for an activity is 8 weeks, the latest
finish time is 37 weeks and the duration time of the activity is 11
weeks, then the total float is equal to: [IES-2000]
(a) 18 weeks (b) 14 weeks (c) 56 weeks (d) 40 weeks

IES-7. The earliest occurrence time for event '1' is 8 weeks and the latest
occurrence time for event' I' is 26 weeks. The earliest occurrence
time for event '2' is 32 weeks and the latest occurrence time for
event '2' is 37 weeks. If the activity time is 11 weeks, then the total
float will be: [IES-1998]
(a) 11 (b) 13 (c) 18 (d) 24

IES-8. Which of the following are the guidelines for the construction of a
network diagram? [IES-1996]
1. Each activity is represented by one and only one arrow in the
network.
2. Two activities can be identified by the same beginning and end
events.
3. Dangling must be avoided in a network diagram.
4. Dummy activity consumes no time or resource.
Select the correct answer using the codes given below:
Codes:
(a) 1, 2 and 3 (b) l, 3 and 4 (c) 1, 2 and 4 (d) 2, 3 and 4
IES-9. Earliest finish time can be regarded as [IES-1993]
(a) EST + duration of activity (b) EST – duration of activity
(c) LFT + duration of activity (d) LFT – duration of activity

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IES-10. Consider an activity having a duration time of T ij. E is the earliest
occurrence time and L the latest occurrence time (see figure given).

Consider the following statements in this regard: [IES-1993]

1. Total float = Lj - Ei - Tij 2. Free float = Ej - Ei - Tij
3. Slack of the tail event = Lj- Ei
Of these statements:
(a) 1, 2 and 3 are correct (b) 1 and 2 are correct
(c) 1 and 3 are correct (d) 2 and 3 are correct

IES-11. What is the additional time available for the performance of an

activity in PERT and CPM calculated on the basis that all activities
will start at their earliest start time, called? [IES-2008]
(a) Slack (b) Total float (c) Free float (d) Independent float

IES-12. Which one of the following networks is correctly drawn? [IES-1993]

IES-13. The essential condition for the decompression of an activity is:

(a) The project time should change due to decompression [IES-1992]
(b) After decompression the time of an activity invariably exceeds its normal
time.
(c) An activity could be decompressed to the maximum extent of its normal
time
(d) None of the above.
IES-14. A PERT network has three activities on critical path with mean
time 3, 8 and 6, and standard deviation1, 2 and 3 respectively. The
probability that the project will be completed in 20 days is:[IES-1993]
(a) 0.50 (b) 0.66 (c) 0.84 (d) 0.95

IES-15. Time estimates of an activity in a PERT network are: [IES-1999]

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Optimistic time to = 9 days; pessimistic time tp = 21 days and most
likely time te = 15 days. The approximates probability of completion
of this activity in 13 days is:
(a) 16% (b) 34% (c) 50% (d) 84%

IES-16. In a PERT network, expected project duration is found to be 36 days

from the start of the project. The variance is four days. The
probability that the project will be completed in 36 days is:
[IES-1997]
(a) Zero (b) 34% (c) 50% (d) 84%

IES-17. In a small engineering project, for an activity, the optimistic time is

2 minutes, the most likely time is 5 minutes and the pessimistic time
is 8 minutes. What is the expected time of the activity? [IES-2005]
(a) 1 minutes (b) 5 minutes (c) 8 minutes (d) 18 minutes

IES-18. Assertion (A): Generally PERT is preferred over CPM for the
purpose of project evaluation. [IES-1996]
Reason (R): PERT is based on the approach of multiple time
estimates for each activity.
(a) Both A and R are individually true and R is the correct explanation of A
(b) Both A and R are individually true but R is not the correct explanation
of A
(c) A is true but R is false
(d) A is false but R is true

IES-19. Which one of the following statements is not correct? [IES 2007]
(a) PERT is probabilistic and CPM is
(b) In PERT, events are used deterministic and in CPM activities are used
(c) In CPM, the probability to complete
(d) In CPM crashing is carried the project in a given time-duration is out
calculated

IES-20. Consider the following statements in respect of PERT and CPM:

1. PERT is event-oriented while CPM is activity-oriented.
2. PERT is probabilistic while CPM is deterministic.
3. Levelling and smoothing are the techniques related to resource
scheduling in CPM.
Which of the statements given above are correct? [IES-2006]
(a) 1, 2 and 3 (b) Only 1 and 2 (c) Only 2 and 3 (d) Only 1 and 3

IES-21. Match List-I with List-II and select the correct answer using the
code given below the lists: [IES-2005]
List-I List-II
A. Transportation Problem 1. Critical Path
B. Assignment Problem 2. Stage Coach
C. Dynamic Problem 3. Vogel's Approximate Method
D. PERT 4. Hungarian Method
Codes: A B C D A B C D
(a) 2 1 3 4 (b) 3 4 2 1
(c) 2 4 3 1 (d) 3 1 2 4

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IES-22. Match List-I (Term) with List-II (Characteristics) and select the
correct answer using the code given below the lists: [IES-2007]

List-I List-II
A. Dummy activity 1. Follows  distribution
B. Critical path 2. It is built on activity oriented diagram
C. PERT activity 3. Constructed only to establish sequence
D. Critical path method 4. Has zero total slack
Codes: A B C D A B C D
(a) 3 4 1 2 (b) 4 2 3 1
(c) 3 4 2 1 (d) 4 2 1 3

IES-23. Match List-I (Techniques/Methods) with List-II (Models) and select

the correct answer using the codes given below the lists: [IES-2004]
List-I List-II
A. Vogel's approximation method 1. Assignment model
B. Floods technique 2. Transportation model
C. Two phase method 3. PERT and CPM
D. Crashing 4. Linear programming
Codes: A B C D A B C D
(a) 3 4 1 2 (b) 2 1 4 3
(c) 3 1 4 2 (d) 2 4 1 3

IES-24. Estimated time Te and variance of the activities 'V' on the critical
path in a PERT new work are given in the following table:
Activity Te (days) V (days)2
a 17 4
b 15 4
c 8 1

The probability of completing the project in 43 days is: [IES-1998]

(a) 15.6% (b) 50.0% (c) 81.4% (d) 90.0%

IES-25. For the PERT network shown in the given figure, the probability of
completing the project in 27 days is: [IES-1994]

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IES-26. If critical path of a project is 20 months with a standard deviation 4

months, what is the probability that the project will be completed in
24 months? [IES-2008]
(a) 15·85% (b) 68·3% (c) 84·2% (d) 95·50%

IES-27. Consider the network.

Activity times are given in
number of days. The
earliest expected
occurrence time (TE) for
event 50 is:
(a) 22
(b) 23
(c) 24
(d) 25

[IES-2008]

IES-28. The three time estimates of a PERT activity are: optimistic time = 8
min, most likely time = 10 min and pessimistic time = 14 min. The
expected time of the activity would be: [IES-2002]
(a) 10.00 min (b) 10.33 min (c) 10.66 min (d) 11.00 min

IES-29. Assertion (A): The change in critical path required rescheduling in a

PERT network. [IES-2002]
Reason (R): Some of the activities cannot be completed in time due
to unexpected breakdown of equipments or non-availability of raw
materials.
(a) Both A and R are individually true and R is the correct explanation of A
(b) Both A and R are individually true but R is not the correct explanation
of A
(c) A is true but R is false
(d) A is false but R is true

IES-30. Match List-I (OR-technique) with List-II (Model) and select the
correct answer using the codes given below the lists: [IES-2001]
List-I List-II
A. Branch and Bound technique 1. PERT and CPM
B. Expected value approach 2. Integer programming
C. Smoothing and Leveling 3. Queuing theory
D. Exponential distribution 4. Decision theory
Codes: A B C D A B C D
(a) 2 1 4 3 (b) 2 4 1 3
(c) 3 4 1 2 (d) 3 1 4 2

IES-31. Match List-I with List-II and select the correct answer using the
codes given below the lists: [IES-2000]
List-I List-II

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 PERT and CPM
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A. Control charts for 1. Binomial distribution
variables 2. Beta distribution
B. Control chart for number 3. Normal distribution
of non-conformities 4. Poisson distribution
C. Control chart for fraction 5. Exponential distribution
rejected
D. Activity time distribution
in PERT
Codes: A B C D A B C D
(a) 3 4 1 5 (b) 5 4 3 1
(c) 4 3 1 2 (d) 3 4 1 2

CPM
IES-32. Latest start time of an activity in CPM is the [IES-2001]
(a) Latest occurrence time of the successor event minus the duration of the
activity
(b) Earliest occurrence time for the predecessor event plus the duration of
the activity
(c) Latest occurrence time of the successor event
(d) Earliest occurrence time for the predecessor event

IES-33. In CPM, the cost slope is determined by: [IES-1994]

(a) Crash cost (b) Crash cost  Normal cost
Normal cost Normal time  Crash time
(c) Normal cost (d) Normal cost  Crash cost
Crash cost Normal time  Crash time

IES-34. The critical path of a network is the path that: [IES-2005]

(a) Takes the shortest time (b) Takes the longest time
(c) Has the minimum variance (d) Has the maximum variance
IES-35. For the network shown in
the given figure, the
earliest expected
completion time of the
project is:
(a) 26 days
(b) 27 days
(c) 30 days
(d) Indeterminable
[IES-2001]

IES-36. In a network, what is total float equal to? [IES-2006]

(a) LFTj  ESTi  ti  j (b) ESTj  LFTi  ti  j
(c) ESTj  LFTi  ti  j (d) LFTj  ESTi  ti  j

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Where, LFT = latest finish time of an activity; EST = earliest start time of
an activity; ti-j = time of activity i-j)

IES-37. For the network shown in the figure, the variance along the critical
path is 4. [IES-2002]
The probability of
completion of the project
in 24 days is:
(a) 68.2%
(b) 84.1 %
(c) 95.4%
(d) 97.7%

IES-38. The variance (V1) for critical path [IES-1997]

a  b = 4 time units, b  c = 16 time units, c  d = 4 time units, d 
e = 1 time unit.
The standard deviation d the critical path a e is:
(a) 3 (b) 4 (c) 5 (d) 6

IES-39. In the network

shown below.
The critical path
is along
(a) 1-2-3-4-8-9
(b) 1-2-3-5-6-7-8-9
(c) 1-2-3-4-7-8-9 (d) 1-2-5-6-7-8-9

IES-40. The variance of the completion time for a project is the sum of
variances of: [IES-2003]
(a) All activity times (b) Non-critical activity times
(c) Critical activity times (d) Activity times of first and last
activities of the project
IES-41.

The earliest time of the completion of the last event in the above
network in weeks is: [IES-2003]
(a) 41 (b) 42 (c) 43 (d) 46

IES-42. Consider the following statements regarding updating of the

network: [IES-2002]
1. For short duration project, updating is done frequently

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S K Mondal Chapter 5
2. For large duration project, frequency of updating is decreased as
the project is nearing completion
3. Updating is caused by overestimated or underestimated times of
activities
4. The outbreak of natural calamity necessitates updating
Which of the above statements are correct?
(a) 1, 2 and 3 (b) 2, 3 and 4 (c) 1, 3 and 4 (d) 1, 2 and 4

Previous 20-Years IAS Questions

CPM
IAS-1. In CPM network critical path denotes the [IAS-2002]
(a) Path where maximum resources are used
(b) Path where minimum resources are used
(c) Path where delay of one activity prolongs the duration of completion of
project
(d) Path that gets monitored automatically

IAS-2. Time estimates of a project activity are: [IAS-2002]

top optimistic time = 10 days.
tml, most likely time = 15 days.
tpcs, pessimistic time =22 days.
Variance in days for this activity as per BETA distribution is:
(a) 12 (b) 7 (c) 5 (d) 4

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Answers with Explanation (Objective)

Previous 20-Years GATE Answers

GATE-1. Ans. (b)
GATE-2. Ans. (d) Since PERT is a Beta distribution, therefore Beta with mean 12 and
standard deviation is correct.
GATE-3. Ans. (a)
GATE-4. Ans. (c)
GATE-5. Ans. (a)
GATE-6. Ans. (d) Critical path = a – c – e – f
= 30 + 60 + 45 + 20
= 155 days
Standard deviation,
  25  81  36  9 days
 151
GATE-7. Ans. (a)
GATE-8. Ans. (d)
GATE-9. Ans. (c)
GATE-10. Ans. (c)
GATE-11. Ans. (c) Project completed
= Activity C + Activity F
+ Activity K + Activity M
= 4 + 9 + 3 + 8 = 24

GATE-12. Ans. (d) Q – S – V – W is haring maximum duration = 24 days so it is the

critical path.
GATE-13. Ans. (c)

Previous 20-Years IES Answers

IES-1. Ans. (a)
IES-2. Ans. (d)
IES-3. Ans. (b)
to  4tm  tp
IES-4. Ans. (d) t  Expected time  3  4 10  8
e 
6 6
3  40  8
  8.5 days.
6
IES-5. Ans. (a) (a) PERT  Event oriented
CPM  Activity oriented
(b) PERT  3 time estimates are made

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 PERT and CPM
S K Mondal Chapter 5
to  4tm  tp
te 
6
to = optimistic time
tm = most likely time
tp = pessimistic time
CPM  only one time estimate
(c) In PERT slack is calculated, CPM floats calculated
(d) Both PERT and CPM are used for project situation.
IES-6. Ans. (a) T.F. LSi  ESij  tij  37  8  11  18
IES-7. Ans. (c) Total float = 37 – 8 – 11 = 18 days.
IES-8. Ans. (b)
IES-9. Ans. (a)
IES-10. Ans. (a)
IES-11. Ans. (c)
IES-12. Ans. (a) Diagram (a) is correct as in (b) & (c) diagrams backward arrows are seen
which is not correct. In (d) both activity is dummy it is also not correct.
IES-13. Ans. (c)
Ts  Tcp 20  17
IES-14. Ans. (b) z    0.5
cp 6
to  4te  tp
IES-15. Ans. (a) Expected time =
6
9  4  15  21
  15 dats and
6
tp  to21  9
  2
6 6
Probability of completing in 13
days is shaded area = 50% – Area
for 1  = 50 – 34 = 16%.

IES-16. Ans. (c) Variance = 4 days,

Std. dev. = 2 = 2 days
Probability in this case is
shaded area in given
figure, which is 50%.

t0  4tm  tp 2  4x9  8
IES-17. Ans. (b) Expected time t     5 min
e
6 6
IES-18. Ans. (a)
IES-19. Ans. (c) In PERT, the probability to complete the project in a given time-duration
is calculated but in CPM we know the activity time definitely so no question
of probability.
IES-20. Ans. (b)
IES-21. Ans. (b)
IES-22. Ans. (a)
IES-23. Ans. (b)

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 PERT and CPM
S K Mondal Chapter 5
IES-24. Ans. (c) Expected project time = 17 + 15 + 8 = 40 days and variance V
= 4 + 4 + 1= 9, (   V = 3 days
Project is to be completed in 43 days.
 Probability ± Shaded area = 50 + 34 = 84%.
IES-25. Ans. (a) Critical path is 1 – 2 – 4 – 5
te = expected project time = 5 + 14 + 4 = 23 days and   22  2.82  22  4
27  23
Z  1 Area for Z = I is 0.341.
4
Therefore Probability = 0.5 + 0.341 = 0.841
xx 24  20
IES-26. Ans. (c) z    1; P 1  0.842  84.2%
 4
IES-27. Ans. (d) Critical path is given
by 10 – 20 – 30 – 40 – 50
 The earliest
expected occurrence
time (TE) for the
event is 25.

IES-28. Ans. (b)

IES-29. Ans. (b)
IES-30. Ans. (a)
IES-31. Ans. (d)
IES-32. Ans. (a)
IES-33. Ans. (b)
IES-34. Ans. (b)
IES-35. Ans. (c)
IES-36. Ans. (d)
IES-37. Ans. (d)
IES-38. Ans. (c) Standard Deviation = 4  16  4  1  5
IES-39. Ans. (b)
IES-40. Ans. (c)

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 PERT and CPM
S K Mondal Chapter 5
IES-41. Ans. (d)

IES-42. Ans. (a)

Previous 20-Years IAS Answers

IAS-1. Ans. (c) Total float in critical path is zero so delay in any activity is delayed
project.
 pT  T0 2  22  10 2
IAS-2. Ans. (d) Variance (s2) =    4
 6   6 

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
PERT and CPM

 S K Mondal Chapter 5

Conventional Questions with Answer

Conventional Question [ESE-2010]
What is float or slack and when does a sub critical path becomes critical?
[2 Marks]
Ans. Float or slack: It is time by which completion of an activity can be delayed
without delaying the project: It is two type of float or slack
(i) Event float (ii) Activity float

Critical path: The critical activities of network that constitute an unit erupted
path which spans the entire network from start finish is known as critical path.

Conventional Question [ESE-2006]

What is a critical path? Why is the critical path of such importance in large
project scheduling and control? Can a critical path change during the course
of a project? [2 Marks]
Solution: The ‘Critical Path’ connects those events for which the earliest and the latest times are
the same, i.e. these events have zero slack time. The activities connecting these nodes
are called critical activities. For these nodes the two time estimates are the same, which
means that as soon as the proceeding activity is over the succeeding activity has to
begin with no slack if the project is to be completed on schedule.

If the path i.e. critical path is affected, the total completion of the project will be
affected. In such cases, larger project needs constant supervision and revision. Critical
path can also change during the course of a project if the variables affecting the project
completion time or indirect cost, changes.

Conventional Question [ESE-2007]

A typical activity i-j in CPM network has activity duration  tij  of 2.5 time
units. The earlier expected time  T  and latest allowable occurrence time
i
E

 T  of
i
L event i are compound as 8 and 11 units respectively. The

corresponding times of event j, i.e., Tj Eand Tj Lare respectively 13.5 and 13.5
units. Find the three floats of the activity i-j. [2 Marks]
Solution: Total float is the spare time available when all preceding activities occur at the earliest
possible times and all succeeding activities occur at the latest possible times.
Total Float = latest start – Earliest Start
So, the three floats of the activity i-j are 2.5, 3, 0

Conventional Question [ESE-2000]

What is the standard deviation of the project completion time along the critical
path? If the standard deviation of the corresponding activity are s 1, s2 and s3,

Solution:
Corresponding activity variance = s 21, s22 and s23,
Total Variance along critical path (  2cp) = s21 + s22 + s23

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 PERT and CPM
S K Mondal Chapter 5
2 2 2
Standard deviation along critical path =  Variance  s1  s2  s3

Conventional Question [ESE-1996]
In a PERT analysis the critical path of a project is of 120 days with a variance of
16 (day)2 determine the 95% confidence limit of project completion time.
Solution:
Z = 1. 605;
Z = 1. 605 for P = 0.9505
 T  120 
 T  Tcp 
   1.605 =     T = 120 + 6.42 = 126.42 days
P=    16
   


Conventional Question [ESE-2008]

A project consists of 7 jobs. Jobs A and F can be started and completed
independently. Jobs B and C can start only after job A has been completed.
Jobs D, E and G can start only after jobs B, (C and D) and (E and F) are
completed, respectively. Time estimates of all the jobs are given in the
following table:

Time Estimates (Days)

Job Optimistic Pessimistic Most Likely

A 3 7 5
B 7 11 9
C 4 18 14
D 4 12 8
E 4 8 6
F 5 19 12
G 2 6 4
Draw the network and determine the critical path, and its expected duration
Te  . What is the probability of completing the project in Te days? Also,
determine the total and free slacks of all the jobs.
[15-Marks]
Solution:

Time Estimate (Days)

 t p  to 
Job to tp Tm
t E
to  4tm  tp S.D     Variance
6   V  2
 6 
A 3 7 5 3457 4 2 4
5  
6 6 3 9
B 7 11 9
7  4  9  11 54 4 2 4
 9  
C 4 18 14 6 6 6 3 9
4  4  14  18 78 14 7 49
  13  
D 4 12 8 6 6 6 3 9
4  4  8  12 48 8 4 16
E 4 8 6  8  
6 6 6 3 9
F 5 19 12 4  4  6  8 36 4 2 4
 6  
6 6 6 3 9
G 2 6 4

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 PERT and CPM
S K Mondal Chapter 5
5  4  12  19 72 14 7 49
  12  
6 6 6 3 9
2  4  4  6 24 4 2 4
 4  
6 6 6 3 9

The network is drawn below:

TE = 14
3

TE= 5
TE = 20 A C, t E =13 4
TE = 22
1 t =E 5 2
E
F G
T 32
5 t =4 6 E =
TE = 28 E

 Schedule duration, TE  32 days

The following paths for 1st event to last event.
(i) 1 – 2 – 3 – 4 – 5 – 6
(ii) 1 – 2 – 4 – 5 – 6
(iii) 1 – 5 – 6
Sum of TE is for all path
For, (i) 5 + 9 + 8 + 6 + 4 = 32
(ii) 5 + 13 + 6 + 4 = 28
(iii) 12 + 4 =16
Hence critical path is.
1 – 2 – 3 – 4 – 5 – 6 (A – B – D – E – G)
 Expected duration, TE  32 days
4 4 16 4 4
critical path       1.8856
9 9 9 9 9
 T  t 
Z    cp
 cp 
At T  Te  tcp  Z  0
Hence there is 50% chance to complete project on excepted time.

Conventional Question [ESE-1993]

A building project consists of 10 activities; their estimated duration is given
below.
Activity Duration
1–2 5
2–3 2
2–4 6
3–5 4
3–6 4
4–5 2
4–7 3
5–8 7
6–8 8

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 PERT and CPM
S K Mondal Chapter 5
7–8 2
Draw the network and compute
(i) Event times
(ii) Activity time
(iii) Total float and determine
(iv) Critical path

Solution:

(i) Critical path 1 – 2 – 4 – 5 – 8

(ii) Activity Duration ES LS Total Float
1-2 5 0 0 0
2-3 2 5 6 1
2-4 6 5 5 0
3-5 4 7 9 2
3-6 4 7 8 1
4-5 2 11 11 0
4-7 3 11 15 4
5-8 7 13 13 0
6-8 8 11 12 1
7-8 2 14 18 4

Conventional Question [ESE-1991]

A small plant layout job consists of 10 steps their precedence relationship and
activity times are identified as follows.

Step Predecessor Time (Hours)

A None 9
B None 13
C None 16
D A 18
E B 19
F B 8
G C, F 11
H D, G 9
I E, H 26

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 PERT and CPM
S K Mondal Chapter 5
J C, F 35

Draw the network complete the forward and backward passes what activities
make up the critical path? Which activity has the most slack?

Solution:

0 0

Critical path B – F – G – H – I
Slack of A – 5
Slack of C – 5
Slack of J – 32
Slack of E – 28
Max Slack is in activity J.

Conventional Question [ESE-1990]

Table 1 gives the different activities associated with a project consisting of 12
tasks (A, B, ……………, L) in which the following precedence relationships must
hold (XLY Means X must be completed before Y can start):
A < C; A < B; B < D; B < G; B < K; C < D; C < G; D < E; E < F; F < H; F < I; F < L; G < I;
G < L; H < J; I < J and K < L
Table-1:
Task A B C D E F G H I J K L
Tim 30 7 10 14 10 7 21 7 12 15 30 15
(Days)
Draw the network diagram and determine the critical path. Also determine the
critical path time.
Solution:

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 PERT and CPM
S K Mondal Chapter 5
Critical path A – C – D – E – F – I – J
Critical time = 98 (days).

Page 115 of 318

 6. Inventory Control

Theory at a Glance (For IES, GATE, PSU)

A fundamental objective of a good system of operation control of Inventories is to be able to
place an order at the right time,
from the right source
to acquire the right quantity
at right price.
and right quality.

“Inventory is the life blood of a production system.”

Categories:
1. Production inventories  go to final product
2. MRO (Maintenance, Repair and operating supplies) e.g. spare parts, oils grease.
3. In-process inventories (semi-finish products at various production stages)
4. Finished goods inventories
5. Miscellaneous inventory

Another way of classifying industrial inventories are

(i) Transition inventory
(ii) Speculative inventory
(iii) Precautionary inventory

Selective Inventory Control

Different type of inventory analysis?
(i) ABC analysis (class A, class B, class C)
(ii) VED Analysis (vital, Essential, Desirable)
(iii) SDE Analysis (Scarce, Difficult, Easily Available)
(iv) HML Analysis (High, Medium, Low Cost)
(v) FSN Analysis (Fast, Slow, Non-moving items)

ABC Analysis: The common and important of the selective inventory control of ABC
analysis. ABC Analysis is done for items on stock and the basis of analysis is the annual
consumption in terms of money value.

Control of A - item: 10 % of the item accounts 70% costs.

Control of B - item: 20% of the item accounts 20% costs.
Control of C - item: 70% of the item accounts 10% costs.

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 Inventory Control
S K Mondal Chapter 6

Inventory Management System

a. Minimum inventory or buffer stock

b. Reorder point (A)
c. Procurement lead time ( t p)
d. Recorder quantity (Q)

Costs:
1. Unit cost of inventory
(i) Costs paid to the supplies for procuring one unit.
(ii) House manufactured product  direct Manufacturing cost.
Note: For discount model cost of inventory is considered.

2. Ordering costs: Total cost to procure 1 time.

Includes: (i) Originating, placing and paying for an order
(ii) Salary of purchase department
(iii) Telephones, postage, stationary etc
Note: For batch production it is Set-up costs.
3. Carrying costs or holding costs.
Includes: (i) Interest
(ii) Cost of storage
(iii) Handling and transfer

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 Inventory Control
S K Mondal Chapter 6
(iv) Insurance
(v) Personal property tax
(vi) Risk of obsoleteness
(vii) Depreciation
(viii) Salaries and wages to the store personnel
(ix) Pilferage/ theft of material
Generally carrying cost is expressed as a percentage of the inventory value.

4. Shortage or stock-out costs.

(i) Due to shortage how many products does not sold directly.
(ii) Good-will loss i.e. customer reduction.
EOQ, Economic Order Quantity

Let,
Q = Economic Order Quantity
C = Unit cost of Part
Ic = Inventory carrying costs per unit
U = Annual Usage i.e. Annual Demand.
R = Ordering, set up, procurement cost per order.
T = Total cost

Model-I (Deterministic Demand)

Uniform demand Rate, Infinite production Rate.

Total Cost (T) = (Ordering Cost) × (Number of order placed in a year)

+ (Carrying cost per unit) × (Average inventory level during year)
U
Number of order placed =
Q
Average inventory carried during the year = (B + Q/2)

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 Inventory Control
S K Mondal Chapter 6
U  Q
 TR  I c   B   
Q 2
 
dT RU I
  2  c
dQ Q 2

2RU
 Q [VIMP]
Ic

This is Wilson's formula for Economic Order Quantity.

If Buffer stock is zero then, Ordering cost = carrying cost [VIMP for MCQ]
R U  1 2RU 
 I B  
Minimum Total cost (Tmin) =
Ic  
c
2RU  2
Ic  
= [ 2RUIC  BIC ]
If Buffer stock, B = 0 then
Tmin  2URIC

Sensitivity of EOQ Model

c 
T Q  I B  Q2 
RU
  
Tmin  2RUI  BIc 
if B=0 then
T
Sensitivity    EOQ
 1 Q 

T  2 Q  EOQ  

 min   


Where Q = Any amount of order

EOQ = Economic order quantity

Note: As EOQ  U and T  U

Total cost and number of order per year is proportional to square root of demand. We
therefore conclude that unless the demand is highly uncertain the EOQ model gives
fairly satisfactory decision values. That so why EOQ model is very useful.

Model-II (Gradual Replacement Model)

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 Inventory Control
S K Mondal Chapter 6

Let, Q = Economic Batch quantity

P = Production Rate per day
C = consumption Rate per day
Tp= Production Time: U = Annual Demand
Tc= Consumption Time: R = Set up cost
Q
 Tp  and Tp  P  Tc  C  Q
P
Accumulation rate = (P – C); (in time Tp)
Q  C
Maximum inventory = ( P – C ) × Tp = ( P – C) × = Q 1  
P
 P  

 
Q C
 Average inventory  1  
2 P 
  
 Total cost (T)  Total orderig cost + Total carrying cost
U Q C
 R 1 I
2 P
c
Q
 
dT UR 1  C
 dQ   Q2  2 1  P  I c
 
2UR
 EBQ 
  C
1  I c
  P 

In gradual replacement model if Buffer stock 'B' then Same EOQ formula
U Q C
And Total cost (T) = Q R  2 1  P I c  B  Ic
 

Model-III
Inventory control for deterministic demand lead time zero,
reordering allowed and shortages allowed

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Let,
Q = Economic order quantity
S = Shortage
(Q – S) = Inventory remaining after backlog is satisfied
R = Cost of ordering
Ic = Annual cost of calming one unit for one year
Ip = Penalty for the shortage of one unit per year
t1 = Stock replenishment time for zero inventory
t2 = Backlog time
U = annual Demand
U
Number of cycle per year =
Q
Q
Time for 1 cycle (t 1 + t2) =
U
 ABC &  CDE similar traingle
Q
t1 t2 t1  t2 U 1
   
Q S S Q Q U
QS S
 t1  and  t2 
U U

(i) Carrying cost per cycle

QS QS
Average inventory =   ; Time = t1 = 
2   U
QS    
Cost = tI QS QS (i)
  I
2 1 c
2 U c ---------

(ii) Penalty per cycle

S S
Average shortage = , Time = t2 =
2 U
S S S × Ip ---------------------- (ii)
Penalty = × t2 × Ip = ×
2 2 U
Total cost per cycle = {(i) + (ii)} + Ordering cost per cycle

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Q  S 
2
S2
= I IR
c
2U 2U p
Annual cost (T) (Inventory) = Cost per cycle ×Number of cycle per year
  Q  S 2 S2  U
=  Ic  Ip  R 

2U 2U  Q
(Q  S )2 S2 RU
 Ic  I p
2Q 2Q Q
dT
 0 gives
dQ
d  S2 S2 2RU 
QI
 c  2SI c  I c  Ip   0
dQ  Q Q Q 
S2 2RU
Q

or Ic  0  2 I c  I p 
Q2
0
2
or, Q 

S2 I c  Ip  2RU  (iii)
Ic

dT
 0 gives
dS
d  S2 2RU 

dS
QI
 c  2SI c 
Q
I c  I p  Q
 
 
2S
or 0  2Ic  I  I
Q c p
 0
 Ic 
or, S  Q  (iv)
 
 Ic  I p 


From (iii) and (iv), we get

2
 I   I  I  2RU
2 c 
c p
 
Q Q
2   

 I I
 c p   Ic  I c
 I  2RU

2
or Q 1 I  cI
  I
 c p c

 2RU   I c I   (Wilson ' s EOQ)  I c I

or Q=  p  p
 
 Ic   Ip  Ip

=Max m Inventry =(Q-S)

First calculate Q and then calculate S and find (Q-S)

Total Optimal Cost (Topt)

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Ip
= 2URI c 
I p  Ic

[VIMP Formula]

Ic  I p P 2RU
Qo   
Ip P C Ic
Units/run or units / procurement

Case-I: Infinite production rate (P =  ) and Shortage allowed

Ic  I p  2RU
Q  
Ip Ic
Case-II: If shortage are not allowed (I p =  )

P 2RU
Q  
P C Ic
Case-III: If P =  and Ip  

2RU
Q 
Ic

Model-IV (Inventory Model with Single Discount)
Order Quantity Unit price
1QM C
QM (1 – d) × C = C'

Method:
Step-I: Determine (EOQ)' with C'
Step-II: Cheek (EOQ)' >, = or < M
if (EOQ)' M accept discount

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ELSE go to next step

Step III:
Calculate RU
(i) T  UC   EOQ 
optimum  Ic 

 

(EOQ) with C  2  with C

U
(ii) T  UC  R   I  M 
M c'  
M 2


 
[ Ic = x% of C and I c' = x% of C']
If TM < Toptimum then accept discount

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OBJECTIVE QUESTIONS (GATE, IES, IAS)

Previous 20-Years GATE Questions

EOQ Model
GATE-1. Setup costs do not include [GATE-1997]
(a) Labour cost of setting up machines
(b) Ordering cost of raw material
(c) Maintenance cost of the machines
(d) Cost of processing the work piece

GATE-2. There are two products P and Q with the following characteristics

The economic order quantity (EOQ) of products P and Q will be in

the ratio [GATE-2004]
(a) 1: 1 (b) 1: 2 (c) 1: 4 (d) 1: 8

GATE-3. In inventory planning, extra inventory is unnecessarily carried to

the end of the planning period when, using one of the following lot
size decision policies: [GATE-1998]
(a) Lot-for-lot production
(b) Economic Order Quantity (EOQ) lot size
(c) Period Order Quantity (POQ) lot size
(d) Part Period total cost balancing

GATE-4. Market demand for springs is 8,00,000 per annum. A company

purchases these springs in lots and sells them. The cost of making a
purchase order is Rs.1,200. The cost of storage of springs is Rs.120
per stored piece per annum. The economic order quantity is:
[GATE-2003]
(a) 400 (b) 2,828 (c) 4,000 (d) 8,000

GATE-5. An item can be purchased for Rs 100. The ordering cost is Rs. 200
and the inventory carrying cost is 10% of the item cost annum. If the
annual demand is 4000 units, then economic order quantity (in
units) is: [GATE-2002]
(a) 50 (b) 100 (c) 200 (d) 400

GATE-6. If the demand for an item is doubled and the ordering cost halved,
the economic order quantity [GATE-1995]
(a) Remains unchanged (b) Increases by a factor of 2
(c) Is doubled (d) Is halved

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GATE-7. Annual demand for window frames is 10000. Each frame costs Rs.
200 and ordering cost is Rs. 300 per order. Inventory holding cost is
Rs. 40 per frame per year. The supplier is willing to offer 2%
discount if the order quantity is 1000 or more, and 4% if order
quantity is 2000 or more. If the total cost is to be minimized, the
retailer should [GATE-2010]
(a) Order 200 frames every time (b) Accept 2% discount
(c) Accept 4% discount (d) Order Economic Order Quantity

GATE-8. A company has an annual demand of 1000 units, ordering cost of Rs.
100/ order and carrying cost of Rs. 100/unit-year. If the stock-out
costs are estimated to be nearly Rs. 400 each time the company runs
out-of-stock, then safety stock justified by the carrying cost will be:
[GATE-2004]
(a) 4 (b) 20 (c) 40 (d) 100

GATE-9. The maximum level of inventory of an item is 100 and it is 100 and it
is achieved with infinite replenishment rate. The inventory becomes
zero over one and half month due to consumption at a uniform rate.
This cycle continues throughout the year. Ordering cost is Rs. 100
per order and inventory carrying cost is Rs. 10 per item per month.
Annual cost (in Rs.) of the plan, neglecting material cost, is:
[GATE-2007]
(a) 800 (b) 2800 (c) 4800 (d) 6800

GATE-10. In a machine shop, pins of 15 mm diameter are produced at a rate of

1000 per month and the same is consumed at a rate of 500 per
month. The production and consumption continue simultaneously
till the maximum inventory is reached. Then inventory is allowed to
reduce to zero due to consumption. The lot size of production is
1000. If backlog is not allowed, the maximum inventory level is:
[GATE-2007]
(a) 400 (b) 500 (c) 600 (d) 700

GATE-11. Consider the following

data for an item.
Annual demand: 2500
units per year Ordering
cost: Rs. 100 per order
Inventory holding rate:
25% of unit price. [GATE-2006]
The optimum order quantity ?
(a) 447 (b) 471 (c) 500 (d) 600

GATE-12. In computing Wilson's economic lot size for an item, by mistake the
demand rate estimate used was 40% higher than the tree demand
rate. Due to this error in the lot size computation, the total cost of
setups plus inventory holding per unit time. Would rise above the
true optimum by approximately [GATE-1999]
(a) 1.4 % (b) 6.3% (c) 18.3% (d) 8.7%

GATE-13. One of the following statements about PRS (Periodic Reordering

System) is not true. Identify [GATE-1998]

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 Inventory Control
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(a) PRS requires continuous monitoring of inventory levels
(b) PRS is useful in control of perishable items
(c) PRS provides basis for adjustments to account for variations in demand
(d) In PRS, inventory holding costs are higher than in Fixed Recorder
Quantity System

GATE-14. The net requirements of an item over 5 consecutive weeks are 50- 015-
20-20. The inventory carrying costs are Re. 1 per item per week and
Rs. 100 per order respectively. Starting inventory is zero. Use
“Least Unit Const Technique” for developing the plan. The const of
the plan (in Rs.) is: [GATE-2007]
(a) 200 (b) 250 (c) 255 (d) 260

Previous 20-Years IES Questions

IES-1. Which of the following are the benefits of inventory control?
1. Improvement in customers relationship. [IES-2007]
2. Economy in purchasing.
3. Elimination of the possibility of duplicate ordering.
Select the correct answer using the code given below:
(a) 1, 2 and 3 (b) 1 and 2 only
(c) 2 and 3 only (d) 1 and 3 only

ABC Analysis
IES-2. In ABC analysis, A items require:
[IES-2005]
(a) No safety stock (b) Low safety stock
(c) Moderate safety stock (d) High safety stock
IES-3. Classifying items in A, B and C categories for selective control in
inventory management is done by arranging items in the decreasing
order of: [IES-1995]
(a) Total inventory costs (b) Item value
(c) Annual usage value (d) Item demand

IES-4. Assertion (A): Selective control manages time more effectively.

Reason (R): ABC analysis is based on Pareto distribution. [IES-2005]
(a) Both A and R are individually true and R is the correct explanation of A
(b) Both A and R are individually true but R is not the correct explanation
of A
(c) A is true but R is false
(d) A is false but R is true
IES-5. ABC analysis in materials management is a method of classifying
the inventories based on [IES-2003]
(a) The value of annual usage of the items
(b) Economic order quantity
(c) Volume of material consumption
(d) Quantity of materials used

IES-6. Consider the following statements: [IES-1995]

1. ABC analysis is based on Pareto's principle

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2. FIFO and LIFO policies can be used for material valuation in
materials management.
3. Simulation can be l1sed for inventory control.
4. EOQ (Economic Order Quantity) formula ignores variations in
demand pattern.
Of these statements:
(a) 1 alone is correct (b) 1 and 3 are correct
(c) 2, 3 and 4 are correct (d) 1, 2, 3 and 4 are correct

IES-7. Out of the following item listed below, which two items you would
consider under category (c) under ABC analysis: [IES-1992]
Annual Usage of items
Items No. Annual usage × 1000 Unit cost Rs.
A 30 0.10
B 300 0.15
C 2 200.00
D 60 0.10
E 5 0.30
F 300 0.10
G 10 0.05
H 7 0.10
I 20 0.10
J 5 0.20
(a) B and F (b) C and E (c) E and J (d) G and H

IES-8. In the ABC method of inventory control, Group A constitutes costly

items. What is the usual percentage of such items of the total items?
[IES-2006]
(a) 10 to 20% (b) 20 to 30% (c) 30 to 40 % (d) 40 to 50 %

IES-9. Which one of the following is correct? [IES-2008]

In the basic EOQ model, if lead time increases from 5 to 10 days, the
EOQ will:
(a) Double (b) Decrease by a factor of two
(c) Remain the same (d) The data is insufficient to find EOQ

EOQ Model
IES-10. In the EOQ model, if the unit ordering cost is doubled, the EOQ
(a) Is halved (b) Is doubled [IES-2007]
(c) Increases 1.414 times (d) Decreases 1.414 times
IES-11. Economic Order Quantity is the quantity at which the cost of
carrying is: [IES-2002]
(a) Minimum (b) Equal to the cost of ordering
(c) Less than the cost or ordering (d) Cost of over-stocking

IES-12. In the basic EOQ model, if demand is 60 per month, ordering cost is
Rs. 12 per order, holding cost is Rs. 10 per unit per month, what is
the EOQ? [IES-2008]
(a) 12 (b) 144 (c) 24 (d) 28

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IES-13. If the annual demand of an item becomes half, ordering cost double,
holding cost one-fourth and the unit cost twice, then what is the
ratio of the new EOQ and the earlier EOQ? [IES-2006]
1 1
(a) (b) (c) 2 (d) 2
2 2

IES-14. If demand is doubled and ordering cost, unit cost and inventory
carrying cost are halved, then what will be the EOQ? [IES-2009]
(a) Half (b) Same (c) Twice (d) Four times

IES-15. Which one of the following is an inventory system that keeps a

running record of the amount in storage and replenishes the stock
when it drops to a certain level by ordering a fixed quantity?
[IES-2006]
(a) EOQ (b) Periodic (c) Peripheral (d) ABC

IES-16. Match List-I with List-II and select the correct answer using the
code given below the Lists: [IES-2007]
List-I List-II
A. Procurement cost 1. Cost of holding materials
B. Carrying cost 2. Cost of receiving order
C. Economic order quantity 3. Procurement lead time
D. Reorder point 4. Break-even analysis
Codes: A B C D A B C D
(a) 3 1 4 2 (b) 3 4 1 2
(c) 2 1 4 3 (d) 2 4 1 3

IES-17. There are two products A and B with the following characteristics
product demand (in units), order cost (in Rs./order), holding cost (in
Rs./unit/years) [IES-1994]
A. 100 100 4
B. 400 100 1
The economic order quantities (EOQ) of product A and B will be in
the ratio of:
(a) 1: 1 (b) 1: 2 (c) 1: 4 (d) 1 : 8

IES-18. A shop owner with an annual constant demand of 'A' units has
ordering costs of Rs. 'P' per order and carrying costs Rs. '1' per unit
per year. The economic order quantity for a purchasing model
having no shortage may be determined from [IES-2002]
(a) 24P/AI (b) 24AP/I (c) 2AP/I (d) 2AI/P

IES-19. In inventory control theory, the economic order quantity (E.O.Q.) is:
(a) Average level of inventory [IES-1995]
(b) Optimum lot size.
(c) Lot size corresponding to break-even analysis
(d) Capacity of a warehouse.

IES-20. Consider the following costs: [IES-1999]

1. Cost of inspection and return of goods
2. Cost of obsolescence

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3. Cost of scrap
4. Cost of insurance
5. Cost of negotiation with suppliers
Which of these costs are related to inventory carrying cost?
(a) 1,2 and 3 (b) 1, 3 and 4 (c) 2, 3 and 4 (d) 2, 4 and 5

IES-21. Details of cost for make or

buy decision are shown in
the given graph. A
discount is offered for
volume of purchase above
'V'. Which one of the
following ranges would
lead to the economic
decision?
Buy A, B Make
(a) 1 and 2 3 and 4
(b) 1 and 3 2 and 4
(c) 2 and 4 1 and 3
(d) 1 and 4 2 and 3
[IES-1998]

IES-22. Which of the following cost elements are considered while

determining the Economic Lot Size for purchase? [IES-1998]
1. Inventory carrying cost 2. Procurement cost
3. Set up cost
Select the correct answer using the codes given below:
Codes: (a) 1, 2 and 3 (b) 1 and 2 (c) 2 and 3 (d) 1 and 3

IES-23. Annual demand for a product costing Rs. 100 per piece is Rs. 900.
Ordering cost per order is Rs. 100 and inventory holding cost is Rs. 2
per unit per year. The economic lot size is: [IES-1997]
(a) 200 (b) 300 (c) 400 (d) 500
IES-24. A furniture company is maintaining a constant work force which
can produce 3000 tables per quarter. The annual demand is 12000
units and is distributed seasonally in accordance with the quarterly
indexes Q1 = 0.80, Q2 = 1.40, Q3 = 1.00 and Q4 = 0.80. Inventories are
accumulated when demand is less than the capacity and are used up
during periods of strong demand to supply the total demand. To
take into account any seasonal demand the inventories on hand at
the beginning of the first quarter should be at least [IES-2003]
(a) 0 (b) 600 (c) 1200 (d) 2400

IES-25. Consider the data given in the following table: [IES-1997]

Period Demand Production plan

Regular Overtime Others
production production

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1 500 500 – –
2 650 650 –
3 800 650 150 –
4 900 650 150 ?

Give the fact that production in regular and overtime is limited to

650 and 150 respectively, the balance demand of 100 units in the 4th
period can be met by
(a) Using overtime in period 2
(b) Using regular production in period 1
(c) Subcontracting
(d) Using any of the steps indicated in (a), (b) and (c)

Previous 20-Years IAS Questions

IAS-1. Which one of the following correctly represents the average
inventory turnover ratio for raw materials? [IAS-2003]
(a) Annual sales/annual inventory
(b) Average working process volume/total production volume
(c) Annual consumption / annual inventory
(d) Volume of spare parts/total annual sale

IAS-2. The inventory carrying cost includes [IAS-1999]

(a) Expenditure incurred for payment of bills
(b) Placing an order
(c) Receiving and inspecting
(d) Obsolescence and depreciation

EOQ Model
IAS-3. The given figure shows
the details of stock-level
in the periodic review
inventory control
system. Match List-I
(Characteristic) with
List-II (Line) and select
the correct answer using
the codes given below
the lists:

List-I List-II [IAS-2003]

A. Lead time 1. DE

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B. Ordered quantity 2. FH
C. Safety stock 3. CG
D. Review period 4. R1A
5. AD
Codes: A B C D A B C D
(a) 3 4 2 5 (b) 5 1 4 3
(c) 3 1 4 5 (d) 5 4 2 3

IAS-4. If orders are placed once a month to meet an annual demand of

6,000 units, then the average inventory would be: [IAS-1994]
(a) 200 (b) 250 (c) 300 (d) 500

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Answers with Explanation (Objective)

Previous 20-Years GATE Answers

GATE-1 Ans. (c) 
2AD  2  50 100
GATE-2. Ans. (c) (EOQ)P    50
H 4
2AD  2  50  400
(EOQ)Q    200
H 1
(EOQ)P 50 1
  
(EOQ)Q  200 4
GATE-3. Ans. (b)
2NA
GATE-4. Ans. (c) EOQ 
CI
Where, N  8,00,000; A  1200 Rsm; CI  120 Rs/stored piece/annum
2  8 105 1200
 EOQ   16 106  4000
120
2RC3 2  4000  200
GATE-5. Ans. (d) q    400 units
C1 10
 2AD
GATE-6. Ans. (a) EOQ 
H
where, A = Ordering cost; D = Demand; h = Unit holding cost
GATE-7. Ans. (c) U = 10000/per year; C = 200 Rs/ frame
R = 300 Rs/ per order; IC = Rs 40 per year/ per item
2RU 2  300 10000
EOQ' =   387
IC 40
Total cost with EOQ
Without discount
U  R  EOQ  I
T  U .C  C
EOQ 2
10000 387
10000  200   300   40  2,015,492
387 2
2 % Discount
10000 1000
T  10000  (200  0.98)   300   40  1,983,000 / 
1000 2
4 % Discount
10000 1000
T  10000  200  0.96   300   40  1,983,000 / 
2000 2
50 Accept 4%
GATE-8. Ans. (c) Given: D = 1000; Ordering cost, A = Rs. 100/order
Holding cost, H = Rs. 100/unit-year; Stock out cost, S = Rs. 400

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2AD S
 Optimum level of stock out  
H HS
 
 2 100 1000 400
   40
100 400  100
GATE-9. Ans. (d)  C
GATE-10. Ans. (b) MAXIMUM INVENTORY  P  C T  Q 1 
P  P 
 
GATE-11. Ans. (c) Case I: Let EOQ is less than 500
2Q  C0
 EOQ   447.21
Cc
Case II: Let EOQ is greater than 500
2Q  C0
 EOQ   471.40 which is against the assumption.
 Cc
 EOQ  447.21
2RC0
GATE-12. Ans. (c)  EOQ 
 Cc
Inventory cost = 2RC0Cc ; Cost rise = 2  1.4 RC0Cc  1.183 2RC0Cc
1.183  1
 Percentage increase =  100  18.3% increase.
1
GATE-13. Ans. (a)
GATE-14. Ans. (b)

Previous 20-Years IES Answers

IES-1. Ans. (a)
IES-2. Ans. (b)
IES-3. Ans. (c)
IES-4. Ans. (b)
IES-5. Ans. (a)
IES-6. Ans. (d)
IES-7. Ans. (d)
IES-8. Ans. (a)
IES-9. Ans. (c)
2RU
IES-10. Ans. (c) EOQ = if R  2 times EOQ will  2 times
Ic

IES-11. Ans. (b)
IES-12. Ans. (a)


2UR 2UR
IES-13. Ans. (d) EOQ  
Ic I.C
EOQ2   U 2   R2   T1   C  1   4   1
          1     2      2
EOQ1 U R T
1   1   2   2
C
  2  1   2
 R
2UR
IES-14. Ans. (c) EOQ  if U2  2U; R2 
Ic 2

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Here we have to think twice as carrying cost is halved therefore % of cost is
halved. Again the unit cost is also halved therefore
% Unit cost I 2 2U  R
I c2   c; EOQ 2  2  2  EOQ
2 2 4 Ic
4
IES-15. Ans. (a)
IES-16. Ans. (c)
IES-17. Ans. (c) EOQ of A and B is in ratio of 1: 4 being
2AD 2 × Order cost × Demand

h Holding cost
IES-18. Ans. (c)
IES-19. Ans. (b) In inventory control theory the economic order quantity is optimum lot
size.
IES-20. Ans. (c)
IES-21. Ans. (a)
IES-22. Ans. (b)
IES-23. Ans. (b)
IES-24. Ans. (b)
IES-25. Ans. (b)

Previous 20-Years IAS Answers

IAS-1. Ans. (b)
IAS-2. Ans. (d)
IAS-3. Ans. (b)
IAS-4. Ans. (b)

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Conventional Questions with Answer

Model-I (Deterministic Demand)
Conventional Question [ESE-2009]
What is the effect on order quantity when the demand increases by four-fold in basic
order point inventory system and other factors remain unchanged? Explain.
[2-Marks]
Solutions:
Annual usage, U in Units per year
Carrying cost (Ic) in Rs./Unit
Ordering cost (R) in Rs.
2UR
Order quantity, EOQ =
Ic
Thus, when U increased by four times, the EOQ (order quantity) will increase two times.

Conventional Question [ESE-2006]

With the help of quantity-cost curve, explain the significance of Economic
Order Quantity (EOQ). What are the limitations of using EOQ formula?
[2 Marks]
Solution:
1. (r)
Cost/priority

Holding Cost
C0
Carrying Cost

Ordering Cost
EOQ
q1 q0 q2
Quanttly
Order size/units
If the ordered quantity is qo , then the quantity is minimum i.e. Co . If the
ordered quantity is less than EOQ or more than EOQ, then the W total cost will
rise. The limitation of using EOQ formula lies in the assumption mode is
continuous supply or one time supply etc.

Conventional Question [ESE]

The annual demand for an item is 3200 parts. The unit cost is Rs. 6 and the
inventory carrying charges are estimated as 25% per annum. If the cost of one
procurement is Rs. 150 find
(i) EOQ
(ii) Number of order per year
(iii) Time between two consecutive order

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(iv) The optimal cost
Solution:
Given Annual usage, U = 3200 Units per year
Carrying cost (Ic) = 25% of units cost = 0.25 × 6 = 1.5 Rs./Unit
Ordering cost (R) = Rs. 150
2UR 2  3200 150
(i) EOQ =  = 800 Units/order
Ic 1.5
3200
(ii) Number of order per year = =4
800
(iii) Time between two consecutive order = ¼ year = 3 months.
(iv) Minimum inventory cost = 2URIc  2  3200  150  1.5  Rs.1200 / 
and Product cost = U × C = 3200 × 6 = Rs. 19200/–
Optimum cost = Rs. 20400/–

Conventional Question [ESE-2002]

The demand for a component is 10000 pieces per year. The cost per item is Rs. 50
and the interest cost is @ 1% per month. The cost associated with placing the
order is Rs 240/-. What is the EOQ?
Solution:
Given U = 10,000
C = Rs. 50/- Per item
Ic = I × C = 1 × 12 × 50/100 = Rs. 6/ year / item
R = Rs. 240/–
2UR 2 10000  240
EOQ   = 895
th
Ic 6
10000
 No of order placed  = 11.17 times/year.
895
[Note: No of order placed may or may not be whole number]

Conventional Question [ESE-1999]

A company uses a certain component x at the rate of 5000/year. The cost/item is
Rs.20/- and it costs Rs. 200/- to place an order. The annual carrying cost of
inventory is 10% of the price of the item. Storage cost is negligible. Assuming
zero safety stock calculate EOQ.
Solution:
U = 5000/year
C = Rs. 20/- per item
Ic = I × C = 0.1 × 20 = Rs. 2/– per item per year.
R = Rs. 200/– per procurement
2RU 2  5000  200
 (EOQ)    1000 per procurement.
IC 2

Conventional Question [ESE-1995]

A store sells 5200 cases of cold drinks per year. The supplies charge Rs100/- per
each delivery regardless of how many cases have been ordered. Delivery always
occurs the day after ordering and the average carrying cost Rs 10.40/-
per/item/year. Find the number of cases per order.
Solution:

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Given U = 5200/ Year
R = Rs. 100/ Year
Ic = 10.40 / item/ year
2UR 2  5200 100
 EOQ    317
IC 10.40

Conventional Question [CSE-2002]

A material manager had recently attended a short training program on material
management he thought of applying some of the optimization concept that he
had learnt. He picked on one item BV1960, which was essentially a brass valve.
From the current record he found that the average annual demand was 10000
valves. The accounting information system revealed that the carrying cost Rs.
0.40 per valve per year whereas the ordering cost was Rs. 5.50/- per order. The
current policy adopted in the company was to order for 400 valves at a time. Is
this an optimal policy? What would be the annual savings if the EOQ concept
was applied?
Solution:
Given U = 10,000/ Year
R = Rs. 5.5/– per year
Ic = 0.40 / item/ year
2UR 2  5.50 10000
 EOQ    525 per order.
IC 0.40
So the current system is not EOQ i.e. it is not optimal.
For current system total inventory cost to the company (T)
U
 R  Average item x inventory cost per year per item
Q
10000 400
  5.5   0.4  Rs. 217.5 per year
400 2
For EOQ Modal
10000 525
T  5.5   0.4  Rs. 209.76 Per year.
525 2
Savings per year = Rs. (217.5 – 209.76) = Rs. 7.74 per year.

Conventional Question [CSE-2001]

Explain the salient feature of the following inventory models
(i) Deterministic models
(ii) Probabilistic models
(iii) Model under uncertainty
In a deterministic model the ordering cost is Rs.4500/- per order. The cost of
each item is Rs. 2500/- and carrying cost is 10% per year. If the annual
demand is 10000 units determine EOQ. If the inventory carrying cost
decrease by 10% and ordering cost increased by 10% then determine the
charge of % in EOQ. What do you infer?
Solution:
Given Case-I:
U = 10000
R = 4500/per year
Ic = I × C = 0.1 × 2500 = 250 per unit /year

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 Inventory Control
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2UR 2 10000  4500
EOQ   = 600 per order.
 IC 250
Case-II:
U = 10000
R = 4500 × (1.1) = Rs. 4950 per year
Ic =250 × (1 – 0.1) Rs. 225 per unit /year
2UR 2 10000  4950
EOQ    663
IC 225
% increased
(EOQ)II th  (EOQ)I th
  100%  10.55%
(EOQ)Ith
* If inventory cost is decreased but same percent cost of procurement increased then
also economic order quantity increased.

Q2. A company has to manufacture 150,000 brackets in a year. It orders raw

material for the brackets in lots of 40000 units from a supplies. It cost Rs 40
to place an order and estimated inventory carrying cost, which is Rs 0.15.
Calculate the variation in percentage in their order quantity from optimal,
and what this variation cost. [20]
Solution:
Given U = 150,000/ year
R = Rs 40/- per procurement
Ic = Rs 0.15 per part per year
C = 0.15/0.2 = Rs. 0.75 per part
2UR 2 150,000  40
EOQ    8945
IC 0.15
Qcompany  EOQ
%Variation from optimal cost = 100  347.21%
EOQ
150000 40000
Now, Company cost =  40   0.15  150000  0.75  Rs.115650 / 
40000 2
150000 8945
Optimal cost =  40   0.15  150000  0.75  Rs.113842 / 
8945 2
115650  113842
% Variation from optimal cost = 100  1.588%
113842

Model-II (Gradual Replacement Model)

Conventional Question [ESE-1994]
In kelvinator produces refrigerator in batches. How many units in a batch
should they produce? In each batch once the production starts they can make 80
units per day. The demand during the production period is 60 units per day.
Estimated demand for the year is 10000 units. Set-up cost of the manufacturing
process is 3000 per setup. Carrying cost is Rs. 15 unit per year.
Solution:
Given: U = 10000 units/year
R = Rs. 3000/- per setup
Ic = Rs. 15 per unit per year
P = 80 unit per day

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C = 60 unit per day
2 10000  3000
 EBQ   60   4000 per lot.
1 15
 80 
 

Model-III
Inventory control for deterministic demand lead time zero,
reordering allowed and shortages allowed
Conventional Question [ESE-2000]
ABC Company has to supply 30000 switches per year to its consumer. This
demand is fixed and known. The customer uses its item in assembly operation
and has no storage space. A shortage cost is Rs10/- is incurred if the company
fails to deliver the required units. The set-up cost per Run is Rs 3500/-
Determine
(i) The optimum Run size Q
(ii) The optimum level of inventory at the beginning of any period?
(iii) The optimum scheduling period
(iv) The minimum total expected annual cost
[Note: If Penalty cost is not given then we will assume that Ip = 3 to 5 times of Ic.]
Solution:
[In this problem Ip is given Rs. 10/- so let us assume Ic= 2.5 per unit per year]
U = 30000 per year
Ic = Rs 2.5/ assume per unit
R = Rs 3500/-

2UR  I c  I p 

(i) Optimum Run size (Q)  
Ic  
  I p 
2  30000  3500 (2.5  10)
   10247 per lot
2.5 10

(ii) Shortage (S)

Ic
Q  2050 units
Ic  Ip
Therefore Optimum level of inventory at the beginning of any period=(Q-S) = 8198
Units
Q 10247
(iii) The optimum Scheduled period = year   125 days
U 30000

 c Ip
(iv) Optimum cost (Inventory cost)  2RUI
I p I


c

10
 2  3500  2.5   Rs. 20499 / 
10  2.5

Conventional Question [CSE-1998]
The demand for an item in a company is 18000 units per year. The company can
produce this item @ 3000 units per months. The cost of one setup is Rs 50/- The

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