CMA Final

Paper-9
Study Note 4 & 6

Operations
Research
Tarun Mahajan
B.com, DISA, CA, CFA (USA)
Registered Valuer
Marathoner,
Super Randonneur,
Author

[email protected]
whatsapp: 09893040600
 Index
No. Chapter Name Page No.
1 Assignment 3
2 Transportation 7
3 Simulation 13
4 Networking 17
5 Linear Programming 27
Assignment
Assignment

Putting right man to right job

Steps for solving

Assignment means putting the right man on the right job. Following are the steps for
solving an assignment problem:

Step 1 Row Minima: Deduct smallest elements of row from every element in row.

Step 2 column Minima: Now deduct smallest elements of column from every element
in column. Note: One can do column minima first and there after row minima.

Step 3: Draw Minimum Number of lines to cut all Zeroes. Lines can be vertical,
horizontal but not diagonal.

Step 4: Check whether no. of lines are equal to no. of assignments/Jobs. (ex. 2 lines =
2 jobs)
If minimum no. of lines to cut all zeroes are less than no. of assignment, then we
need to follow these steps:
1. Search for minimum uncut elements in the matrix.
2. Deduct it from all uncut elements.
3. Add it to all double cut elements.
4. No adjustment for single cut elements.

Step 5: If minimum no. of lines to cut all zeros are equal to no. of jobs, then start doing
assignment. To do assignment first search for the row or column which has only one
zero (if not then search for minimum zeros). Strike off all zeroes in that row as well
as column of assignment. Continue this till all jobs are assigned.

Note: If we add/subtract/multiply/divide a single number from every element of the

matrix then it will not affect the final decision. Because comparative cost will remain
same.

Complied by: Tarun Mahajan, CFA, CA |3

Chapter 1

Que.1 a machine tool company decides to make four subassemblies through four
contractors. Each contractor is to receive only one subassembly. The cost of each
subassembly is determined by the bids submitted by each contractor and is shown in
table below in crores of rupees.
Contractors
1 2 3 4
1 15 13 14 17
Subassemblies 2 11 12 15 13
3 13 12 10 11
4 15 17 14 16
Assign the different subassemblies to contractors so as to minimize the total cost.

Que.2 Four different jobs can be done on four different machines. The set-up and
take-down time costs are assumed to be prohibitively high for changeovers. The
matrix below gives the cost in rupees of producing job on machine.

Machines
M1 M2 M3 M4
J1 5 7 11 6
J2 8 5 9 6
Jobs
J3 4 7 10 7
J4 10 4 8 3
How should the jobs be assignment to the various machines so that the total cost is
minimized?

Que.3 Four operators O1, O2, O3 and O4 are available to a manager who has to get
four jobs J1, J2, J3 and J4 done by assigning one job to each operator. Given the time
needed by different operators for different jobs in the matrix→

J1 J2 J3 J4
O1 12 10 10 8
O2 14 12 15 11
O3 6 10 16 14
O4 8 10 9 7

How should the manager assign the jobs so that the total time needed for all jobs is
minimum?

4| CMA Final Paper 9

 Assignment
Que.4 The Secretary of a School is taking bids on city’s four school bus routes. Four
companies have made the bids as detailed in the following table:
Bids
Route 1 Route 2 Route 3 Route 4
Company 1 Rs.4000 Rs.5000
Company 2 Rs.4000 Rs.4000
Company 3 Rs.3000 Rs.2000
Company 4 Rs.4000 Rs.5000

Suppose each bidder can be assigned only one route. Use the assignment model to
minimized the school’s cost of running the four bus routes.

Teaching note: In case any assignment in not possible, we assume its cost to be very
large and then proceed the usual way.

Que.5 (Assignment Problem- Non-Square Matrix)

A company has one surplus truck in each of the cities A, B, and C one deficit truck in
each of the cities 1, 2, 3 and 4. The distance between the cities in kilometers is shown
in the matrix below (table). Find the assignment of trucks from cities in surplus to
cities in deficit so that the total distance covered by vehicles in minimum.

1 2 3 4
A 25 15 16 12
B 3 8 5 9
C 11 7 13 10
dummy 0 0 0 0

Que.6 (Maximize Profit) A firm produces four products. There are four operators who
are capable of producing any of these four products. The processing time varies from
operators to operator. The firm records 8 hours a day and allows 30 minutes for lunch.
The processing time in minutes and the profit for each of the products are given
below:
Product
Operator A B C D
1 15 9 10 6
2 10 6 9 6
3 25 15 15 9
4 15 9 10 10
Profit
(Rs./unit) 8 6 5 4

Find the optimal assignment of products to operators.

Complied by: Tarun Mahajan, CFA, CA |5

Chapter 1

Que.7 An airline that operates 7 days a week has the timetable shown below. Crew
must have a minimum layover of 5 hours between flights. Obtain the pairing of flights
that minimizes layover time away from home assuming that the crew can be based
at either of the two cities. The crew will be based at the city that results in smaller
layover.
Delhi-Jaipur Jaipur-Delhi
Flight no. Depart Arrive Flight No. Depart Arrive
1 7.00 AM 8.00 AM 101 8.00AM 9.15AM
2 8.00 AM 9.00 AM 102 8.30AM 9.45AM
3 1.30 PM 2.30 PM 103 12 Noon 1.15PM
4 6.30 PM 7.30 PM 104 5.30PM 6.45PM

Extra Practice Questions

Cost minimization:
L M N O P
A 4 6 11 16 9
B 5 8 16 19 9
C 9 13 21 21 13
D 6 6 9 11 7
E 11 11 16 26 11

Profit Maximization
Weekly output in Lathe
L1 L2 L3 L4 L5
P 20 22 27 32 36
Q 19 23 29 34 40
R 23 28 35 39 34
S 21 24 31 37 42
t 24 28 31 36 41
Profit per unit = Rs.25

6| CMA Final Paper 9

 Transportation

Transportation
One to many and many to one assignment

Steps for solving

We can say that, transportation method is used to solve bulky assignment problem
or we can also say that an easy question of transportation can be solved with
assignment method. There is one to one assignment, in an assignment problem but
in a transportation problem there is one to many and many to one assignment.

Any transportation problem can be solved in two major steps:

(i) Find Initial feasible solution.
(ii) Find the final optimal solution.

Following are the methods to find out initial feasible solution:

(i) North West Corner Rule
(ii) Least cost Method
(iii) Vogel's Approximation Method

Following are the methods to find out final optimal solution:

(i) Stepping stone method
(ii) Modified distribution method

STEPS for solving transportation problem:

Step 1: find out initial feasible solution

Step 2: Check for degeneracy,

No. of allotments = m+n-1, where m is no. of rows and n is no. of columns.
• If the above test is not satisfied we will have to make one or more dummy
allotment(s).
• We will allot epsilon (e) quantity for dummy allotment; epsilon is a number nearly
zero. Dummy allotment will be made in the unallocated cell which has least cost and

Complied by: Tarun Mahajan, CFA, CA |7

 Chapter 2
which is an independent cell. Here independent cell means the cell where one cannot
make a loop starting from that cell.
• If there is a tie between two least cost unallocated cell then make allotment to the
cell which is independent.
• If the least cost cell is dependent then search for the next least cost unallocated cell
which is independent.

𝐑𝐮𝐥𝐞 𝐟𝐨𝐫 𝐦𝐚𝐤𝐢𝐧𝐠 𝐥𝐨𝐨𝐩

1. Start from the cell where you want to make allotment
2. Starting and ending cell should be same
3. Now you can move only to allotted cell
4. You can make only horizontal or vertical moves. No diagonal moves.
[ 5. At every move you have to take a turn. No straight moves. ]

Step 3: Modified Distribution Approach

Methods for initial feasible solution

(i) North West Corner Rule:- (North west means top left)
• In this Method, we start allocation from top left cell of the matrix.
• Number of units to be allotted to the top left cell will be the demand of 1st column or
the supply of 1st row whichever is lower.
• If the whole demand of column is satisfied, then cut the 1st column, but if the whole
supply of 1st row is utilized then cut the 1st row.
• Now apply above steps again for the reduced matrix.
• At the time of each allotment, either a demand will be fully satisfied or supply will be
fully utilized.
• In the last allotment, there will be two zeroes , one of demand and one of supply. It
means that no. of allotments will be (m+ n-1) where m is no. of rows and n is no. of
columns.

(ii) Least cost Method:-

• In this method, as the name suggest we will make 1st allotment to the cell having
lowest cost, if there is a tie in least cost then choose the cell where you can make
maximum allotment.
• If there is tie in quantity also then make allotment arbitrarily.
• After each allotment we will be able to cut either a row or a column.
• Now search for the least cost in reduced matrix.
• Repeat this process till whole demand is fulfilled and whole supply utilized.
• Under North West Corner Rule we can make allotment even if we do not know
elements of matrix, but in this method we do consider all elements carefully. Total
cost under this method may or may not be lower than that in NWCR .
8| CMA Final Paper 9
 Transportation

(iii) Vogel's Approximation Method:-

• In this method, first of all we calculate difference between least cost and second best
least cost for each row as well as each column.
• Now we search for the highest difference and make allotment in the row or column
having least cost cell of that row or column.
• If there is a tie between highest difference, then choose the row or column having
least cost .
• If there is a tie between least cost also, then choose cell where maximum allotment
can be made.
• Now, if there is a tie between allotment quantity also, then make allotment arbitrary.
• While making allotment to any cell, we have to chose lower of demand & supply
quantity.
• Wherever you make an allotment either a demand will be fulfilled wholly or a supply
will be exhausted, it means that after each allotment will cut either a row or a column.
• If we cut a column, then we will have to calculate row difference again, and if we cut
a row then we will have to calculate column difference again.
• We will repeat above process till the whole demand is fulfilled and whole supply is
used.
• Here also no. of allotment will be usually (m+n-1)

Methods to find out final optimal solution

(i) Stepping stone method:-

Stepping stone is like a trial and error method. Here we make loops to check that
whether the cost is reduced if we change allotment. Following points should be kept
in mind:
1) starting point of a loop is the cell where you want to make allotment
2) loop can take turn only where an allotment is already made
3) loop will end at the same point where it starts
4) you can draw only vertical or horizontal lines

(ii) Modified distribution method:-

Make a cost matrix of allocated cells only and calculate ui and vj. ui is written on right
side of matrix and vj is written below the matrix.

(a) Calculation of ui & vj

To start calculation, assume any one ui or vj equal to zero. It would be better to take
zero for a row or column where there are maximum no. of allotments.

(b) calculation of (ui + vj)

Now calculate ui + vj for all unallocated cells.
Complied by: Tarun Mahajan, CFA, CA |9
Chapter 2

(c) Calculation of ∆ij

Now calculate ∆ij = Cij - (ui + vj)
Here Cij means the transportation cost given in original matrix of VAM.

(d) If all ∆ijs are positive, then the solution is optimal and no need to make re-
allotment, but if there are one or more zeroes in ∆ij table and all remaining ∆ijs are
positive then there exist alternative solution to the problem.

(e) If one or more ∆ij are negative choose highest negative ∆ij and make re-allotment.
If there is tie between highest negative elements then choose the one where highest
quantity can be allotted.

(f) After re-allotment, repeat all steps until you get all positive ∆ij.

Practical Problems
Que.1 A dairy firm has four plants located throughout a state. Daily milk production
at each is as follows:
Plant 1 … 70 Million liters,
Plant 2 … 130 Million liters,
Plant 3 … 180 Million liters, and
Plant 4....110 Million liters.

Each day the firm must fulfill the needs of its four distribution centers. Milk
requirements at each center are as follows:
Distribution center 1 … 100 million liters,
Distribution center 2 … 160 million liters,
Distribution center 3 … 125 million liters, and
Distribution center 4 … 105 million liters,

Cost of shipping one million liters of milk from each plant to each distribution center
is given in the following table in thousands of rupees:

D1 D2 D3 D4 supplies
P1 3 15 11 13 70
P2 0 10 8 15 130
P3 5 20 15 17 180
P4 7 19 10 16 110
Demand 100 160 125 105

Find out a Initial feasible solution by (i) North West Corner Rule (ii) Lease Cost Method
(iii) Vogel's approximation method.

10| CMA Final Paper 9

 Transportation

Que.2 A Compressed Natural Gas Company has three plants producing gas and four
outlets. The cost of transporting from the plants to the outlets, production capacity
of each plant and requirement at different outlets is shown in the following cost
matrix table:

Plants Outlets Capacity of

Production
A B C D
X 4 6 8 5 700
Y 3 5 2 5 400
Z 3 9 6 5 600
Requirements 400 450 350 500 1700
The cost in the cost matrix is in thousands of rupees.
Determine an Initial feasible solution for transportation schedule so that the cost is
minimized. Solve the question by (i) North West Corner Rule (ii) Lease Cost Method
(iii) Vogel's approximation method. Home Work

Que.3 A dairy firm has four plants located throughout a state. Daily milk production
at each is as follows:
Plant 1 … 70 Million liters,
Plant 2 … 130 Million liters,
Plant 3 … 180 Million liters, and
Plant 4....110 Million liters.

Each day the firm must fulfill the needs of its three distribution centers. Milk
requirements at each centre are as follows:
Distribution centre 1 … 100 million liters,
Distribution centre 2 … 160 million liters, and
Distribution centre 3 … 125 million liters,

Cost of shipping one million liters of milk from each plant to each distribution centre
in given in the following table in thousands of rupees:
D1 D2 D3 supplies
P1 3 15 11 70
P2 0 10 8 130
P3 5 20 15 180
P4 7 19 10 110
Demand 100 160 125

Find out a Initial feasible solution by (i) North West Corner Rule (ii) Lease Cost Method (iii) Vogel's
approximation method.

Complied by: Tarun Mahajan, CFA, CA |11

Chapter 2
Que.4 Find out final feasible solution for Que.1

Que.5 Find out final feasible solution for Que.2

Que.6 Solve Que.1 assuming that data given in matrix are of profit (and not of cost).
Hence you have to find a solution to maximize profit.

Que.7 Solve Que.3 assuming that data given in matrix are of profit (and not of cost).
Hence you have to find a solution to maximize profit.

Que.8 Following are the data for transportation cost:

Depot
Factory 1 2 3
1 3 15 11 70
2 0 10 8 130
3 5 20 15 180
100 160 120

You are required to:

1) Find out Final Optimal Solution.
2) Do we have any alternate optimal solution?
3) What if we do not want to transport any units from factory 1 to depot 3.
4) What if we want to transport minimum 50 units from factory 1 to depot 3.
5) What if we want to transport exact 50 units from factory 1 to depot 3.
6) What if we want to transport maximum 20 units from factory 1 to depot 3.

12| CMA Final Paper 9

 Simulation

Simulation
Trial runs on paper/computer before real

Question 1
Zenith Chemicals is evaluating an investment project. The risk-free rate and the initial
investment are parameters with the following values : risk-free fate = 10% and initial
investment = Rs. 13000. The annual cash flow and the project life (n) are stochastic
exogenous variables with the following distributions:
Annual cash flow Project life
Value Probability Value Probability
Rs. 1000 0.02 3 years 0.05
1500 0.03 4 0.10
2000 0.15 5 0.30
2500 0.15 6 0.25
3000 0.30 7 0.15
3500 0.20 8 0.10
4000 0.15 9 0.03
10 0.02
The firm wants to perform 10 manual simulation runs for this project. Random
numbers are: 81, 32, 60, 04, 46, 31, 67, 25, 24, 10, 40, 02, 39, 68, 08, 59, 66, 90, 12,
64. Use random numbers in pair of two.

Question 2
X Ltd., is investing in a project at a cost of Rs. 10 lacs. The expected life of the project
is 6 years. The company’s cost of capital is 9%. Preliminary project estimates show
that the CFAT can vary anywhere between Rs. 2 and Rs. 3 lacs, in a year. They are
however uncertain about what the cash flows would be for each of the six years. To
this end, they desire a simulation exercise with three trial runs be undertaken. The
probability distribution, and random numbers that are to be used are given below.

Complied by: Tarun Mahajan, CFA, CA |13

Chapter 3
CFAT 200000 212000 245000 253000 262000 300000
Probability 0.15 0.15 0.25 0.20 0.20 0.05

Random numbers for each of the three trials are given below. Advise if the company
can go ahead.
Trial
Year
1 2 3
1 82 35 11
2 74 52 95
3 08 99 36
4 01 41 24
5 69 17 12
6 36 48 50
(Ans. NPV Rs. +76,948)

Question 3
Company manufactures around 200 mopeds. Depending upon the availability of raw
material and other conditions, the daily production has been varying from 196
mopped to 204 mopped, whose probability distribution is as given below:-

Production per day : 196 197 198 199 200 201 202 203 204
Probability : 0.05 0.09 0.12 0.14 0.20 0.15 0.11 0.08 0.06

The finished mopeds are transported in a specially designed three-storied lorry that
can accommodate only 200 mopped. Using the following 10 random numbers 82, 89,
78, 24, 53, 61, 18, 45, 04, 23 simulate the process to find out:
(i) What will be the average number of mopeds waiting in the factory?
(3.80)
(ii) What will be the average number of empty space on the lorry? (0.20)

Question 4
A dentist schedules all her patients for 30 minutes appointments. Some to the
patients take more or less than 30 minutes depending the type of dental work to be
done. The following summary shows the various categories of work, their
probabilities and the time needed to complete the work.
Category Time required Probability of
(minutes) category
Filling 45 0.40
Crown 60 0.15
Cleaning 15 0.15
Extraction 45 0.10
Checkup 15 0.20
14| CMA Final Paper 9
 Simulation
Simulate the dentist’s clinic for four hours and determine the average waiting time
for the patients as well as the idleness of the doctor. Assume that all the patients
show up at the clinic at exactly scheduled arrival times, starting at 8 A.M. Use the
following random numbers for handling the above problem: 40, 82, 11, 34, 25, 66, 17
and 79.

Question 5
Determine the optimum number of mechanics for 100 semi- automatic machine
tools. The operation of the machine tools is automatic and warrants attention of the
mechanics only when there is break down. The breakdowns have been seen to occur
at the following times:

Break down : 1 2 3 4 5 6 7 8 9
Time (hour) : 0 1.2 2.1 2.4 2.6 3.8 4.3 5.1 6.0

Wages of the mechanics per Machine Rs. 18 per hour and machine down time cost is
Rs. 30 per hour, The repair times for the machine tools have been observed to be
according to the following distribution:

Time of Repair (hour) : 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 2.0
Frequency : 50 110 210 350 105 70 50 45 10

You are required to make calculation for 2 mechanics as well as 3 mechanics, make 9
runs & use random no. from random no. table?

Question 6
The ABC Corporation has installed a new set of boilers in its factory. These are special
boilers, which require periodic maintenance to ensure a continuous supply of steam
needed in the production process. Since that boilers are new in the market there is
no previous experience of the time between boiler breakdowns. The cost of
maintenance is scheduled yearly, the costs are shown in the table I . The costs
expected to be linear. In other words, the maintenance costs would double if the
overhauls were scheduled twice. The cost associated with breakdowns, if the
maintenance overhauls are scheduled once or twice a year.

Table-1 Probability distribution for maintenance cost.

Maintenance cost Probability
Rs. 10000 0.30
Rs. 15000 0.40
Rs. 20000 0.30

Complied by: Tarun Mahajan, CFA, CA |15

Chapter 3
Table-2: Probability distribution for breakdown cost.
Breakdown cost per Overhaul once a Overhaul twice a
year year year
Rs.50000 0.20 0.60
Rs.60000 0.50 0.30
Rs.70000 0.30 0.10

Simulate the total cost for five years and decide whether overhaul performed once or
twice a year. Random number for five year: 84, 07, 55, 93, 30
[Ans. Average cost if overhaul on a year = 78000, If overhaul twice a year = 88000/- ,
recommendation overhaul on in year]

Q.7 A town has six ward and they contain 170, 510, 640, 75, 250 and 960 houses
respectively. Make random selection of 8 houses using the table of random numbers.
Explain the procedure adopted by you.

16| CMA Final Paper 9

Networking
Networking

Arrange activities properly to reduce time & cost

Critical Path Method (CPM) – Basics:

The CPM is a technique for analyzing, planning and scheduling large complex projects.
The technique aims at completing the project in time and within the budget. The
technique can be applied only if the project can be divided into a number of well
defined activities.

Some Basic Points:

(I) A project consists of different types of activities:
(a) Start activity: it is one which does not have any preceding activity.
(b) Finish or terminal activity: it is one which does not have any succeeding activity.
(c) Concurrent or parallel activity: these activities can be started simultaneously.
(d) Dummy activity: it is used merely to show the logical dependencies between
the activities. It is an imaginary activity that does not consume any time. It is
represented by a dotted arrow.
(e) Dangling activity: an activity (other than the terminal activity)
that does not have a succeeding activity is termed as a dangling activity. It is
connected to the last node through a dummy activity.
The two major components of PERT/CPM network are as follows:

(II) Events: Events in the network diagram represent project milestones. It represents
a point in time satisfying the completion of some activities and the beginning of
new ones. This s generally represented by a circle ‘O’ in a network which is also
called a node or connector.
The events can be further classified into following two categories:
(a) Merge Events: When more than one activity comes and joins an event. Such
event is known as merge events.

Complied by: Tarun Mahajan, CFA, CA |17

Chapter 4

(b) Burst event : When more than one activity leaves an events, such event is
known as burst event.

(III) Activity Duration: This can be defined as time taken to complete a given
activity.
(IV) Completion: The project is said to be completed if and only if all the activities
of the project are complete.
Networking:
CPM is used to coordinate and schedule the sequential activities of a project. It
presents the activities of a project as a net work. Network graphically presents the
how each activity is related to the others. When all the activities are connected with
each other in a logical manner, it gives rise to a network.

The network is drawn using the NODE -ARC principle. Nodes are circles indicating
either the start of an activity or finish of an activity or start of one activity and finish
of the other activity. An arrow joining any two nodes is called as ARC and each ARC
represents a given activity on the network. The networks are not drawn to scale.
While drawing the networks, as for as possible, the crisscrossing should be avoided.

Dummy activity:
It is used merely to show the logical dependencies between the activities. It is an
imaginary activity that does not consume any time. It is represented by a dotted line.
Dummy activities are inserted in following cases:
(i) In network, two or more activities are not allowed to have the same starting
ending nodes. Hence, if two activities begin and end at the same time, a dummy
activity is inserted into the network to distinguish the two activities.
Example:
Activity 1–2 5 days
Duration 1-3 5 days 2
5

1 0
5

18| CMA Final Paper 9

 Networking

(ii) Dummy activity is used to identify precedence relationships correctly.

Example:

Activity A B C D E F
Preceding - - A, B B A C
activity

(iii) If a second activity can be started after part of a first activity is complete, a
dummy activity is inserted. Example:

Activity A B C D E F
Preceding - - 50% B A C
activity completion
of A

Complied by: Tarun Mahajan, CFA, CA |19

Chapter 4
(iv) Dummy is inserted to connected the dangling activities
Examples:
Activity 1-2 1-3 2-4 4-5 5-6
Duration 5 4 3 2 1

Critical Path:
The longest-duration path through the network is known as critical path (It is the
minimum time required to complete the project). Activities that lie on the critical path
cannot be delayed without delaying the completion time for the whole project; such
activities are known as critical activities.

Basic Objectives:
The basic objectives of using the technique are:
(i) to find the competition time of a project;
(ii) to find scope of reducing the project duration in the economical way;
(iii) to allocate resources to the job in the efficient way.
The technique is useful in construction (building, roads, bridges, airports, tunnels
etc.), maintenance and research & development activities.

NUMBERING THE EVENTS (FULKERSON'S RULE)

After the network is drawn in a logical sequence, every event is assigned a number
which is placed inside the node circle. The number sequence should be such as to
reflect the flow of the network. The rule devised by D.R. Fulkerson is used for the
purpose of numbering. It involves the following steps:
1. The initial event which has all outgoing arrows with no incoming arrow is
numbered `1'.
2. Delete all the arrows coming out from node 'I'. This will convert some more nodes
(at least one) into initial events. Number these events 2, 3,...
3. Delete all the arrows going out from these numbered events to create more initial
events. Assign the next numbers to these events.
4. Continue until the final or terminal node, which has all arrows coming in with no
arrow going out, is numbered.

20| CMA Final Paper 9

 Networking

(3) Errors in Network :

1) Looping: When arrows are drawn from right to left, resulting into error in
relationship
A

B
C

2) Dangling: When an activity (other than terminal activity) is not connected to

any succeeding activity. It should be connected to terminal activity by a dummy
activity.

A B

C
Dummy

3) Redundancy: When unnecessary predecessors are used. It should be eliminated.

Complied by: Tarun Mahajan, CFA, CA |21

Chapter 4
NETWORK CONSTRUCTION
Q1. Draw a network for the simple project of erection of steel works for a shed. The
various activities of the project are as under:
Activity Description Preceded by
A Erect site workshop –
B Fence site –
C Bend reinforcement A
D Dig foundation B
E Fabricate steel work A
F Install concrete pillars B
G Place reinforcement C, D
H Concrete foundation G, F
I Erect steel work E
J Paint steel work H, I
K Give finishing touch J

Q2. Draw the network diagram for the following list of activities :

Activity Immediate Activity Immediate

predecessor predecessor
A – L K
B A M K
C B N K
D C O D
E D P O
F E Q B
G E R N
H C S L,M
I C,F T S
J G,H,I U P,Q
K J V U

22| CMA Final Paper 9

 Networking
Q3. Depict the following dependency relationships by means of network diagrams.
The alphabets stand for activities.
(i) A and B control F; B and C control G
(ii) A and B control F; B controls G while C controls G and H.
(iii) A controls F and G; B controls G while C controls G and H.
(iv) F and G are controlled by A; G and H are controlled by B with H controlled by
and C.
(v) A controls F, G and H, B controls G and H with H controlled by C.

Q4. The activities along with their dependency relationship are given below. Draw
an arrow diagram.(7)
Activity: A B C D E F G H I
Immediate
Predecessor: – – – C A, B C E, F D F, H

Q5. The activities along with the dependency relationship are given below. Draw
the arrow diagram.(8)

Activity Immediate Activity Immediate

predecessor predecessor
A – G B, C
B – H C
C – I E,F
E A J G,H
F A,B K H

Q6. Draw the network for the following activities and find critical path & the total
duration of project (11)
Activity Duration (months) Activity Duration
(months)
1-2 1 3-6 1.5
2-3 4 4-7 3.5
2-4 5 5-7 2.5
3-4 3 6-7 1
4-5 1.5 7-8 4

Complied by: Tarun Mahajan, CFA, CA |23

Chapter 4
Q7. Draw the network for the following activities and find critical path and total
duration of project: (12)
Activity Duration (months) Activity Duration
(months)
1-2 2.5 4-5 2.0
2-3 2.5 5-6 3.0
2-4 1.5 6-7 1.5
3-4 1.0 5-7 1.5
3-5 1.0

Q8. Draw the network for the following activities and find critical path and total
duration of project: (16)

Activity Dependence Duration Activity Dependence Duration

(Days) (Days)
A – 6 F C 3
B – 3 G D 5
C A 5 H B, E 5
D A 4 I D, H 2
E A 3 J F, G, I 3

ANALYSIS OF TIMING
This is to be studied in two parts:
(i) Computing Earliest start (this is referred as forward numbering process): Earliest
time at which the activity can start.
(ii) Computing Latest finish (this is referred as backward numbering process): Latest
time by which the activity should be finished without delaying the project
completion.

Forward Numbering Process: (Earliest start)

(i) Start putting zero in the first node. It is designated as 'E'.
(ii) Proceed sequentially to the next adjacent node.
(iii) If there is more than one way of reaching to the next adjacent node, find the
maximum time of reaching and write on top at the next node as 'E'.
(iv) Number on the top of node indicates the earliest possible time to start the
activity.
(v) Proceed in this way till terminal node is reached.
24| CMA Final Paper 9
 Networking

Backward Numbering Process: (Latest finish)

(i) Write the number obtained in the terminal node in the forward process as latest
finish. It is designated by L.
(ii) Work sequentially backward by travelling through head to tail of the arrow.
(iii) If there are more than one ways of reaching back, find the maximum time of
reaching back.
L = critical path duration minus the maximum time of reaching back.
(iv) Proceed in this way, till start node is reached.
Connected the nodes in a sequential order which has got both – forward and
backward numbers identical. The activities so connected are known as critical
activities. The path is known as critical path.

Head event slack: It is the difference between L and E at the end node of an activity.

Tail event slack: It is the difference between L and S at the starting node of an activity.

Float Analysis
Float is defined as the maximum permissible delay that can be tolerated without
delaying the total project competition. Float can be associated only with non-critical
activities. Float of a critical activity is zero. The critical path has no float.

Writing the Float Table:

(i) Draw the net work diagram and note the E and L
(ii) Write the activities and their respective durations in columnar form.
(iii) Write the respective earliest start time of different activities (with the help of
diagram prepared under (i)
(iv) Write the respective earliest finish time of different activities. Earliest finish
time is E+ activity duration.
(v) Write the respective latest finish time of different activities (with the help of
diagram prepared under (i)
(vi) Write the respective latest start time of different activities. Latest start time is
L minus activity duration.

Total float: The total flout of an activity is the amount of time by which it may be
extended or delayed without delaying completion of the project.
A critical activity can be defined as one which has a total float of zero.
Total Float is the difference of LS and ES or LF and EF, i.e. LS-ES or LF-EF.
Complied by: Tarun Mahajan, CFA, CA |25
Chapter 4

Free float Free float is an amount of time that an activity can be delayed without
delaying the start of its succeeding activity. It is computed as total float minus head
event slack.

Independent float
It is that amount of time within which an activity can be delayed without delaying the
completion of the project even if the preceding activities have consumed their total
float.
It is computed as free float minus tail event slack. (If negative, it is taken as zero).

Interference float is the difference between total float and free float.

Q9. The utility data for a network are given below. Determine the total, free,
independent and interfering floats and identify the critical path.(17)
Activity: 0-1 1-2 1-3 2-4 2-5 3-4 3-6 4-7 5-7 6-7
Duration: 2 8 10 6 3 3 7 5 2 8

Q10. For the network given in fig. determine the total, free, independent and
interfering floats for each activity. Times for activities are in months.(19)

26| CMA Final Paper 9

Linear Programming
Linear Programming

Finding the best under given constrains

Q1. The owner of Fancy Goods shop is interested to determine, how many
advertisements to release in the selected three magazine A, B and C. His main
purpose is to advertise in such a way that exposure to principal buyers of his goods
is maximized. Percentages of readers for each magazine are known. Exposure in
any particular magazine is the number to principal buyers. The following data are
available :

Particulars Magazines
A B C
Readers 1.0lakh 0.6 lakh 0.4 lakh
Principal Buyers 20% 15% 8%
Cost per 8,000 6,000 5,000
Advertisement
The budgeted amount is at the most Rs.1.0 lakh for the advertisement. The owner
has already decided that magazine A should have no more than 15 advertisement
and that B and C each gets at least 8 advertisement. Formulate a Linear
Programming Model for this problem.

Q2. For a company engaged in the manufacture of three products viz., X, Y and Z,
the available data are given in Tables 1, 2 and 3 below :
Table 1 Minimum Sales Requirements
Product Minimum Sales Requirements per
month
X 10
Y 20
Z 30

Complied by: Tarun Mahajan, CFA, CA |27

Chapter 5
Table 2 : Operations, Required Processing Times and Capacity
Operation Time (Hrs) required per item of Total available
X Y Z hours per month

1 1 2 2 200
2 2 1 1 220
3 3 1 2 180
Table 3 : Profit (Rs.) Per unit
Product Profit (Rs.) Unit
X 10
Y 15
Z 8
Formulate LP problem Neet not to solve it.

Q3. The vitamins V and W are found in two different foods, F 1 and F2. The amount of
vitamin in each of the two foods, respective prices per unit of each food, and the daily
vitamin requirement are given in the following table. The data indicate that one unit of
F1 contain 2 units of vitamin V and 3 units of vitamin W. Similarly one unit of F 2 contains
4 units of vitamin V and 2 units vitamin W. Daily requirement of vitamin V is at least 40
units and vitamin W of at least 50 units.
The problem is to determine optimal quantities of food f1and F2 to be bought so that the
daily vitamin requirements are met and, simultaneously the cost of buying the goods is
Minimized.
Food Daily
Vitamin F1 F2 Requirement
V 2 4 40
W 3 2 50
Cost/Unit of food 3 2.5

Q4. A company has three operational departments (weaving, processing and

packing) with capacity to produce three different types of clothes namely suiting,
shirting and woolens yielding profit of Rs.2, R.4 and Rs. 3 per meter respectively.
One meter suiting requires 3 minutes in weaving 2 minutes in processing and 1
minute in packing. Similarly one meter of shirting requires 4 minute in weaving, 3
minutes in each department. While Woolens require 3 minutes in each
department. In a week, total run time of each department is 60, 40 and 80 hours
for weaving, processing and packing departments respectively.
Formulae the linear programming problem to find the product mix to maximize
the profit.

28| CMA Final Paper 9

 Linear Programming
Q5.The manager of an oil refinery must decide on the optimum mix of two possible
blending process of which the input and output production runs are as follows :
Process Input Output
Crude A Crude B Gasoline X Gasoline Y
1 6 4 6 9
2 5 6 5 5
The maximum amounts available of crude’s A and B 250 units respectively. Market
demand shows that at least 150 units of gasoline X and 130 units of gasoline Y
must be produced. The profits per production run from process 1 and process 2
are Rs.4 and Rs.5 respectively. Formulate the problem for maximizing the profit.

Q6. A farm is engaged in breeding pigs. The pigs are fed on various product grown
on the farm. In view of the need to ensure certain nutrient constituent (call them
as X, Y and Z). It becomes necessary to feed two additional products say A and B.
One unit of A contains 36 units of X, 3 unit of Y and 20 units of Z. One unit of B
contains 6 units of X. 12 units of Y and 10 units of Z. The minimum requirement of
X, Y and Z is 108 units, 36 units and 100 units respectively. Product A costs Rs.20
per unit and product B cost Rs.40 per unit. Formulate LPP to minimize the total
cost.

Q7. A firm buys castings of P and Q type parts and sets as finished product after
machining, boring and polishing. The purchasing cost for castings are Rs.3 and Rs.4
each for part P and Q are selling casts are Rs.8 and Rs.10 respectively. Per hour
capacity of machines used for machining, boring and polishing for two products is
given below :

Parts
Capacity (per hour) P Q
Machining 30 50
Boring 30 45
Polishing 45 30
The running costs for machining, boring and polishing are Rs.30, Rs.22.50 and
Rs.22.50 per hour respectively. Formulate the linear programming problem to find
out the product mix to maximize the profit. (Hint: you want to make best utilization
of each hour)

Complied by: Tarun Mahajan, CFA, CA |29

Chapter 5
Q8. A Mutual Fund Company has Rs.20 lakhs available for investment in
Government Bonds, blue chip stocks, speculative stock and short-term deposits.
The annual expected return and risk factor are given below :

Types of Investment Annual Expected Risk Factor (0 to 100)

Return (%)
Government Bonds 14 12
Blue Chip Stocks 19 24
Speculative Stocks 23 48
Short-term Deposits 12 6

Mutual fund is required to keep at lest Rs.2 lakhs in short-term deposits and not
to exceed average risk factor of 42. Speculative stock must be at most 20 percent
of the total amount invested. How should mutual fund invest the funds so as to
maximize its total expected annual return ? Formulate this as a Linear
Programming Problem. Do not solve it.

Q9. The Fine Paper Company produces rolls of paper used in cash register Each roll
of paper is 500 ft. in length and can be produced in widths of 1, 2, 3 and 5 inch.
The company’s production process result in 500 rolls that are 12 inches in width.
Thus the company must cut its 12 inch roll to the desired width. It has six basic
cutting alternatives as follows :

Cutting 1” 2” 3” 5” Waste
Alternative
1 6 3 0 0 0
2 0 3 2 0 0
3 1 1 1 1 1
4 0 0 2 1 1
5 0 4 1 0 1
6 4 2 1 0 1

30| CMA Final Paper 9

 Linear Programming
The maximum demand requirements for the four rolls are as follows :
Roll Width (inches) Demand Requirements (Rolls)
1 3000
2 2000
3 1500
5 1000
The company wishes to minimize the wave generated by its production meeting
its demand requirements. Formulate the LP model. (Hint: six variables, five
inequations)

Q10.Three grads of coal A, B and C contain ash and phosphorus as impurities. In a

particular industrial process a fuel obtained by blending the above grades
containing not more than 25% ash and 0.03% phosphorous is required. The
minimum demand of the fuel is 100 tons. Percentage impurities and costs of the
various grades of coal are shown below. Assuming that there is an unlimited supply
of each grade of coal and there is no loss in blending. Formulate the blending
problem to minimize the cost.
Coal grade % ash % phosphorus Cost per ton in Rs.
A 30 0.02 2.40
B 20 0.04 300
C 35 0.03 280
(Hint: three variables, three inequations)

Q11.The following matrix gives the units cost of transporting a product from
production plants P1, P2 and P3 to destinations D1, D2 and D3. Plants P1, P2 and P3
have a maximum production of 65,24 and 111 units respectively and destinations
D1, D2, and D3 must receive at least 60, 65 and 75 units respectively.
To D1 D2 D3 Supply
From
P1 Rs.400 Rs.600 Rs.800 65
P2 Rs.1000 Rs.1200 Rs.1400 24
P3 Rs.500 Rs.900 Rs.700 111
Demand 60 65 75 200
You are required to formulate the above as linear programming problem. (Only
formulation is needed. Please do not solve).

Complied by: Tarun Mahajan, CFA, CA |31

Chapter 5
Q12.In a chemical factory two product A and B are made involving two operations.
The production of B also results in a by-product C. The Product A can be sold at a
profit of Rs.3 per unit and B at a profit of Rs. 9 per unit. The by-product C has a
profit of Rs.2 per unit. Forecast show that up to 5 units of C can be sold. The
company gets 3 units of C for each unit of B produced. The manufacturing times
are 3 hours per unit for A on each of operation one and two and 4 hours and 5
hours per unit for B operation one and two respectively. Because the product C
result from producing B, no time is used in producing C. The available times are 18
hours and 21 hours for operation one and two respectively. The company desires
to know that how many A and B should be produced keeping C in mind to make
the highest profit. Formulate LP model that how many A and B should be produced
keeping C in mind to make the highest profit. Formulate LP model for this problem.
(Hint: four variables, third variable produced and sold, forth variable produced but
not sold, 3 inequations and 1 equation)

Q13.An investor is interested in investing Rs.15,000,000 in a portfolio of investments.

The investment choices and expected rates of return on each one of them are :
Investment Mutual Mutual Money Govt. Share P Share Q
Fund XY Fund HN Market Bonds
Fund
Project rate 15% 9% 8% 8.75% 17% 18%
of return

The investor wants at least 40% of investments in Government bonds. Because of

the higher perceived risk of the two shares, he has specified that the combined
investment in there two shares not to exceed Rs.2,60,000. The investor has also
specified that at least 25% of the investment should be in the money market fund
and that the amount of money invested in the shares should not exceed the
amount invested in he mutual funds. His final condition is that the amount
invested in the mutual fund XY should not be more than the amount invested in
mutual fund HN. The problem is to decide the amount of money to invest in each
alternative so as to obtain the highest annual return.
Formulate the above as a LPP.

32| CMA Final Paper 9

 Linear Programming
Q14.A ship has three cargo holds, forward, aft and centre : the capacity limits are :
Forward 2,000 tonnes 1,00,000 m3
Centre 3,000 tonnes 1,35,000 m3
Aft 1,500 tonnes 30,000 m3
The following cargoes are offered : the ship owners may accept all or any part of
each commodity :
Commodity Amount (tones) Volume per tonne (m3) Profit
per tonne (Rs)
A 6,000 60 60
B 4,000 50 80
C 2,000 25 50
The objective is to maximize the profit. Formulate the linear programming model
for the problem. (hint: 9 variables)

Q15.The most recent audited summarized Balance Sheet of stop and Shop Financial
service is given below :
Balance-Sheet as on 31st March, 2004

Liabilities Rs. (Lakhs) Assets Rs.(Lakhs)

Equity share capital 65 Fixed assets (given on 375
lease)
Reserve and surplus 110 Other fixed assets 50
Term loan from IFCI 80 Investments 20
Public deposits 150 Current assets
- Stock on hire 80
- Receivables 30
- Other current 35
assets
Bank borrowings 147 Misc. expenditure 12
Other Current liabilities 50
Total 602 Total 602

The company intends to enhance its investments in the lease portfolio by another
Rs.1000 lakhs. For this purpose it would to raise a mix of debt and equity in such a

Complied by: Tarun Mahajan, CFA, CA |33

Chapter 5
way that the overall cost of raising the additional funds is minimized. The following
constrains apply to the way the funds can be mobilized :
1. Total debt divided by net owned funds cannot exceed 10.
2. Amount borrowed from the financial institutions cannot exceed 25% of the net
worth.
3. Maximum amount of bank borrowing cannot exceed three times the net
owned funds.
4. The company would like to keep the total public deposits limited to 40% of total
debt.
The post tax costs of different sources of finance are as follows :
Equity Term loans Public deposits Bank
borrowings
25% 8.50% 7% 10%

Formulate the funds problem as LPP.

Notes : (a) Total debt = Term loans from FIs + Public deposits + Bank borrowings
(b) Net worth = Equity share capital and Reserve and surplus
(c) Net owned funds = Net worth minus Misc. expenditure.

34| CMA Final Paper 9

 Learning Curve

Chapter
Description

CONCEPT

Complied by: Tarun Mahajan, CFA, CA |35