Sample Questions of New Exam System 2009 Table of Contents

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1 Sample Questions of New Exam System 2009 Table of Contents 20 sample questions which characterize New Exam System 2009 are included in this file. Category AM/PM Characteristics of New Exam System Fundamental Information Technology Engineer Examination (FE) Applied Information Technology Engineer Examination (AP) IT Strategist Examination (ST) Systems Architect Examination (SA) Information Security Specialist Examination (SC) IT Service Manager Examination (SM) Systems Auditor Examination (AU) PM PM PM I PM II PM I PM II PM I PM I PM II PM I PM II Published: April 30, 2008 Updated: November 20, 2008 Q1 Scope of Questions: Software Development (Spreadsheets) Q2 Scope of Questions: Management (Project management) Q3 Scope of Questions: Strategy (System strategy) Q4 Scope of Questions: Strategy (Business/ Related laws and regulations) Q5 Scope of Questions: Management strategy Q6 Scope of Questions: Management strategy Q7 Scope of Questions: System audit Scope of Questions: Formulation of business strategy utilizing Q8 information technology Q9 New characteristic: Questions related to embedded systems Scope of Questions: Formulation of individual systemization concepts Q10 and plans, reflecting the business characteristics Q11 New characteristic: Questions related to embedded systems Q12 System architecture design in Systems Architect Examination Q13 New characteristic: Questions related to embedded systems Q14 System architecture design in Systems Architect Examination Q15 New characteristic: Questions related to embedded systems Q16 Q17 Q18 Q19 Q20 New characteristic: Questions focusing on information security technology New characteristic: Questions with a greater emphasis on management aspects New characteristic: Questions with a greater emphasis on management aspects New characteristic: Questions demanding a broader and deeper understanding of information technology New characteristic: Questions demanding a broader and deeper understanding of information technology Note: Regarding Fundamental Information Technology Engineer Examination which consists of multiple-choice questions, the questions are followed by sample answers. Source: (Japanese only) 1

2 Q1. Read the following explanation of spreadsheet software and worksheets, and then answer Subquestions 1 and 2. [Explanation of spreadsheet] The personnel department of a certain company gives a regular seminar on internal security, which is followed by a test. Each time, exactly 30 people take the seminar. In the test, 10 questions are asked out of 50 questions. Each correct answer gets 10 points, and therefore a perfect score is 100. The test contains multiple choice questions with only one correct answer for each question. Although the personnel department manually selected and managed questions in the past, it decided to do these tasks using spreadsheet software. [Worksheet: Question management] (1) Based on the question management table that retains the test results up to this time, the personnel department created a question management worksheet as shown in Fig. 1. A B C D E F G H AY 1 Question # Area category A A A A A B B A 3 Date used last Number of uses Rate of correct answers New/Revised R R N 7 Revision Info Modified # of uses 10 Modified date 11 Rank addition 12 Rank to be determined Fig. 1 Question management worksheet (2) The items in Fig. 1 are described below. Question #: Each question is given a reference number from 1 through 50. Area category: Each question is categorized as Area A or B, A is entered for Category A questions and B for Category B questions. Each category has 25 questions. Date used last: The questions are used repeatedly. The date each question was 2

3 used last is entered. Number of uses: How many times each question has been used is entered. Rate of correct answers: The rate of each question answered correctly in all the past tests is entered (in the range of 0 through 1). New/Revised: N is entered for newly created questions (new questions), R for questions (revised questions) that have been revised but have not been used yet, or for the other questions. For new and revised questions, the rows of date used last, number of uses, and rate of correct answers are provided with (date before the test started), 0, and 0.5, respectively. Revision info: 1 is entered for the questions that must be revised or 0 for the questions that need not be revised. If the rate of correct answers is less than 0.4 or more than 0.8, that question must be revised. The modified # of uses, modified date, rank addition, and rank to be determined rows are used when questions are selected. (3) For each test, questions must be selected from the question management table according to the following criteria. Five or more questions in each of Areas A and B must be selectable. (Criteria for question selection) (a) Five questions must be selected from each of Areas A and B. (b) Higher priority must be given to questions of which dates used last are older and/or numbers of uses are smaller. (c) Questions that need not be revised (questions with a rate of correct answers of more than 0.4 and less than 0.8) must be selected. (4) The steps for selecting questions in Area A according to the criteria for question selection are as follows: (i) For questions in Area A that need not be revised, number of uses is entered as is in the modification # of uses row. For questions in Area A that must be revised and questions in Area B, 9999 is entered in the modified # of uses row. (ii) For questions in Area A that need not be revised, the date used last is entered in the modified data rows as is. For questions in Area A that must be revised and questions in Area B, the date ( ) processed is entered in the modified date row. (iii) A rank is given to each of the values in (i) and (ii) in ascending order. In addition, the sum of the ranks in (i) and (ii) is entered in the rank addition row. The rank is also given in ascending order to this value and entered in the rank to be determined row. Based on the results determined in (iii), five questions are taken in descending 3

4 order of rank in the rank to be determined row as questions in Area A. If more than one question has the same rank, higher priority is given to smaller question numbers. Fig. 2 shows the question management worksheet after questions in Area A have been selected. (5) The same steps are performed for Area B as well as Area A. (6) The functions used for selecting questions are shown in Table 1. Tab le 1 Functions used for selecting questions Syntax Rank (number, range) Today () Description Return the rank of a number within a set of numbers (a numeric value that start with 1 in descending order). If the rank is the same, the same value is returned and the next rank larger by the number of the items with the same rank is returned. The current date is returned. A B C D E F G H AY 1 Question # Area category A A A A A B B A 3 Date used last Number of uses 5 Rate of correct answers New/Revised R R N 7 Revision info Modified # of uses Modified date Rank addition Rank to be determined Fig. 2 Question management worksheet after questions in Area A have been selected 4

5 Subquestion 1 From the answer groups below, select the correct answer to be inserted in each blank in the following description concerning the question management worksheet. To execute question selection, the following expression is entered in Cell B9 of the question management worksheet and copied to Cells C9 through AY9. IF ( A ( B, C ), B4, 9999) The following expression is entered in Cell B10 and copied to Cells C10 through AY10. IF ( A ( B, C ), B3, Today( )) The following expression is entered in Cell B11 and copied to Cells C11 through AY11. D Answer group for A, B, and C: a) Logical product b) Logical sum c) B2 = A d) B2 = B e) B5 0.4 f) B5 0.8 g) B6 = N h) B6 = R i) B7 = 0 j) B7 = 1 Answer group for D: a) Rank (B4, $B4 ~ $AY4) + Rank (B3, $B3 ~ $AY3) b) Rank (B4, $B9 ~ $AY9) + Rank (B3, $B10 ~ $AY10) c) Rank (B9, $B4 ~ $AY4) + Rank (B10, $B3 ~ $AY3) d) Rank (B9, $B9 ~ $AY9) + Rank (B10, $B10 ~ $AY10) Subquestion 2 From the answer groups below, select the correct answer into each blank following description concerning update of the question management worksheet. in the [Worksheet: Test result] With 10 questions selected, a test was conducted. Based on the result of it, the test result worksheet was created as shown in Fig. 3. In this worksheet, the number 1 means that the question was answered correctly and 0 means that the question was answered incorrectly. Based on this result, the values in the question management worksheet in Fig. 1 are updated to create a new question management worksheet. 5

6 A B C D E F G H AE AF 1 Student number 2 Question number Number of students who answered correctly Student score Fig. 3 Test result worksheet [Worksheet: New question management] (1) To create a new question management worksheet, rows 1 through 7 of the question management worksheet are copied to the new worksheet. To enter data that refers to the data in a different worksheet, the syntax SheetName!Cell is used. (2) In the new question management worksheet, the following items must be updated as follows: Date used last: This item is updated to the test implementation date ( ). Number of uses: This item is incremented by one. Rate of correct answers: This item is updated to reflect the rate based on the number of students who answered correctly this time. New/Revised: If the question is new or revised, must be entered. Revision info: If the updated rate of correct answers is less than 0.4 or more than 0.8, the question must be revised: 1 must be entered. (3) Table 2 shows the functions used for updating the worksheet. 6

7 Table 2 Functions used for updating the worksheet Syntax Lookup (lookup_value, lookup_range) Vlookup (lookup_value, lookup_range, result_range) Error (reference_value) Description Searches the leftmost column of the lookup range from top to bottom for the lookup value. If the same value is found, the relative position of the appropriate cell is returned. If not, an error value is returned. Searches the leftmost column of the lookup range from top to left for the lookup value. If the same value is found, the value located at the same position as the relative position of the cell from result range is returned. If not, an error value is returned. Returns true if the reference value is an error value and false if not. (4) Fig. 4 shows an updated new question management worksheet. A B C D E F G H AY 1 Question # Area A A A A A B B A 3 Date used Number of uses Rate of correct answers New/Revised 7 Revision info Fig. 4 Updated new question management worksheet (5) To update the worksheet, the following expression is entered in Cell B3 of the new question management worksheet and copied to Cells C3 through AY3. IF(Error(Lookup( E, F )), QuestionManagement!B3, ) The following expression is entered in Cell B4 and copied to Cells C4 through AY4. IF(Error(Lookup( E, F )),QuestionManagement!B4, QuestionManagement!B4+1) The following expression is entered in Cell B5 and copied to Cells C5 through AY5. IF(Error(Lookup( E, F )),QuestionManagement!B5, ( G +VLookup( E, F, H ))/(B4*30)) The following expression is entered in Cell B6 and copied to Cells C6 through AY6. IF(Error(Lookup( E, F )),QuestionManagement!B6, ) The following expression is entered in Cell B7 and copied to Cells C7 through AY7. IF (LogicalProduct ( I ), 0, 1) 7

8 Answer group for E: a) $B1 b) $B3 c) B1 d) B3 Answer group for F and H: a) TestResult! $A3 ~ $A12 b) TestResult! $AF3 ~ $AF12 c) TestResult! A3 ~A12 d) TestResult! AF3 ~AF12 Answer group for G: a) QuestionManagement!B4*30 b) QuestionManagement!B5*30 c) QuestionManagement!B5*B4*30 d) QuestionManagement!B5*QuestionManagement!B4*30 Answer group for I: a) 0.4 B5, B5 0.8 b) 0.4 < B5, B5 < 0.8 c) B5 0.4, 0.8 B5 d) B5 < 0.4, 0.8 < B5 Suggested answers for Sample Afternoon Question (1) of Fundamental Information Technology Engineer Examination Question number Correct answer Q1 Subquestion 1 A a B c C i D d Subquestion 2 E c F a G d H b I a Remarks In no particular order 8

9 Q2. Read the following description concerning change management for system construction, and then answer Subquestions 1 and 2. Company A, a device manufacturer, decided to reconstruct its mission-critical system with the objective of speeding account settlements and outsourced the development of the system (ranging from the external design to system testing) to Company B, an information technology company owned by Company A. Many of the people in charge at Company B are familiar with the business tasks at Company A. They took part in the restructuring of the mission-critical system from the requirements definition phase and successfully proceeded with system development, finishing the requirements definition in time. In the past, Company B easily accepted changes to the requirements in the design phase, which caused a significant delivery delay and a budget overrun. For this reason, it considers that reviewing project management is the key issue. Under this situation, the company assigned Mr. P, who has extensive experience, as PM (project manager) to ensure that the project is managed properly. The system consists of several subsystems. Mr. P decided to use two development teams to shorten the development period. He organized Development Teams X and Y and assigned persons who have been involved in the requirements definition as leader of each team. [Reviewing the requirements definition document] Mr. P reviewed the requirements definition document with the leaders and found some ambiguities. He checked the reason and found out that the people in charge at Companies A and B started the requirements definition based on an agreement that they would review the details later without listing the requirements for them. Mr. P pointed out the problem that requirements were defined without working out the details and instructed the leaders to review the details at an early stage in the external design phase and to document them so that they could check them. He also determined that changes would be requested in many ways in the subsequent design work as well. As countermeasures, Mr. P proposed the following contract terms. Company A agreed to them before the external design started. 9

10 (i) If any change is requested, the change management guidelines to be defined by consultation by both companies must be followed. (ii) If any change request affects A, the cost must be re-quoted on an as-needed basis or at the end of the external design so that the contract can be modified. [Change management guidelines] (1) Change management system The teams shown in the figure are set up in each company to manage change requests. Company A User department 1 Promotion team System department manager & responsible persons at other related departments User department 2 User department 3 Company B Specifications management team PM Mr. P Development team X Development team Y Fig. Change management system (2) Submission of change request form When a change request is made by the user department of Company A, that department writes the subsystem name, overview of the change, reason the change is required, and importance level and effect of the change on a change request form and submits it to the promotion team. The promotion team collects the change request forms on a weekly basis, and B through Mr. P. Between Companies A and B, the change requests are managed in an integrated manner by the promotion and specifications management teams. (3) Study of effect extents With assistance from the development team, the specifications management team studies the estimated person hours, schedule, cost, and effects on subsystems required to realize the change request. The period of study is one week from acceptance. (4) Decision of whether or not to adopt the change request Mr. P contacts the promotion team after the specifications management team C and he checks the results. The promotion team promptly calls Mr. P and the specifications management team to convene a change management meeting, 10

11 where they review the change request form submitted by Company A and the extent of the effect studied by Company B to determine whether or not to adopt it. If the change request is adopted, Mr. P instructs the development team to change the development. In addition, each company D as required. Subquestion 1 From the answer groups below, select the correct answer to be inserted in each blank in the descriptions for review of the requirements definition document and modification management guidelines. Answer group for A: a) account settlement of Company A b) morale of the development team c) detailed design d) system test e) delivery date or development costs Answer group for B, C, and D: a) submits them to Mr. P b) examines the effect extent c) sends them to the development team d) modifies the contract e) sends them to the specifications management team f) sends them to the promotion team g) collectively manages change requests Subquestion 2 At some point after the design process started, Mr. P checked the status of the development teams. Even when there was a possibility that a change request would be made, the leader of Development Team X continued the development based on the current specifications until a decision was made whether or not to adopt it. After the change request had been adopted, he addressed it immediately. However, the user departments complained that they wanted important change requests to be addressed earlier. The leader of Development Team Y addressed change requests that he had determined were important and would finally be adopted, with consideration of the effect on Development Team X, without waiting for the committee s decisions in order to maintain the development schedule. Under this situation, Mr. P instructed the leader of Development Team Y to strictly follow 11

12 the change management guidelines. In addition, to address complaints from users, he decided to propose improvements to the change management guidelines. Which of the following is the correct description as the improvement this time? Answer group: a) Not allowing the development teams to be involved in effect extent study b) Immediately submitting to Company B change requests which the promotion team has determined are important c) Shortening the period of effect extent study performed by the specifications management team to within three days after acceptance. d) Defining rules for addressing complaints about change requests from user departments e) Holding change management meetings at regular intervals based on a predetermined schedule. Suggested answers for Sample Afternoon Question (2) of Fundamental Information Technology Engineer Examination Question number Correct answer Q2 Subquestion 1 A e B e C b D d Subquestion 2 b Remarks 12

13 Q3. Read the following description concerning order acceptance tasks, and then answer Subquestions 1 through 3. Company C decided to consider constructing a Web page that enables the company to perform order acceptance tasks (hereinafter referred to as Web order acceptance) that have been based on the telephone and facsimile, aiming at cutting the costs related to order acceptance tasks. At Company C, the order acceptance tasks are performed by seven full-time employees in the order acceptance section and three temporary workers. The order acceptance section expects that it can cut the workforce for order acceptance tasks to two full-time employees and two temporary workers by shifting mainly major customers to Web order acceptance. The average annual labor costs at Company C are 5 million yen for one full-time employee and 2.5 million yen for one temporary worker. The company decided to have its system section develop a new Web order acceptance system. An estimation made by the system section indicated that the Web order acceptance system would require a development cost of 50 million yen and an annual operational cost of 5 million yen. The order acceptance and system sections decided to estimate the effect of Web order acceptance system development to make internal adjustments toward a migration to the Web order acceptance system. Here, the telephone and facsimile costs can be ignored in estimation of the costs and effects. 13

14 Subquestion 1 From the answer groups below, select the correct answer to be inserted in each blank in the following description concerning costs associated with the order acceptance tasks at Company C. At Company C, the current annual labor cost required for the order acceptance tasks is A million yen. If the company can cut the workforce as it expects through Web order acceptance, it can reduce labor costs by B million yen annually from the current level. To verify the effectiveness of Web order acceptance development, the order acceptance and system sections decided to calculate the payout time. The development cost and the operational cost (hereinafter referred to as the development and operational costs) required in N years after the commencement of Web order acceptance can be expressed as 50 million yen+5million yen N. Likewise, the labor cost that can be cut in N years can be expressed as B million yen N. This indicates that the payout time for the Web order acceptance system development is C years. Answer group for A and B: a) 10 b) 17.5 c) 25 d) 27.5 e) 32.5 f) 35 g) 42.5 h) 50 Answer group for C: a) 1 b) 2 c) 3 d) 4 Subquestion 2 From the answer groups below, select the correct answer to be inserted in each blank in the description concerning the migration to Web order acceptance. Based on the calculated payout time for the Web order acceptance system development, the order acceptance and system sections made adjustments with other departments in the Company. Then, the sales section commented that the cost for promoting a migration (hereinafter referred to as the migration promotion cost) from conventional order acceptance by telephone and facsimile to Web order acceptance would be required. The sales section estimates that the migration promotion cost of 10 to 15 million yen is annually required to cut the order acceptance workforce as expected. If the annual migration promotion cost is 15 million yen (the maximum estimated cost), the sum of the 14

15 development and operational cost and the migration promotion cost required in N years from the start of Web order acceptance is expressed as D. As a result, the payout time for the Web order acceptance system development is seven years. The internal regulations of Company C state that the payout times should not exceed five years. If 15 million yen is annually spent as migration promotion cost, Web order acceptance development does not comply with the internal regulations. Assuming that the payout time for Web order acceptance development is five years, the longest period allowed by the internal regulations, the order acceptance and system sections decided to ask the sales section to keep the annual migration promotion cost down to less than E million yen. Answer group for D: a) (50 million yen + 5 million yen) N b) (50 million yen + 20 million yen) N c) (65 million yen + 5 million yen) N d) (65 million yen + 20 million yen) N Answer group for E: a) 11.5 b) 12 c) 12.5 d) 13 Subquestion 3 The planning section of Company C instructed the order acceptance and system sections to review an external Web order acceptance service and compare it with in-house development of a Web order acceptance system. From the answer group below, select the correct answer to be inserted in the blank in the following description concerning reviews of an external Web order acceptance service. The order acceptance and system sections reviewed the use of a Web order acceptance service from Company D, a system vendor. The table below shows part of the review result. 15

16 Item # Table Comparison of use of a service from Company D and in-house development Viewpoint (excerpt) Use of Web acceptance service from Company D In-house development of Web order acceptance system 1 Payout time 3 years 5 years Operational efficiency User operability Server enhancement due to increased users Regulatory compliance Since a general-purpose software package is used, the operational efficiency is down in performing order acceptance tasks specific to Company C. The operability is universal, which is not perfectly suitable for the order method specific to Company C. A server of Company D is used, which cannot be enhanced flexibly at the convenience of Company C. The service includes system modifications to comply with regulations. Since the order acceptance process specific to Company C can be built into the system, the operational efficiency is high. The system can deliver the operability based on the ordering method specific to Company C. The server can be enhanced flexibly according to decisions of Company C. The company must be responsible for system modifications to comply with regulations. For item numbers 1 through 5 in the table, the use of a Web order acceptance service from Company D has an advantage in terms of F. Based on these facts, the order acceptance and system sections decided to determine which option they should choose. Answer group of F: a) 1 b) 1 and 2 c) 1, 4, and 5 d) 1 and 5 e) 2 and 3 f) 2 through 4 g) 2 through 5 h) 3 through 5 16

17 Suggested answers for Sample Afternoon Question (3) of Fundamental Information Technology Engineer Examination Question number Correct answer Q3 Subquestion 1 A g B d C c Subquestion 2 D b E c Subquestion 3 F d Remarks 17

18 Q4. Read the following description concerning operation processes of production management, and then answer Subquestions 1 through 3. Company E manufactures and sells products that degrade over time and therefore must be shipped by certain deadlines. Its current production management system is getting old-fashioned, so the company decided to review the operation processes of production management to re-build a new production management system that supports future market trends and changes in customer needs. Instructed to review the operation processes, Mr. K decided to first interview the departments concerned in the company about the current status of production management operations and system along with any associated problems. [Interview result] The interviews conducted by Mr. K revealed the following facts. (1) As a general rule, they do not start to manufacture products before they receive orders from customers. (2) For products, which they cannot deliver by the dates required by customers if they start production after receiving orders, they manufacture them in advance to stock them. (3) The current system cannot identify the number of stocked products, and therefore all tasks ranging from order acceptance to delivery schedule replying are performed by human hands, requiring long time before replying delivery dates. (4) Orders from customers are accepted on business days (Monday through Friday). Subquestion 1 From the answer groups below, select the correct answer to be inserted to each blank in the description concerning the production management system. The interviews conducted in the company revealed that the current production management system supports A. Under this situation, Mr. K decided to add the following new functions in order to build a system that also supports B. (i) Function that allows the users to reply delivery dates for stock products by identifying the products C and allocating them to orders (ii) Function that allows the users to reply delivery dates by allocating the products D if no appropriate product is C 18

19 Answer group for A and B: a) project production system, where products are manufactured based on past order acceptance data and sales forecasts b) order-based production system, where products are manufactured based on actual orders from customers c) cell production system, where one or several workers are responsible for many processes d) line production system, where more than one worker shares processes based on assembly-line operation Answer group for C and D: a) in stock b) to be shipped c) to be manufactured d) to be ordered Subquestion 2 Based on the production overview of the products of Company E shown in the table below, Mr. K reviewed the most appropriate production system. From the answer groups below, select the correct answer to be inserted in each blank in the following description concerning the review results. Table Production overview of the products of Company E Product Name Shortest customer-requesting delivery time Number of days required for production Shipment limit Average number of units ordered per business day in last fiscal year Maximum number of units ordered per business day in last fiscal year Product X 2 days 6 days 180 days 50 units 60 units Product Y 7 days 4 days 30 days 30 units 75 units Product Z 7 days 5 days 180 days 300 units 315 units Note Shipment limit: maximum allowable days from manufacturing to shipment 19

20 [Results of the study of the best production systems on a per product basis] (i) For Product X, E is longer than the shortest customer-requesting delivery time, so the project production system is used to stock an adequate number of products to support orders with short delivery. (ii) For Product Y, E is shorter than the shortest customer-requesting delivery time. The shipment limit is also short. If products are stocked, there is a high probability that F. For this reason, the order-based production system is adopted. (iii) For Product Z, E is shorter than the shortest customer-requesting delivery time. However, the product shipment limit is long and G. For this reason, even if products are stocked, the probability is low that F. It was revealed that producing a low volume each time an order is received would reduce production efficiency, and therefore the project production system is used. Answer group for E: a) the number of days required for procuring the materials b) shipment limit c) the number of days required before shipments d) the number of days required for production Answer group for F: a) shipment limits expire b) shipment tasks become complicated c) products are not produced in time d) delivery schedules cannot be kept Answer group for G: a) demand is not stable b) demand is stable c) delivery times are not stable d) delivery times are stable 20

21 Subquestion 3 Mr. K considered the most appropriate stock for Product X, which will be produced based on the projection production system. From the answer groups below, select the correct answer to be inserted into each blank in the following description concerning the review result. [Result of consideration of the most appropriate stock for Product X] (i) Mr. K checked Product X with a sales representative to find out that the sales section expected almost the same sales for this fiscal year as last fiscal year. (ii) He checked with a worker in the manufacturing section to find out that the factory made out production schedules on a weekly basis by reason that it also planned to produce Product X in bulk once a week. (iii) As a main product, Product X must not be out of stock even during the periods when the company receives many orders for it. For this reason, Mr. K decided to stock, at the beginning of each week, the H multiplied by the number of business days in that week as the stock for the week. (iv) Considering the actual orders for Product X in the last fiscal year, I units of Product X must be secured at the beginning of each week. Answer group for H: a) average number of units ordered per day b) maximum number of units ordered per day Answer group for I: a) 250 b) 300 c) 350 d)

22 Suggested answers for Sample Afternoon Question (4) of Fundamental Information Technology Engineer Examination Question number Correct answer Q4 Subquestion 1 A b B C D Subquestion 2 E d F G Subquestion 3 H b I a a c a b b Remarks 22

23 Q5. Read the following description concerning an investment decision and then answer Subquestions 1 through 5. Company A is a parts manufacturer, which owns domestic Factory Z1 producing Part Y, one of its main products. Part Y is a technically tried and tested product, but, at present, it is difficult to fully automate production, and some processes are performed manually. The labor costs account for about 30% of manufacturing costs. The company outsources about 50% of the production of this part to Company B, a domestic listed company. While the demand for Part Y is expected to remain almost the same for a long time in the future, every company is experiencing decreasing profits in this area because of intensifying price competition. If the company survives, it can expect to make profits as a survivor. However, if it fails in the price competition, its competitors may take market share away from Company A. It should be noted that Company A has been studying new manufacturing equipment that improves the automation level of Part Y, which is expected to be completed in three years. The equipment, if completed, will significantly reduce labor costs. On the other hand, Company A also considers increasing the production of Part X, which reports robust sales, at its domestic Factory Z2. To protect the many advanced technologies related to Part X, it is desirable for the company to internally increase the production of this part. For this reason, the board meeting of Company A decided on a basic policy of immediately starting to increase the production of Part X at Factory Z1 and of considering some alternative plans for Part Y. Under the circumstances, Mr. S, manager of the operations planning department, named the proposed alternative plans Alternative Production Plans for Part Y. Presenting three proposed plans to be compared and studied in the three years before the new manufacturing equipment is completed, he instructed Mr. T to compare and study them in detail and report the results to him. 23

24 [Alternative production plans for Part Y] Mr. S, manager of the operations planning department, presented the following three proposed plans to be compared and studied: Proposed plan 1: Setting up Company D in a foreign country along with a factory to produce Part Y. Proposed plan 2: Outsourcing the production of Part Y to Company E, a foreign manufacturer with a track record of producing parts similar to Part Y. Proposed plan 3: Outsourcing the production of Part Y to Company B, a domestic subcontractor. As instructed by Mr. S, Mr. T decided to make an investment decision on these plans based on the NPV (Net Present Value) approach. The first step in determining the NPV is to discount the cash flow in each future fiscal year to the present value. The present value of the cash flows in Years 1 and 2 are expressed by the following equations: Present value of cash flow in Year 1 = Cash flow in Year 1 / (1 + discount rate) Present value of cash flow in Year 2 = Cash flow in Year 2 / (1 + discount rate) Then, the sum of the cash flows in all years discounted to the present value is calculated. From the sum, the initial investment is subtracted and the residue value is added to calculate the NPV. 2 Therefore, NPV is expressed by the following equation, where n, r, I, F t, and M represent the estimated number of cash-in years, discount rate, initial investment, cash flow in Year t, and residual value, respectively. NPV = n Σ t=1 B A ( I (1 + r) n ) [Estimated NPV for proposed plan 1] First, Mr. S discussed the initial investment, cash-in period, and discount rate for proposed plan 1 with the sales and manufacturing departments, which resulted in the following: Initial investment (I ): 22 billion yen Estimated cash-in period (n years): three years before the new manufacturing equipment is completed Discount rate (r): 8%. The values of (1 + r ) n for each fiscal year based on this discount rate are for Year 1, for Year 2, and for Year 3. 24

25 Based on the results of the discussion, Mr. T calculated the NPV of the estimated annual cash flows and the NPV of the residual values of the invested equipment in Years 1 and 2. The calculation results are shown in Table 1. The NPV of the cash flow in Year 3 has not been determined, so he calculated it based on Item #4 in Table 1 Estimated annual cash flow (in Year 3) to obtain a calculated value of C. Based on these results, he calculated the NPV in Table 1 as follows: NPV = ( C ) (220 D ) Table 1 Investments and present value for proposed plan 1 Unit: billion yen Item # Item Amount 1 Initial investment Present value of the estimated annual cash flow (in Year 1) Present value of the estimated annual cash flow (in Year 2) Estimated annual cash flow (in Year 3) * The present value has not been determined. Present value of the residue value (book amount) of the invested equipment three years from now. Present value of the residue value (estimated sale price) of the invested equipment three years from now [Comparison and study of proposed alternative production plans for Part Y] Then, Mr. T estimated the cash flows and IRR (Internal Rate of Return) of the remaining two proposed plans under the following conditions: For Plan 2, business transactions are conducted in U.S. dollars. For Plan 3, the initial investment is the amount allocated to Company B by allocation of new shares to a third party, and the residue value is the sale value of the shares. In addition, Mr. T compared and studied the major risks, advantages, and room for further cost reduction of each plan as shown in Table 2. 25

26 Comparison point Initial investment Present value of the cash flows in the three (3) years Table 2 Comparison of proposed plans Plan 1 Plan 2 Plan 3 22 billion yen 3 billion yen 5 billion yen 15 + C billion yen 4.5 billion yen 3 billion yen Present value D of residue 0 yen 5 billion yen value billion yen IRR Minimum Maximum Middle Yield loss risk Major risk (insecure about E F the skill level of fluctuation risk fluctuation risk the local workers) Major advantage It is possible to voluntarily work toward cost reduction G H is made G is made H Proven and reliable Room for cost reduction Largest Middle Smallest Mr. T reported these results of a series of considerations to his superior, Mr. S. Subquestion 1 Fill in the blanks A and B in the text with the appropriate equations. Subquestion 2 Fill in the blanks C and D in the text and Table 2 with the appropriate numeric values. If an answer includes a fractional portion, round off the number to one decimal place. Subquestion 3 From the answer group below, select the appropriate answers in the blanks through H in the body text and Table 2. E 26

27 Answer group: a) sales amount b) visible c) stock price d) exchange rate e) fixed cost f) bond price g) market h) standardized i) variable cost j) liquid Subquestion 4 Regarding the comparison of the proposed plans, answer the following questions (1) and (2): (1) Having received the report on the alternative production plans for Part Y, Mr. S said that the plan the company should adopt depends on what the company emphasizes. Using the word cash, describe briefly what the company should emphasize in cases where it selects Plans 1 and 2, respectively. (2) With consideration for the current competition environment for Part Y, which plan should the company adopt? Describe the reason briefly as well. Subquestion 5 The company also decided to review investment plans for introducing new manufacturing equipment that is expected to be completed in the next three years to enhance automated production of Part Y. Read each of the following statements concerning possible investment purposes and approaches, and fill in the answer sheet with T if the statement is true or F if it is false. a) To increase profits, the manufacturing costs for Part Y should be reduced (the sale price remains unchanged). b) To increase profits, the production and sales volume of Part Y should be increased (the sale price remains unchanged). c) To increase profits, the sales price of Part Y should be raised (the sales volume remains unchanged). d) To increase market share, the sale price of Part Y should be reduced (the sales volume increases). 27

28 Q6. Read the following description concerning a break-even point analysis, and then answer Subquestions 1 through 4. Company X, a manufacturing and sales company, has Factories A and B, which produce Products A1 and A2 and Products B1 through B3, respectively. To take advantage of the break-even point analysis results of each product for management decision-making, the company performs cost accounting for all products on a product-by-product basis to prepare variable income statements. [Preconditions for performing break-even point analyses] All products from Company X satisfy all of the following preconditions for performing break-even point analyses. The total cost can be divided into variable and fixed costs. A The fixed cost remains invariant. Productivity and production efficiency remain invariant. The sales unit price remains invariant. These preconditions are illustrated in Fig. 1. V m A a l Sales Amount Profit Break-even point Total Cost Variable Cost Loss Fixed Cost 0 Sales Volume Fig. 1 Break-even point chart [Variable income statement] Table 1 shows the variable income statement for Products A1 and A2 actually produced at Factory A this fiscal year. 28

29 Tab le 1 Variable income statement for products from Factory A Product A1 Product A2 Sales 2,000 yen 5 million 2,400 yen 1 million units Variable 800 yen 5 million 700 yen 1 million units Fixed Cost 3,600 million yen 1,000 million yen Profit 2,400 million yen 700 million yen represents the unit price of the product. Table 2 shows the variable income statement for Products B1 through B3 actually produced at Factory B this fiscal year: Table 2 Variable income statement for products from Factory B Product B1 Product B2 Product B3 Sales 900 yen 1 million 1,000 yen 1.1 million 1,250 yen 0.8 million units Variable 300 yen 350 yen 575 yen 0.8 million units million units million units Fixed Cost 390 million yen 396 million yen 360 million yen Profit 210 million yen 319 million yen 180 million yen Working Hour 1,000 hours 1,300 hours 1,080 hours represents the unit price of the product. The working hours are the total hours required for producing the respective products. Note that the fixed costs for each product from Factories A and B include not only the costs specific to that product but also common costs, including facilities, fixtures, and labor costs, allocated to each factory under certain rules. Company X also analyzes the margin of safety ratio when analyzing the break-even point. The margin of safety ratio shows how much higher the sales amount is than the break-even point for sales and indicates what percentage the sales must drop to reach the break-even point. The higher the value, the higher the margin. Subquestion 1 Describe the requirement to be inserted in the blank A briefly for the preconditions for performing break-even point analyses of Company X. 29

30 Subquestion 2 Regarding Product A1, answer (1) and (2). (1) What is the sales volume at the break-even point? In addition, what percentage is the margin of safety ratio? (2) The sales department requests that the sale price for Product A1 should be reduced 20% from the price shown in Table 1 because of the fierce competition of Product A1. If this requirement is met, how many units of Product A1 must the company sell in order to achieve the same profit as that of this fiscal year? Subquestion 3 A spot order for 50,000 units of Product A2 was received on condition that the sales unit price should be 1,500 yen. This is a one-time-only order that has no effect on the other customers, and the company can produce an additional set of 50,000 units. From the answer group below, select the appropriate answers to be inserted in the blanks B, D, and E in the analysis on whether or not this order should be accepted from a point of view of profit and loss. In addition, fill in the blank C with the appropriate numeric value. If additional 50,000 units of Product A2 are produced and sold at 1,500 yen, the profit will D by C million yen because the fixed costs B. For this reason, Company X should E this order. Answer group for B, D, and E: a) accept b) remain unchanged c) decrease d) reject e) increase Subquestion 4 Through expanded sales channels, the company can now sell more units of Products B1 through B3. Under the circumstances, it wants to increase production at Factory B. If it is expected that the company can sell out the additional units of any product, which product should the company produce by priority to maximize profit? Name each product when Factory B is subject to the following constraints. (1) Production volume (2) Working hour 30

31 Q7. Read the following description concerning a sales management system, and then answer Subquestions 1 through 4. Company A is a mid-sized consumer-electronics retailer. It is pressing ahead with improvement in customer satisfaction and cost reduction by business restructuring. As part of such efforts, the company is reviewing the sales management system developed 10 years ago in order to start building a new sales management system with the goal of identifying customer needs, improving operational efficiency, and reducing operation and maintenance costs. The company is now preparing a requirements definition document. The president of Company A instructed the manager of the audit department to audit the system from the requirements definition phase for the new sales management system and report the results. The manager of the audit department appointed Mr. B as the audit leader and Mr. C as the person in charge, and set the audit purpose as verifying whether or not the system is effective for the three objectives of the new sales management system. Mr. B instructed Mr. C to prepare a draft audit plan. Before preparing the plan, Mr. C reviewed the system audit standards and system management standards published by the Ministry of Economy, Trade and Industry. Below is part of the system audit standards. 1. Audit Planning The system auditor must plan a proper audit by defining the details of A, timing, and scope, in order to attain the objectives of the target system B and C. 2. Audit Procedure Each system audit must be performed based on the audit plan using steps of D, actual examination, and evaluation/conclusion. Figure Excerpt from IV. Practice standard of the system audit standards [Audit plan preparation] In the presence of Mr. B, Mr. C checked with the manager of the audit department to identify the objectives and the important points of the audit. Based on this verification, he filled in the plan with the audit cost, audit period, and report timing. 31

32 [Key points in defining the audit items and main audit points] About defining the audit items and main audit points in the requirements definition phase, Mr. C was given the following advice by Mr. B. (1) Audit items are defined for the purpose of attaining the audit objectives. They refer to points to check during the audit; for example, they include the requirements definition document for the new sales management system. (2) Then, the main audit points are defined. They refer to the points the auditors evaluate and/or verify about the audit items. For example, one of them is that the security requirements in the requirements definition document for the new sales management system must be approved by the users. The subsections defined in the system management standards may provide examples of general main audit points. (3) In the requirements definition phase, the audit must satisfy the following requirements. (i) The audit must be based on management and information strategies. (ii) The present situation must be correctly identified. (iii) With understanding of the present problems and user requests, the proposed improvements and systematization approaches must be developed along with priorities assigned to them. (iv) The user requirements must be defined based on identified user requests. (v) The cost performance must be analyzed. (vi) Before (i) and (ii) are performed, an organization must be built that allows the interested departments to share common perceptions. (4) The main deliverables in the requirements definition phase are shown below. They are subject to the audit. (i) Requirements definition document (typical contents: requirements for the schedule, operations/functions, systems architecture, information/data, user interface, external interface, network, software, hardware, information security, design/development, tests, operation/maintenance, etc.) (The following deliverables are attached to the requirements definition document.) (ii) Customer needs list (iii) Current cost list (iv) Cost performance analysis chart (v) Detailed user interface definition (vi) Flow and explanation of the current operations (vii) Flow and explanation of the new operations (viii) Detailed customer royalty analysis function (ix) Detailed complaint handling analysis function 32