Deck 5: A: Strategic Capacity Planning

Question 1

As forecasts are usually only accurate for the short term,forecasts are not useful in long-term capacity decisions.

Answer 1

False

Question 2

Efficiency is defined as the ratio of actual output to effective capacity.

Answer 2

True

Question 3

In break-even analysis,costs that vary directly with volume of output are referred to as fixed costs because they are fixed to the level of output.

Answer 3

False

Question 4

Capacity increases are usually acquired in fairly large "chunks" rather than smooth increments.

Question 5

If a company produces a variety of outputs,capacity has to be expressed as several partial measures; no overall measure of capacity is possible.

Question 6

Capacity decisions often involve a long-term commitment of resources which,when implemented,are difficult or impossible to modify without major added costs.

Question 7

Long-term capacity decisions are important for which of the following reasons?
I)The impact they have on the ability to meet future demand.
II)The increased reliance on debt rather than equity financing to add long-term capacity.
III)As determinant of initial capital costs.
IV)Their effect on operating costs.

A) I and III only
B) I, II, and III only
C) II and IV only
D) I, III, and IV only
E) I, II, III, and IV

Question 8

Capacity decisions are always long-term decisions.

Question 9

Design capacity refers to the maximum output rate possible given a product mix,operating hours,and machine maintenance.

Question 10

The term capacity is the upper limit on the workload an operating unit can handle.

Question 11

The break-even quantity can be determined by dividing the fixed costs by the difference between the revenue per unit and the variable cost per unit.

Question 12

Facilities are a major factor influencing effective capacity.

Question 13

Evaluation of capacity alternatives involves economic calculations only.

Question 14

Stating capacity in dollar amounts generally results in a consistent measure of capacity.

Question 15

Design capacity refers to the maximum output rate under ideal conditions.

Question 16

Capacity refers to the upper limit on the _______ an operating unit can handle.

A) inventories
B) workload
C) supplies
D) available time
E) finances

Question 17

Among the assumptions of break-even analysis is that the variable cost per unit remains the same regardless of quantity of output.

Question 18

Which is not true about long-term capacity?

A) Excess capacity can serve as a barrier to entry for other companies.
B) Capacity may be difficult and costly to modify.
C) Exceeding capacity minimizes operating costs.
D) Capacity affects the ability to satisfy customer's demand.
E) Capacity is usually a major determinant of initial capital costs.

Question 19

The more uniform the mix of products being produced,the more opportunity there is to increase the effective capacity of the system.

Question 20

As utilization increases the number of jobs/people waiting in an operating system decreases.

Question 21

Efficiency is defined as the ratio of:

A) actual output to effective capacity.
B) actual output to design capacity.
C) design capacity to effective capacity.
D) effective capacity to actual output.
E) design capacity to actual output.

Question 22

Installing capacity before an increase in demand occurs is referred to as:

A) an incremental strategy.
B) a lagging strategy.
C) a leading strategy.
D) a capacity cushion.
E) a capacity chunk.

Question 23

For fixed costs of $1,000,revenue per unit of $1,and variable cost per unit of $0.80,the break-even quantity is:

A) 1,000
B) 1,250
C) 2,250
D) 5,000
E) none of these.

Question 24

Considerations in forecasting long-term demand include:
I)identifying demand trends
II)duration of demand trends
III)amplitude of demand cycles

A) I only
B) II only
C) III only
D) I and II only
E) I, II, and III

Question 25

Throughput capacity for a productive unit measured as a rate is:

A) actual output to effective capacity.
B) used time to available time.
C) available time to effective capacity.
D) effective capacity to actual output.
E) size of productive unit to average cycle time.

Question 26

Given the following information,the efficiency is:
Effective capacity = 20 units per day
Design capacity = 60 units per day
Actual output = 15 units per day

A) 25%
B) 33%
C) 50%
D) 75%
E) none of these.

Question 27

Utilization is defined as the ratio of:

A) actual output to effective capacity.
B) used time to available time.
C) available time to effective capacity.
D) effective capacity to actual output.
E) design capacity to actual output.

Question 28

Given the following information,the efficiency is:
Effective capacity = 80 units per day
Design capacity = 100 units per day
Actual output = 72 units per day

A) 50%
B) 64%
C) 72%
D) 80%
E) 90%

Question 29

Which of the following is not a consideration for developing capacity alternatives?

A) Avoiding capacity cushions
B) Taking a big-picture approach to capacity changes
C) Preparing to deal with capacity in "chunks"
D) Attempting to smooth out capacity requirements
E) Identifying the optimal operating level

Question 30

The maximum output rate under ideal conditions is:

A) design capacity.
B) effective capacity.
C) actual output.
D) efficiency.
E) utilization.

Question 31

An alternative will have fixed costs of $10,000 per month,variable costs of $50 per unit,and revenue of $70 per unit.The break-even point volume is:

A) 143
B) 200
C) 350
D) 500
E) none of these.

Question 32

The ratio of actual output to effective capacity is:

A) design capacity.
B) effective capacity.
C) actual capacity.
D) efficiency.
E) utilization.

Question 33

Which of the following is not an accurate statement concerning break-even analysis?

A) The revenue per unit will be the same regardless of volume.
B) Costs related to production of a product are classified as fixed or variable
C) Variable cost per unit will be the same regardless of volume.
D) At quantities greater than the break-even point there is a loss.
E) All costs related to production of a product must be identified.

Question 34

Given the following information,the efficiency is:
Effective capacity = 50 units per day
Design capacity = 100 units per day
Actual output = 30 units per day

A) 40%
B) 50%
C) 60%
D) 80%
E) 90%

Question 35

Seasonal variations are typically easier to deal with in capacity planning than random variations because seasonal variations tend to be:

A) smaller.
B) larger.
C) predictable.
D) controllable.
E) less frequent.

Question 36

Which of the following is not a determinant of effective capacity?

A) Facilities
B) Product mix
C) Actual output
D) The workforce
E) External factors

Question 37

At the break-even point:

A) output equals capacity.
B) total cost equals total revenue.
C) total cost equals profit.
D) variable cost equals fixed cost.
E) variable cost equals total revenue.

Question 38

Which of the following is not an assumption of the break-even model?

A) One product is involved.
B) Everything that is produced can be sold.
C) Total variable cost is the same regardless of volume.
D) Fixed costs do not change with volume changes.
E) Revenue per unit is the same regardless of volume.

Question 39

Production units have an optimal rate of output where:

A) total costs are minimum.
B) unit costs are minimum.
C) marginal costs are minimum.
D) rate of output is maximum.
E) total revenue is maximum.

Question 40

The maximum possible output rate given a product mix,scheduling difficulties,operating hours,and so on,is:

A) utilization.
B) design capacity.
C) efficiency.
D) effective capacity.
E) available capacity.

Question 41

How many rose bushes would she have to produce and sell in order to make a profit of $6,000?

A) 6,000
B) 4,000
C) 3,000
D) 2,400
E) 1,500

Question 42

How many cords of wood would he have to split with this machine to break even?

A) 1000
B) 500
C) 333
D) 250
E) 200

Question 43

What would the potential profit be if he were to split 4,000 cords of wood with this machine?

A) $100,000
B) $150,000
C) $200,000
D) $600,000
E) $800,000

Question 44

If the office space at this new location has design and effective capacities of 10,000 and 8,000 recruits processed annually,respectively,and 6,000 recruits will be processed per year,what will be the utilization of the office space?

A) 50%
B) 60%
C) 75%
D) 80%
E) 100%

Question 45

How many blood analyses would he have to perform in order to break even?

A) 3,000
B) 2,400
C) 2,000
D) 1,200
E) 750

Question 46

How many recruits would he have to process annually to break even at this new location?

A) 8,000
B) 6,000
C) 5,000
D) 4,000
E) 2,000

Question 47

What would be his profit if he were to perform 5,000 blood analyses?

A) $100,000
B) $150,000
C) $190,000
D) $300,000
E) $400,000

Question 48

If this new blood analysis machine has design and effective capacities of 6,000 and 5,000 blood analyses per year,respectively,and Dr.J.expects to be 80% efficient in his use of this machine,how many blood analyses does he plan to perform each year?

A) 3,200
B) 4,800
C) 4,000
D) 1,000
E) 5,000

Question 49

What is the break-even quantity for the following situation?
FC = $1,200 per week
VC = $2 per unit
Revenue (R)= $6 per unit

A) 100
B) 200
C) 300
D) 600
E) 1200

Question 50

If her available land has design and effective capacities of 3,000 and 2,000 rose bushes per year,respectively,and she expects to be 80% efficient in her use of this land,how many rosebushes does Rose plan to grow each year on this land?

A) 1,600
B) 2,400
C) 3,000
D) 2,000
E) 1,000

Question 51

How many cords of wood would he have to split with this machine to make a profit of $50,000?

A) 3000
B) 2000
C) 1500
D) 1000
E) 500

Question 52

What would the profit be if she were to produce and sell 5,000 rose bushes?

A) $2000
B) $3,000
C) $5,000
D) $25,000
E) $40,000

Question 53

If this new blood analysis machine has design and effective capacities of 6,000 and 5,000 blood analyses per year,respectively,and Dr.J.expects to perform 4,500 blood analyses each year,what will be the utilization of this machine?

A) 0%
B) 75%
C) 83%
D) 90%
E) 100%

Question 54

If her available land has design and effective capacities of 3,000 and 2,000 rose bushes per year respectively,and she plans to grow 1,200 rosebushes each year on this land,what will be the efficiency of her use of this land?

A) 0%
B) 40%
C) 60%
D) 67%
E) 100%

Question 55

If,for this machine,design capacity is 50 cords per day,effective capacity is 40 cords per day,and actual output is expected to be 32 cords per day,what would be its efficiency?

A) 100%
B) 80%
C) 75%
D) 70%
E) 0%

Question 56

If,for this machine,design capacity is 50 cords per day,effective capacity is 40 cords per day,and actual output is anticipated to be 35 cords per day,what would its utilization be?

A) 100%
B) 80%
C) 75%
D) 70%
E) 0%

Question 57

How many rose bushes would she have to produce and sell in order to break even?

A) 1,500
B) 2,400
C) 3,000
D) 4,000
E) 6,000

Question 58

What would be his annual profit if he were to process 4,000 recruits per year at this new location?

A) $0
B) $50,000
C) $75,000
D) $100,000
E) $300,000

Question 59

How many recruits would he have to process annually to make a profit of $100,000 at this new location?

A) 8,000
B) 6,000
C) 5,000
D) 4,000
E) 2,000

Question 60

If his office space at this new location has design and effective capacities of 10,000 and 8,000 recruits processed annually,respectively,and he plans to be 90% efficient in his use of this space,how many recruits does he plan to process per year?

A) 9,000
B) 8,000
C) 7,800
D) 7,200
E) 7,000

Question 61

A firm is considering three capacity alternatives:
A,B,and C.Alternative A would have an annual fixed cost of $100,000 and variable costs of $22 per unit.Alternative B would have annual fixed costs of $120,000 and variable costs of $20 per unit.Alternative C would have fixed costs of $80,000 and variable costs of $30 per unit.Revenue is expected to be $50 per unit.
(i)Which alternative has the lowest break-even quantity?
(ii)Which alternative will produce the highest profits for an annual output of 10,000 units?

Question 62

What quantity would be required for a profit of $2,000?

Question 63

The utilization of a machine is 50%.The machine has a design capacity of 70 units per hour and an effective capacity of 60 units per hour.Find the efficiency of the machine.

Question 64

What profit (loss)would there be for a quantity of 10,000?

Question 65

What is the break-even quantity (produced and sold)?

Question 66

How many blood analyses would he have to perform in order to make a profit of $50,000?

A) 2,200
B) 2,000
C) 1,200
D) 625
E) 500

Question 67

An investment proposal will have annual fixed costs of $60,000,variable costs of $35 per unit of output,and revenue of $55 per unit of output.
(i)Determine the break-even quantity.
(ii)What volume of output will be necessary for an annual profit of $60,000?

Question 68

A small business owner is contemplating the addition of another product line.Capacity increases and equipment will result in an increase in annual fixed costs of $50,000.Variable costs will be $25 per unit.
(i)What unit selling price must the owner obtain to break-even on a volume of 2,500 units a year?
(ii)Because of market conditions,the owner feels a revenue of $47 is preferred to the value determined in part a.What volume of output will be required to achieve a profit of $16,000 using this revenue?

Question 69

What are total revenues for the break-even quantity?

Question 70

What profit (loss)would there be for a quantity of 27,000?

Question 71

What is the anticipated efficiency?

Question 72

What are total costs for the break-even quantity?

Question 73

The efficiency of a productive unit is 60%.The unit produces an average of 20 forklift trucks per day.Determine the effective capacity of the unit.

Question 74

What is the anticipated utilization?