Deck 5: Strategic Capacity Planning for Products and Services

Question 1

Outsourcing some production is a means of supporting a constraint.

Answer 1

False

Question 2

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

Answer 2

True

Question 3

The more current capacity exceeds desired capacity, the greater the opportunity for profit.

Answer 3

False

Question 4

Waiting line analysis can be useful for capacity design, especially for service systems.

Question 5

In cost-volume analysis, costs that vary directly with volume of output are referred to as fixed costs because they are a fixed percentage of output levels.

Question 6

Utilization is defined as the ratio of effective capacity to design capacity.

Question 7

If the unit cost to buy something is less than the variable cost to make it, the decision to make or buy is based solely on the fixed costs.

Question 8

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

Question 9

According to the reading on restaurant sourcing practices, only fast-food restaurants are able to bring in outsourced foods.

Question 10

Stating capacity in dollar amounts generally results in a consistent measure of capacity regardless of the actual units of measure.

Question 11

Capacity decisions are usually one-time decisions; once they have been made, we know the limits of our operations.

Question 12

The current trend toward global operations has made capacity decisions much easier since we have the whole world in which to consider operations.

Question 13

Increasing productivity and also quality will result in increased capacity.

Question 14

Design capacity refers to the maximum output that can possibly be attained.

Question 15

Cost and competitive priorities reduce effective capacities.

Question 16

Capacity planning requires an analysis of needs: what kind, how much, and when.

Question 17

An example of an external factor that influences effective capacity is government safety regulations.

Question 18

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 19

The term capacity refers to the maximum quantity an operating unit can process over a given period of time.

Question 20

Increasing capacity just before a bottleneck operation will improve the output of the process.

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

Which of the following is not a basic question in capacity planning?

A) what kind is needed
B) how much is needed
C) when is it needed
D) who will pay for it
E) what it will be used for

Question 23

Outsourcing some production is a means of _________ a capacity constraint.

A) identifying
B) modifying
C) supporting
D) overcoming
E) repeating

Question 24

The ratio of actual output to design capacity is:

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

Question 25

Utilization 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 26

The impact that a significant change in capacity will have on a key vendor is a:

A) supply chain factor.
B) process limiting factor.
C) internal factor.
D) human resource factor.
E) operational process factor.

Question 27

The decision to outsource opens the firm up to certain risks, among them _________ and ________.

A) lower costs; fewer task-specific investments
B) loss of direct control over operations; need to disclose proprietary information
C) access to greater expertise; greater demand variability
D) greater capacity rigidity; tight knowledge control
E) higher marketing costs; small orders

Question 28

Which of the following is not a reason why capacity decisions are so important?

A) Capacity limits the rate of output possible.
B) Capacity affects operating costs.
C) Capacity is a major determinant of initial costs.
D) Capacity is a long-term commitment of resources.
E) Capacity affects organizations' images.

Question 29

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

A) facilities
B) product mix
C) actual output
D) human factors
E) external factors

Question 30

Which of the following is not a strategy to manage service capacity?

A) hiring extra workers
B) backordering
C) pricing and promotion
D) part-time workers
E) subcontracting

Question 31

Unbalanced systems are evidenced by:

A) top-heavy operations.
B) labor unrest.
C) bottleneck operations.
D) increasing capacities.
E) assembly lines.

Question 32

Maximum capacity refers to the upper limit of:

A) inventories.
B) demand.
C) supplies.
D) rate of output.
E) finances.

Question 33

Given the following information, what would efficiency be? Effective capacity = 80 units per day
Design capacity = 100 units per day
Utilization = 48 percent

A) 20 percent
B) 35 percent
C) 48 percent
D) 60 percent
E) 80 percent

Question 34

The maximum possible output given a product mix, scheduling difficulties, quality factors, and so on is:

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

Question 35

Which of these factors would not be subtracted from design capacity when calculating effective capacity?

A) personal time
B) equipment maintenance
C) scheduling problems
D) changing the mix of products
E) all of the choices

Question 36

The ratio of actual output to effective capacity is:

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

Question 37

Given the following information, what would utilization be? Effective capacity = 20 units per day
Design capacity = 60 units per day
Actual output = 15 units per day

A) 1/4
B) 1/3
C) 1/2
D) 3/4
E) none of these

Question 38

Which of the following would tend to reduce effective capacity?

A) suppliers that provide more reliable delivery performance
B) reduced changeover times
C) more employee cross-training
D) improved production quality
E) greater variety in the product line

Question 39

Which of the following is the case where capacity is measured in terms of inputs?

A) steel mill
B) electrical power plant
C) restaurant
D) petroleum refinery
E) airline

Question 40

Given the following information, what would efficiency be? Effective capacity = 50 units per day
Design capacity = 100 units per day
Actual output = 30 units per day

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

Question 41

If the output rate is increased but the average unit costs also increase, we are experiencing:

A) market share erosion.
B) economies of scale.
C) diseconomies of scale.
D) value-added accounting.
E) step-function scaleup.

Question 42

When determining the timing and degree of capacity change, one can use the approach of:

A) lead time flexibility strategy.
B) expand early strategy.
C) wait-and-see strategy.
D) backordering.
E) delayed differentiation.

Question 43

Everything else being equal, a firm considering outsourcing can be reasonably certain that:

A) total costs will be lower.
B) its supplier probably has more expertise in whatever is being outsourced.
C) it can maintain tight control over knowledge.
D) proprietary information will not be disclosed.
E) control over operations will be maintained.

Question 44

Production units have an optimal rate of output where:

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

Question 45

The method of financial analysis which focuses on the length of time it takes to recover the initial cost of an investment is:

A) payback.
B) net present value.
C) internal rate of return.
D) queuing.
E) cost-volume.

Question 46

When buying component parts, risk does not include:

A) loss of control.
B) vendor viability.
C) interest rate fluctuations.
D) need to disclose proprietary information.
E) product liability.

Question 47

Seasonal variations are often 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 48

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

A) 100
B) 200
C) 600
D) 1,200
E) 300

Question 49

Short-term considerations in determining capacity requirements include:

A) demand trend.
B) cyclical demand variations.
C) seasonal demand variations.
D) mission statements.
E) new product development plans.

Question 50

Which of the following would not be a potential upside in a decision to outsource?

A) supplier capacity
B) potential to lower fixed costs
C) supplier expertise
D) knowledge sharing
E) supplier cost

Question 51

The method of financial analysis which results in an equivalent interest rate is:

A) payback.
B) net present value.
C) internal rate of return.
D) queuing.
E) cost-volume.

Question 52

A volume of 500 units leads to $10,000 in margin to offset fixed costs.

Question 53

The first, and perhaps most important, step in constraint management is to ____________ the most pressing constraint.

A) improve
B) support
C) identify
D) elevate
E) modify

Question 54

Capacity in excess of expected demand that is intended to offset uncertainty is a:

A) margin protect.
B) line balance.
C) capacity cushion.
D) timing bubble.
E) positioning hedge.

Question 55

Improving cash flow would be a reasonable thing to focus on when trying to overcome a _________ constraint.

A) financial
B) market
C) demand
D) supplier
E) material

Question 56

When the output is less than the optimal rate of output, the average unit cost will be:

A) lower.
B) the same.
C) higher.
D) could be either higher or lower.
E) could be either higher, lower or the same.

Question 57

A market constraint can be overcome by:

A) lobbying.
B) cash flow management.
C) outsourcing.
D) advertising or price changes.
E) supplier development.

Question 58

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) 100.
B) 2,000.
C) 500.
D) 1,000.
E) 800.

Question 59

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 60

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

A) design structured, rigid systems
B) take a big-picture approach to capacity changes
C) prepare to deal with capacity in "chunks"
D) attempt to smooth out capacity requirements
E) identify the optimal operating level

Question 61

For fixed costs of $2,000, revenue per unit of $2, and variable cost per unit of $1.60, the break-even quantity is:

A) 1,000.
B) 1,250.
C) 2,250.
D) 5,000.
E) 3,000.

Question 62

Doctor J. is considering purchasing a new blood analysis machine to test for HIV; it will cost $60,000. He estimates that he could charge $25.00 for an office visit to have a patient's blood analyzed, while the actual cost of a blood analysis would be $5.00. 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 HIV blood analyses each year, what will be the utilization of this machine?

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

Question 63

Doctor J. is considering purchasing a new blood analysis machine to test for HIV; it will cost $60,000. He estimates that he could charge $25.00 for an office visit to have a patient's blood analyzed, while the actual cost of a blood analysis would be $5.00. How many HIV blood analyses would he have to perform in order to break even?

A) 12,000
B) 2,400
C) 3,000
D) 1,000
E) 5,000

Question 64

A Virginia county is considering whether to pay $50,000 per year to lease a prisoner transfer facility in a prime location near Washington,

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

Question 65

The owner of Firewood To Go is considering buying a hydraulic wood splitter which sells for $50,000. He figures it will cost an additional $100 per cord to purchase and split wood with this machine, while he can sell each cord of split wood for $125. 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 be its utilization?

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

Question 66

The owner of a greenhouse and nursery is considering whether to spend $6,000 to acquire the licensing rights to grow a new variety of rosebush, which she could then sell for $6 each. Per-unit variable cost would be $3. How many rosebushes would she have to produce and sell in order to break even?

A) 1,600
B) 2,400
C) 2,000
D) 1,000
E) 1,500

Question 67

Doctor J. is considering purchasing a new blood analysis machine to test for HIV; it will cost $60,000. He estimates that he could charge $25.00 for an office visit to have a patient's blood analyzed, while the actual cost of a blood analysis would be $5.00. What would be his profit if he were to perform 5,000 HIV blood analyses?

A) $0
B) $40,000
C) $60,000
D) $25,000
E) $100,000

Question 68

The owner of Firewood To Go is considering buying a hydraulic wood splitter which sells for $50,000. He figures it will cost an additional $100 per cord to purchase and split wood with this machine, while he can sell each cord of split wood for $125. How many cords of wood would he have to split with this machine to make a profit of $30,000?

A) 3,200
B) 1,500
C) 2,000
D) 1,000
E) 500

Question 69

A Virginia county is considering whether to pay $50,000 per year to lease a prisoner transfer facility in a prime location near Washington,

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

Question 70

Doctor J. is considering purchasing a new blood analysis machine to test for HIV; it will cost $60,000. He estimates that he could charge $25.00 for an office visit to have a patient's blood analyzed, while the actual cost of a blood analysis would be $5.00. How many HIV blood analyses would he have to perform in order to make a profit of $15,000?

A) 3,000
B) 4,800
C) 5,000
D) 12,000
E) 3,750

Question 71

A Virginia county is considering whether to pay $50,000 per year to lease a prisoner transfer facility in a prime location near Washington,

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

Question 72

A Virginia county is considering whether to pay $50,000 per year to lease a prisoner transfer facility in a prime location near Washington,

A) 0 percent
B) 30 percent
C) 50 percent
D) 60 percent
E) 100 percent

Question 73

The owner of a greenhouse and nursery is considering whether to spend $6,000 to acquire the licensing rights to grow a new variety of rosebush, which she could then sell for $6 each. Per-unit variable cost would be $3. If her available land has design and effective capacities of 3,000 and 2,000 rosebushes per year respectively, and she plans to grow 1,200 rosebushes each year on this land, what will be the utilization of this land?

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

Question 74

A Virginia county is considering whether to pay $50,000 per year to lease a prisoner transfer facility in a prime location near Washington,

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

Question 75

The owner of a greenhouse and nursery is considering whether to spend $6,000 to acquire the licensing rights to grow a new variety of rosebush, which she could then sell for $6 each. Per-unit variable cost would be $3. How many rosebushes would she have to produce and sell in order to make a profit of $6,000?

A) 1,600
B) 2,400
C) 3,000
D) 1,000
E) 4,000

Question 76

The owner of a greenhouse and nursery is considering whether to spend $6,000 to acquire the licensing rights to grow a new variety of rosebush, which she could then sell for $6 each. Per-unit variable cost would be $3. If her available land has design and effective capacities of 3,000 and 2,000 rosebushes per year, respectively, and she expects to be 80 percent 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 77

Doctor J. is considering purchasing a new blood analysis machine to test for HIV; it will cost $60,000. He estimates that he could charge $25.00 for an office visit to have a patient's blood analyzed, while the actual cost of a blood analysis would be $5.00. 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 percent efficient in his use of this machine, how many HIV 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 78

The owner of a greenhouse and nursery is considering whether to spend $6,000 to acquire the licensing rights to grow a new variety of rosebush, which she could then sell for $6 each. Per-unit variable cost would be $3. What would the profit be if she were to produce and sell 5,000 rosebushes?

A) $0
B) $9,000
C) $15,000
D) $10,000
E) $30,000

Question 79

The owner of Firewood To Go is considering buying a hydraulic wood splitter which sells for $50,000. He figures it will cost an additional $100 per cord to purchase and split wood with this machine, while he can sell each cord of split wood for $125. How many cords of wood would he have to split with this machine to break even?

A) 5,000
B) 3,000
C) 2,000
D) 1,000
E) 0

Question 80

The owner of Firewood To Go is considering buying a hydraulic wood splitter which sells for $50,000. He figures it will cost an additional $100 per cord to purchase and split wood with this machine, while he can sell each cord of split wood for $125. What would the potential profit be if he were to split 4,000 cords of wood with this machine?

A) $0
B) $200,000
C) $100,000
D) $75,000
E) $50,000