Question 1

Break-even is the number of units at which
A)total revenue equals price times quantity.
B)total revenue equals total variable cost.
C)total revenue equals total fixed cost.
D)total profit equals total cost.
E)total revenue equals total cost.

Accepted Answer

The answer of Break-even is the number of units at...

Question 2

A common method(s)used to increase capacity with a lag strategy is/are
A)overtime and subcontractors.
B)subcontractors and new facilities.
C)new facilities and new machinery.
D)new machinery and overtime.
E)turning away customers.

Accepted Answer

Overtime and subcontractors are both methods of increasing capacity in the short term without the need for significant capital investments. Overtime involves using existing employees to work additional hours, while subcontracting involves outsourcing work to other companies. These methods can be implemented quickly and are often used as a temporary measure until new facilities or machinery can be acquired. Turning away customers would not be a viable option for increasing capacity in the long term.

Question 3

The basic break-even model can be modified to handle more than one product.This extension of the basic model requires
A)price and sales volume for each product.
B)price and variable cost for each product,and the percent of sales that each product represents.
C)that the firm have very low fixed costs.
D)that the ratio of variable cost to price be the same for all products.
E)sales volume for each product.

Accepted Answer

To handle more than one product, the break-even model must incorporate the price and variable cost for each product as well as the percentage of sales that each product represents. This allows for a more accurate determination of the overall break-even point for the company.

Question 4

A product sells for $5,and has unit variable costs of $3.This product accounts for $20,000 in annual sales,out of the firm's total of $60,000.When performing multiproduct break-even analysis,the weighted contribution of this product is approximately
A)0.133.
B)0.200.
C)0.40.
D)0.667.
E)$1.667.

Accepted Answer

The answer of A product sells for $5,and has unit...

Question 5

Fabricators,Inc.wants to increase capacity by adding a new machine.The fixed costs for machine A are $90,000,and its variable cost is $15 per unit.The revenue is $21 per unit.The break-even point for machine A is
A)$90,000 dollars.
B)90,000 units.
C)$15,000 dollars.
D)15,000 units.
E)cannot be calculated from the information provided.

Accepted Answer

The break-even point formula is:

Fixed Costs / (Price per unit - Variable Costs per unit)

Substituting the values given:

$90,000 / ($21 - $15) = $90,000 / $6 = 15,000 units

Thus, the break-even point for Machine A is 15,000 units. Therefore, the best choice is option D.

Question 6

Which of the following statements regarding fixed costs is true?
A)Fixed costs rise by a constant amount for every added unit of volume.
B)While fixed costs are ordinarily constant with respect to volume,they can "step" upward if volume increases result in additional fixed costs.
C)Fixed costs are those costs associated with direct labour and materials.
D)Fixed costs equal variable costs at the break-even point.
E)Fixed cost is the difference between selling price and variable cost.

Accepted Answer

Fixed costs are usually constant with respect to volume, but they can increase if an increase in volume results in additional fixed costs. For example, if a company decides to expand their facilities to increase production capacity, the cost of the expansion would be a fixed cost that increases with volume. The other options are incorrect. A is incorrect because fixed costs do not rise by a constant amount for every added unit; they remain constant regardless of volume. C is incorrect because fixed costs do not include direct labor and materials. D is incorrect because fixed costs and variable costs are not equal at the break-even point; rather, total revenue equals total cost at this point. E is incorrect because fixed costs are independent of selling price and variable cost.

Question 7

The three main strategies for increasing capacity are
A)leading,lag,straddle.
B)fast,normal,slow.
C)before,during,after.
D)leading,behind,mixed.
E)over,under,even.

Accepted Answer

The three main strategies for increasing capacity are leading (expanding capacity in anticipation of demand), lag (expanding capacity after an increase in demand has been proven), and straddle (a combination approach, adding capacity in smaller increments in response to market conditions).

Question 8

A capacity alternative has an initial cost of $50,000 and cash flow of $20,000 for each of the next four years.If the cost of capital is 5%,the net present value of this investment is approximately
A)$20,920.
B)$26,160.
C)$49,840.
D)$70,920.
E)$106,990.

Accepted Answer

The answer of A capacity alternative has an initial cost...

Question 9

Which of the following techniques is not a technique for dealing with a bottleneck?
A)Schedule throughput to match capacity of the bottleneck.
B)Increase capacity of the constraint.
C)Have cross-trained employees available to keep the constraint at full operation.
D)Develop alternate routings.
E)All are tools for dealing with bottlenecks.

Accepted Answer

All of the techniques mentioned (scheduling throughput, increasing capacity, cross-training employees, and developing alternate routings) are strategies for dealing with a bottleneck.

Question 10

Net present value will be greater
A)as a fixed set of cash receipts occurs later rather than earlier.
B)as the total of the cash receipts,made in same time periods,is smaller.
C)for one end-of-year receipt of $1200 than for twelve monthly receipts of $100 each.
D)for a 4% discount rate than for a 6% discount rate.
E)All of the above are true.

Accepted Answer

Net present value (NPV) is higher when the discount rate is lower because future cash flows are discounted less, resulting in a higher present value. Therefore, an NPV calculated with a 4% discount rate will be greater than one calculated with a 6% discount rate.

Question 11

A fabrication company wants to increase capacity by adding a new machine.The firm is considering proposals from vendor A and vendor B.The fixed costs for machine A are $90,000 and for machine B,$75,000.The variable cost for A is $15.00 per unit and for B,$18.00.The revenue generated by the units processed on these machines is $21 per unit.If the estimated output is 5000 units,which machine should be purchased?
A)machine A
B)machine B
C)either machine A or machine B
D)no purchase because neither machine yields a profit at that volume
E)purchase both machines since they are both profitable

Accepted Answer

The answer of A fabrication company wants to increase capacity...

Question 12

Break-even analysis can be used by a firm that produces more than one product,but
A)the results are estimates,not exact values.
B)the firm must allocate some fixed cost to each of the products.
C)each product has its own break-even point.
D)the break-even point depends upon the proportion of sales generated by each of the products.
E)the results are never accurate.

Accepted Answer

The answer of Break-even analysis can be used by a...

Question 13

Basic break-even analysis typically assumes that
A)revenues increase in direct proportion to the volume of production,while costs increase at a decreasing rate as production volume increases.
B)variable costs and revenues increase in direct proportion to the volume of production.
C)both costs and revenues are made up of fixed and variable portions.
D)costs increase in direct proportion to the volume of production,while revenues increase at a decreasing rate as production volume increases because of the need to give quantity discounts.
E)All of the above are assumptions in the basic break-even model.

Accepted Answer

The answer of Basic break-even analysis typically assumes that
A)revenues increase...

Question 14

The theory of constraints has its origins in
A)linear programming theory.
B)the theory of economies of scale.
C)material requirements planning.
D)the theory of finite capacity planning.
E)Goldratt and Cox's book,The Goal: A Process of Ongoing Improvement.

Accepted Answer

The theory of constraints was first introduced by Eliyahu M. Goldratt and Jeff Cox in their book, The Goal: A Process of Ongoing Improvement. It is a management philosophy that focuses on identifying and eliminating the constraints that limit an organization's ability to achieve its goals. Linear programming theory, the theory of economies of scale, material requirements planning, and the theory of finite capacity planning are all related to operations management but do not have direct origins in the theory of constraints.

Question 15

Lag and straddle strategies for increasing capacity have what main advantage over a leading strategy?
A)They are cheaper.
B)They are more accurate.
C)They delay capital expenditure.
D)They increase demand.
E)They increase the need for capital expenditure.

Accepted Answer

Lag and straddle strategies delay the need for capital expenditure, allowing the organization to maximize existing resources and increase capacity gradually. This can save money in the short term and reduce the risk of over-investment in capacity that may not be needed in the long term. In contrast, a leading strategy involves investing heavily in capacity before demand has been fully established, which can be risky if demand does not materialize as expected.

Question 16

A capacity alternative has an initial cost of $50,000 and cash flow of $20,000 for each of the next four years.If the cost of capital is 5%,the net present value of this investment is
A)greater than $80,000.
B)greater than $130,000.
C)less than $30,000.
D)impossible to calculate,because no interest rate is given.
E)impossible to calculate,because variable costs are not known.

Accepted Answer

The net present value (NPV) is calculated by discounting the future cash flows back to their present value and subtracting the initial investment. Given a cost of capital of 5%, the cash flows of $20,000 for each of the next four years are discounted back to their present value and then summed up, after which the initial cost of $50,000 is subtracted. The NPV will not exceed $30,000 because the sum of the discounted cash flows will not be sufficiently high to result in an NPV greater than $30,000 after subtracting the initial investment of $50,000.

Question 17

Which of the following costs would be incurred even if no units were produced?
A)raw material costs
B)direct labour costs
C)transportation costs
D)building rental costs
E)purchasing costs

Accepted Answer

Building rental costs would be incurred regardless of whether any units were produced as the business would still need a physical location to operate from.

Question 18

Net present value
A)is gross domestic product less depreciation.
B)is sales volume less sales and excise taxes.
C)is profit after taxes.
D)ignores the time value of money.
E)is the discounted value of a series of future cash receipts.

Accepted Answer

Net present value is the discounted value of a series of future cash receipts.

Question 19

Fred's Fabrication,Inc.wants to increase capacity by adding a new machine.The firm is considering proposals from vendor A and vendor B.The fixed costs for machine A are $90,000 and for machine B,$70,000.The variable cost for A is $9.00 per unit and for B,$14.00.The revenue generated by the units processed on these machines is $20 per unit.The crossover between machine A and machine B is
A)4,000 units,with A more profitable at low volumes.
B)4,000 dollars,with A more profitable at low volumes.
C)4,000 units,with B more profitable at low volumes.
D)4,000 dollars,with B more profitable at low volumes.
E)cannot be calculated from the information provided.

Accepted Answer

To find the crossover point, we need to set the revenue from each machine equal to their respective total cost:

20Q = 90,000 + 9Q  for machine A
20Q = 70,000 + 14Q for machine B

Solving these equations, we get Q = 4,000 units.

Therefore, the crossover point is 4,000 units, and machine B is more profitable at low volumes, since its variable cost per unit is lower than that of machine A.

Question 20

A shop wants to increase capacity by adding a new machine.The firm is considering proposals from vendor A and vendor B.The fixed costs for machine A are $90,000 and for machine B,$75,000.The variable cost for A is $15.00 per unit and for B,$18.00.The revenue generated by the units processed on these machines is $22 per unit.If the estimated output is 9,000 units,which machine should be purchased?
A)machine A
B)machine B
C)either machine A or machine B
D)no purchase because neither machine yields a profit at that volume
E)purchase both machines since they are both profitable

Accepted Answer

The answer of A shop wants to increase capacity by...

Quiz 19: Capacity and Constraint Management

Break-even is the number of units at which

A common method(s) used to increase capacity with a lag strategy is/are

The basic break-even model can be modified to handle more than one product.This extension of the basic model requires

A product sells for $5,and has unit variable costs of $3.This product accounts for $20,000 in annual sales,out of the firm's total of $60,000.When performing multiproduct break-even analysis,the weighted contribution of this product is approximately

Fabricators,Inc.wants to increase capacity by adding a new machine.The fixed costs for machine A are $90,000,and its variable cost is $15 per unit.The revenue is $21 per unit.The break-even point for machine A is

Which of the following statements regarding fixed costs is true?

The three main strategies for increasing capacity are

A capacity alternative has an initial cost of $50,000 and cash flow of $20,000 for each of the next four years.If the cost of capital is 5%,the net present value of this investment is approximately

Which of the following techniques is not a technique for dealing with a bottleneck?

Net present value will be greater

Break-even analysis can be used by a firm that produces more than one product,but

Basic break-even analysis typically assumes that

The theory of constraints has its origins in

Lag and straddle strategies for increasing capacity have what main advantage over a leading strategy?

A capacity alternative has an initial cost of $50,000 and cash flow of $20,000 for each of the next four years.If the cost of capital is 5%,the net present value of this investment is

Which of the following costs would be incurred even if no units were produced?

Net present value