Question 1

Diseconomies of scale mean that inefficiencies occur when an organization gets too big.

Accepted Answer

Diseconomies of scale refer to the point where an organization expands to a size where it becomes inefficient due to increased complexity and coordination costs. This can lead to higher costs, lower productivity, and decreased quality. Therefore, the statement is true.

Question 2

Experience curves generally display a linear relationship between labor and quantity produced.

Accepted Answer

Experience curves depict a decreasing relationship between unit cost and cumulative volume of production, not between labor and quantity produced.

Question 3

Capacity management is a strategic long-term business decision.

Accepted Answer

Capacity management involves planning and allocating resources to ensure that an organization can meet its current and future demand. It is a strategic decision because it involves making long-term plans that will impact the organization's ability to deliver products and services to its customers. Capacity management cannot be implemented in the short-term, but rather requires a deliberate, planned approach to ensure that an organization is prepared to meet demand as it arises.

Question 4

Low utilization suggests that equipment is being underused.

Accepted Answer

Low utilization means that the equipment is not being used to its full capacity, which indicates that it is being underused.

Question 5

Capacity is only measured in terms of output.

Accepted Answer

Capacity can also be measured in terms of input or potential output. For example, a factory may have the capacity to produce 1,000 units per day, but if they are only producing 700 units per day, their actual output is lower than their capacity.

Question 6

Capacity measures must be tailored to fit specific situations.

Accepted Answer

Capacity measures for one situation may not be applicable or effective in another situation, thus they must be customized accordingly.

Question 7

Output measures are generally employed to assess processes that have a high degree of customization.

Accepted Answer

Output measures are generally used to assess processes where the outcome can be easily measured and standardized. Processes with a high degree of customization are better evaluated using input measures.

Question 8

The decision to outsource is seldom part of a capacity decision-making process.

Accepted Answer

The decision to outsource is often considered during the capacity decision-making process as it can impact the overall capacity of the organization. Outsourcing can be a way to increase capacity without incurring large capital expenditures or to reduce capacity during periods of low demand. Therefore, outsourcing is often a strategic consideration during capacity planning.

Question 9

Meals served would not be an appropriate measure of capacity for a restaurant.

Accepted Answer

The number of meals served is a measure of a restaurant's performance, not of its capacity. Capacity refers to the maximum amount of customers a restaurant can accommodate at one time, which can be measured by factors such as seating space, number of tables, and kitchen equipment.

Question 10

Capacity only has to do with building square footage.

Accepted Answer

Capacity can refer to the maximum amount of people or items that can be accommodated in a space or facility, in addition to the building square footage.

Question 11

The effective capacity can be maintained for an extended period of time.

Accepted Answer

The effective capacity can be maintained for an extended period of time if the resources are efficiently managed and utilized. However, any changes in external factors or internal processes can affect the effective capacity, and it may need to be adjusted accordingly.

Question 12

The more variation a company has in demand,the easier it is to determine the capacity requirement of a facility.

Accepted Answer

If a company has more variation in demand, it makes it harder to determine the capacity requirement of a facility because capacity utilization will fluctuate drastically based on demand patterns. Companies with stable and predictable demand patterns find it easier to determine their facility capacity requirement.

Question 13

Capacity decisions are relevant to supply chains and individual companies.

Accepted Answer

Capacity decisions involve determining the level of capacity needed to meet demand, which is a key consideration for both supply chains and individual companies in order to meet their production or service requirements.

Question 14

Utilization is based on average capacity.

Accepted Answer

Utilization is based on actual capacity used, not average capacity. It measures how much of the available capacity is being utilized.

Question 15

Uncertain demand requires cushion capacity.

Accepted Answer

Cushion capacity is additional capacity kept by a company to handle uncertain demand or unexpected events. It acts as a safety net to ensure that the company can continue to meet customer demand even during periods of fluctuation. Therefore, uncertain demand does require cushion capacity, making the statement true.

Question 16

For machines,the peak capacity is also known as the rated capacity.

Accepted Answer

The peak capacity and rated capacity refer to the same thing for machines, which is the maximum production capacity that the machine can achieve under optimal conditions.

Question 17

A wait-and-see capacity strategy is most appropriate in a fast-growing industry that does not require major facilities.

Accepted Answer

A wait-and-see capacity strategy is more suited for industries with uncertain demand, not necessarily fast-growing industries that can benefit from aggressive capacity expansion to capture market share.

Question 18

Capacity decisions only have to do with expansion and not with shrinking capacity.

Accepted Answer

Capacity decisions refer to the strategic decisions made by a company regarding the amount of production capacity it will maintain in the long run. These decisions can include both expanding capacity as well as reducing it. Therefore, capacity decisions are not only about expansion but also about managing excess capacity, downsizing, or consolidating operations.

Question 19

Economies of scale suggest that products will have a lower per unit cost.

Accepted Answer

Economies of scale refer to the cost advantages that arise when production increases, leading to a decrease in the average cost of production per unit. This means that as the quantity produced increases, the cost per unit decreases, resulting in a lower overall cost of production.

Question 20

Experience curves express an inverse relationship between labor and the quantity produced.

Accepted Answer

Experience curves express the relationship between efficiency improvements (cost reductions) and the cumulative volume of production, not specifically between labor and quantity produced. They suggest that the more a company produces, the lower the per-unit fixed costs because of increased efficiency, learning, and economies of scale.

Quiz 10: Capacity Planning