Which one of the following statements about capacity cushion is best?
A) A larger cushion is required when a firm uses low cost as a competitive priority.
B) A larger cushion increases equipment utilization when capital intensity is high.
C) Businesses find large cushions appropriate when demand varies.
D) A larger cushion increases manufacturing lead time.

Question

Quizplus · Accepted Answer

A capacity cushion is the amount of reserve capacity a firm maintains to handle variable demand. A larger cushion is appropriate when demand varies. This allows the firm to accommodate sudden increases in demand without sacrificing customer service. Option A is incorrect because low cost strategy requires efficient utilization of resources and a smaller cushion may be appropriate to keep costs down. Option B is incorrect because a larger cushion may actually decrease equipment utilization by reducing the need for frequent set-ups and changeovers. Option D is incorrect because a larger cushion should not increase manufacturing lead time.

Which One of the Following Statements About Capacity Cushion Is