Exam 24: Process Strategy

A fleet repair facility has the capacity to repair 800 trucks per month. However, due to scheduled maintenance of their equipment, management feels that they can repair no more than 600 trucks per month. Last month, two of the employees were absent several days each, and only 400 trucks were repaired. What are the utilization and efficiency of the repair shop?

The Academic Computing Center has five trainers available in its computer labs to provide training sessions to students. Assume that the design capacity of the system is 1900 students per semester and that effective capacity equals 90% of design capacity. If the number of students who actually got their orientation session is 1500, what is the efficiency of the system?

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

What are the assumptions of the net present value technique?

A firm produces three products. Product A sells for $60; its variable costs are $20. Product B sells for $200; its variable costs are $120. Product C sells for $25; its variable costs are $10. Last year, the firm sold 1000 units of A, 2000 units of B, and 10,000 units of C. The firm has fixed costs of $320,000 per year. Calculate the break-even point of the firm.

Which of the following is not one of the four principles of bottleneck management?

Advantage Milling Devices is preparing to buy a new machine for precision milling of special metal alloys. This device can earn $300 per hour, and can run 3,000 hours per year. The machine is expected to be this productive for four years. If the interest rate is 6%, what is the present value? What is the present value if the interest rate is not 6%, but 9%? Why does present value fall when interest rates rise?

What techniques exist for dealing with bottlenecks? Which of these leads to increased capacity? Which of these leads to more throughput without adding capacity? Do any of these techniques fail to increase throughput?

Basic break-even analysis typically assumes that

Capacity decisions are based on technological concerns, not demand forecasts.

Describe the theory of constraints in a sentence.

A work system has five stations that have process times of 5, 9, 4, 9, and 8. What is the process cycle time of the system?

An executive conference center has the physical ability to handle 1,100 participants. However, conference management personnel believe that only 1,000 participants can be handled effectively for most events. The last event, although forecasted to have 1,000 participants, resulted in the attendance of only 950 participants. What are the utilization and efficiency of the conference facility?

A sugar mill receives sugar cane from farmers, extracts the juice, boils it into syrup, and then crystallizes the syrup into raw sugar. There has been an ongoing consolidation of sugar mills, and an increase in the capacity of those that remain. The number of mills in Louisiana was 48 in the 1960s, was 18 in 1999 and is currently 13. In 1999 the break-even point for a typical mill was 600,000 tons. But as the surviving mills have added capacity, the break-even point is now 1,000,000 tons. In 1999, the state's farmers produced 16,000,000 tons of cane, but by 2004, the crop was down to 13,000,000 tons. Analyze this situation with what you have learned about the capacity decision. Is the industry better off with fewer but larger mills, or not?

The staff training center at a large regional hospital provides training sessions in CPR to all employees. Assume that the capacity of this training system was designed to be 1200 employees per year. Since the training center was first put in use, the program has become more complex, so that 1050 now represents the most employees that can be trained per year. In the past year, 950 employees were trained. The efficiency of this system is approximately __________ and its utilization is approximately __________.

Break-even analysis is a powerful analytical tool, but is useful only when the organization produces a single product.

A new machine tool is expected to generate receipts as follows: $5,000 in year one; $3,000 in year two, nothing in the next year, and $2,000 in the fourth year. At an interest rate of 6%, what is the present value of these receipts? Is this a better present value than $2,500 each year over four years? Explain.

Health Care Systems of the South is about to buy an expensive piece of diagnostic equipment. The company estimates that it will generate uniform revenues of $500,000 for each of the next eight years. What is the present value of this stream of earnings, at an interest rate of 6%? What is the present value if the machine lasts only six years, not eight? If the equipment cost $2,750,000, should the company purchase it?

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

Multiproduct break-even analysis calculates the __________ of each product, __________ it in proportion to each product's share of total sales.