Question 1

If demand exceeds capacity at a new facility, an organization can use which of the following to move demand to an existing facility?

Accepted Answer

A)  aggressive marketing 
B)  lower prices at all facilities 
C)  build a facility of the correct size 
D)  add a complementary product 
E)  reduce lead times 
A)  aggressive marketing 
B)  lower prices at all facilities 
C)  build a facility of the correct size 
D)  add a complementary product 
E)  reduce lead times

Question 2

Net present value will be greater

Accepted Answer

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. 
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.

Question 3

A useful tactic for increasing capacity is to redesign a product in order to get more throughput.

Accepted Answer

A) True 
 B)False

Question 4

A common method used to increase capacity with a lag strategy is

Accepted Answer

A)  overtime 
B)  subcontractors 
C)  new facilities 
D)  new machinery 
E)  A and B 
A)  overtime 
B)  subcontractors 
C)  new facilities 
D)  new machinery 
E)  A and B

Question 5

Possible decision alternatives found in capacity EMV problems are future demands or market favorability.

Accepted Answer

A) True 
 B)False

Question 6

Effective capacity is the

Accepted Answer

A)  maximum output of a system in a given period 
B)  capacity a firm expects to achieve given the current operating constraints 
C)  average output that can be achieved under ideal conditions 
D)  minimum usable capacity of a particular facility 
E)  sum of all of the organization's inputs 
A)  maximum output of a system in a given period 
B)  capacity a firm expects to achieve given the current operating constraints 
C)  average output that can be achieved under ideal conditions 
D)  minimum usable capacity of a particular facility 
E)  sum of all of the organization's inputs

Question 7

Which of the following represents a common way to manage capacity in the service sector?

Accepted Answer

A)  appointments 
B)  reservations 
C)  changes in staffing levels 
D)  first-come, first served service rule 
E)  "early bird" specials in restaurants 
A)  appointments 
B)  reservations 
C)  changes in staffing levels 
D)  first-come, first served service rule 
E)  "early bird" specials in restaurants

Question 8

Utilization is the number of units a facility can hold, receive, store, or produce in a period of time.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A)  They are cheaper. 
B)  They are more accurate. 
C)  They delay capital expenditure. 
D)  They increase demand. 
E)  all of the above 
A)  They are cheaper. 
B)  They are more accurate. 
C)  They delay capital expenditure. 
D)  They increase demand. 
E)  all of the above

Question 10

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

Accepted Answer

A)  4 
B)  9 
C)  18 
D)  35 
E)  none of the above 
A)  4 
B)  9 
C)  18 
D)  35 
E)  none of the above

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?

Accepted Answer

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 
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

Question 12

A firm sells two products. Product R sells for $20; its variable cost is $6. Product S sells for $50; its variable cost is $30. Product R accounts for 60 percent of the firm's sales, while S accounts for 40 percent. The firm's fixed costs are $4 million annually. Calculate the firm's break-even point.

Accepted Answer

The contribution for product R is 70 per

Question 13

Some organizations use number of beds, number of rooms, or room size to measure capacity. There's no time period in this capacity, and no "throughput." Why are these firms using such a different concept of capacity?

Accepted Answer

Student answers will vary, since the ans

Question 14

Identify the tactics for matching capacity to demand.

Accepted Answer

1. Making staffing changes (increasing o

Question 15

Which of the following statements regarding fixed costs is true?

Accepted Answer

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 labor 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. 
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 labor 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.

Question 16

A product is currently made in a process-focused shop, where fixed costs are $9,000 per year and variable cost is $50 per unit. The firm sells the product for $200 per unit. What is the break-even point for this operation? What is the profit (or loss) on a demand of 200 units per year?

Accepted Answer

BEP = 60 units; TR =

Question 17

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

Accepted Answer

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)  None of these statements is true. 
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)  None of these statements is true.

Question 18

Which of the following is false regarding capacity expansion?

Accepted Answer

A)  "Average" capacity sometimes leads demand, sometimes lags it. 
B)  If "lagging" capacity is chosen, excess demand can be met with overtime or subcontracting. 
C)  Total cost comparisons are a rather direct method of comparing capacity alternatives. 
D)  Capacity may only be added in large chunks. 
E)  All of the above are true. 
A)  "Average" capacity sometimes leads demand, sometimes lags it. 
B)  If "lagging" capacity is chosen, excess demand can be met with overtime or subcontracting. 
C)  Total cost comparisons are a rather direct method of comparing capacity alternatives. 
D)  Capacity may only be added in large chunks. 
E)  All of the above are true.

Question 19

The process time of a system is always at least a long as the process cycle time.

Accepted Answer

A) True 
 B)False

Question 20

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 1800 employees per year. Since the training center was first put in use, the program has become more complex, so that 1400 now represents the most employees that can be trained per year. In the past year, 1350 employees were trained. Calculate the efficiency and the utilization of this system.

Accepted Answer

Efficiency = 1350 /

Exam 24: Process Strategy

If demand exceeds capacity at a new facility, an organization can use which of the following to move demand to an existing facility?

Net present value will be greater

A useful tactic for increasing capacity is to redesign a product in order to get more throughput.

A common method used to increase capacity with a lag strategy is

Possible decision alternatives found in capacity EMV problems are future demands or market favorability.

Effective capacity is the

Which of the following represents a common way to manage capacity in the service sector?

Utilization is the number of units a facility can hold, receive, store, or produce in a period of time.

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

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

Some organizations use number of beds, number of rooms, or room size to measure capacity. There's no time period in this capacity, and no "throughput." Why are these firms using such a different concept of capacity?

Identify the tactics for matching capacity to demand.

Which of the following statements regarding fixed costs is true?

A product is currently made in a process-focused shop, where fixed costs are $9,000 per year and variable cost is $50 per unit. The firm sells the product for $200 per unit. What is the break-even point for this operation? What is the profit (or loss) on a demand of 200 units per year?

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

Which of the following is false regarding capacity expansion?

The process time of a system is always at least a long as the process cycle time.

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