Question 1

Break-even analysis identifies the volume at which fixed costs and revenue are equal.

Accepted Answer

A) True 
 B)False

Question 2

A firm is about to undertake the manufacture of a product,and it is weighing three capacity alternatives: small job shop,large job shop,and repetitive manufacturing.The small job shop has fixed costs of $3,000 per month,and variable costs of $10 per unit.The larger job shop has fixed costs of $12,000 per month and variable costs of $3 per unit.The repetitive manufacturing plant has fixed costs of $30,000 and variable costs of $1 per unit.Demand for the product is expected to be 1,000 units per month with "moderate" market acceptance,but 2,000 under "strong" market acceptance.The probability of moderate acceptance is estimated to be 60 percent;strong acceptance has a probability of 40 percent.The product will sell for $25 per unit regardless of the capacity decision.Which capacity choice should the firm make?

Accepted Answer

The payoffs are as follows: small job sh

Question 3

Design capacity is the theoretical maximum output of a system in a given period under ideal conditions.

Accepted Answer

A) True 
 B)False

Question 4

A retailer is considering building a large store.If the local economy experiences expansion,the firm expects the store to earn a $2,000,000 profit next year.If the local economy experiences a contraction,the firm expects the store to lose $400,000 next year.Analysts estimate a 20% chance for the local economy to experience an expansion next year (hence an 80% chance for contraction).What is the expected monetary value (EMV)of building the large store?

Accepted Answer

A) $1,600,000 
B) $720,000 
C) $2,000,000 
D) $80,000 
E) $1,520,000 
A) $1,600,000 
B) $720,000 
C) $2,000,000 
D) $80,000 
E) $1,520,000

Question 5

Basic break-even analysis typically assumes that:

Accepted Answer

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. 
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.

Question 6

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 percent,what is the approximate net present value of this investment?

Accepted Answer

A) $20,920 
B) $26,160 
C) $49,840 
D) $70,920 
E) $106,990 
A) $20,920 
B) $26,160 
C) $49,840 
D) $70,920 
E) $106,990

Question 7

A factory produces 1000 units a month.If design capacity is 3000 and efficiency is 50% find utilization and effective capacity.

Accepted Answer

Output = Utilization ∗ Design Capacity g

Question 8

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

Accepted Answer

A) 4 
B) 9 
C) 18 
D) 35 
E) 7 
A) 4 
B) 9 
C) 18 
D) 35 
E) 7

Question 9

One limitation of the net present value approach to investments is that investments with identical net present values may have very different cash flows.

Accepted Answer

A) True 
 B)False

Question 10

Fixed costs are those costs that continue even if no units are produced.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) raw material costs 
B) direct labor costs 
C) transportation costs 
D) building rental costs 
E) purchasing costs 
A) raw material costs 
B) direct labor costs 
C) transportation costs 
D) building rental costs 
E) purchasing costs

Question 12

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?

Accepted Answer

Design Capacity = 1,100 partic

Question 13

A firm is considering adding a second secretary to answer phone calls and make appointments.The cost of the secretary will be $10/hour and she will work 200 hours each month.If each new client adds $400 of profit to the firm,how many clients must the secretary arrange for the firm to break even?

Accepted Answer

BEP= 10(20

Question 14

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,what is the weighted contribution of this product?

Accepted Answer

A) 0.133 
B) 0.200 
C) 0.40 
D) 0.667 
E) $1.667 
A) 0.133 
B) 0.200 
C) 0.40 
D) 0.667 
E) $1.667

Question 15

Break-even is the number of units at which:

Accepted Answer

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. 
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.

Question 16

Identify the six tactics for matching capacity to demand.

Accepted Answer

1.Making staffing changes (increasing or

Question 17

An assembly line has 10 stations with times of 1,2,3,4,…,10,respectively.What is the bottleneck time?

Accepted Answer

A) 18.18% of the throughput time 
B) 100% of the throughput time 
C) 550% of the throughput time 
D) 50% of the throughput time 
E) 1.82% of the throughput time 
A) 18.18% of the throughput time 
B) 100% of the throughput time 
C) 550% of the throughput time 
D) 50% of the throughput time 
E) 1.82% of the throughput time

Question 18

The theory of constraints is a body of knowledge that deals with anything that limits an organization's ability to achieve its goals.

Accepted Answer

A) True 
 B)False

Question 19

Adding a complementary product to what is currently being produced is a demand management strategy used when:

Accepted Answer

A) demand exceeds capacity. 
B) capacity exceeds demand for a product that has stable demand. 
C) the existing product has seasonal or cyclical demand. 
D) price increases have failed to bring about demand management. 
E) efficiency exceeds 100 percent. 
A) demand exceeds capacity. 
B) capacity exceeds demand for a product that has stable demand. 
C) the existing product has seasonal or cyclical demand. 
D) price increases have failed to bring about demand management. 
E) efficiency exceeds 100 percent.

Question 20

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

Exam 20: Capacity and Constraint Management

Break-even analysis identifies the volume at which fixed costs and revenue are equal.

Design capacity is the theoretical maximum output of a system in a given period under ideal conditions.

Basic break-even analysis typically assumes that:

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 percent,what is the approximate net present value of this investment?

A factory produces 1000 units a month.If design capacity is 3000 and efficiency is 50% find utilization and effective capacity.

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

One limitation of the net present value approach to investments is that investments with identical net present values may have very different cash flows.

Fixed costs are those costs that continue even if no units are produced.

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

A firm is considering adding a second secretary to answer phone calls and make appointments.The cost of the secretary will be $10/hour and she will work 200 hours each month.If each new client adds $400 of profit to the firm,how many clients must the secretary arrange for the firm to break even?

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,what is the weighted contribution of this product?

Break-even is the number of units at which:

Identify the six tactics for matching capacity to demand.

An assembly line has 10 stations with times of 1,2,3,4,…,10,respectively.What is the bottleneck time?

The theory of constraints is a body of knowledge that deals with anything that limits an organization's ability to achieve its goals.

Adding a complementary product to what is currently being produced is a demand management strategy used when:

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

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