Exam 27: Capacity and Constraint Management

Which of the following approach to capacity expansion "straddles" demand?

The Academic Computing Centre 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?

A product is currently made in a process-focused shop, where fixed costs are $8,000 per year and variable cost is $40 per unit. The firm currently sells 200 units of the product at $200 per unit. A manager is considering a repetitive focus to lower costs (and lower prices, thus raising demand). The costs of this proposed shop are fixed costs = $24,000 per year and variable costs = $10 per unit. If a price of $80 will allow 400 units to be sold, what profit (or loss) can this proposed new process expect? Do you anticipate that the manager will want to change the process? Explain.

Changes in capacity may lead, lag, or straddle the demand.

A firm produces three products in a repetitive process facility. Product A sells for $60; its variable costs are $20. Product B sells for $200; its variable costs are $80. Product C sells for $25; its variable costs are $15. The firm has annual fixed costs of $320,000. Last year, the firm sold 1000 units of A, 2000 units of B, and 10,000 units of C. Calculate the break-even point of the firm. The firm has some idle capacity at these volumes, and chooses to cut the selling price of A from $60 to $45, believing that its sales volume will rise from 1000 units to 2500 units. What is the revised break-even point?

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

Why is the capacity decision important?

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

A firm is weighing three capacity alternatives: small, medium, and large job shop. Whatever capacity choice is made, the market for the firm's product can be "moderate" or "strong." The probability of moderate acceptance is estimated to be 30%; strong acceptance has a probability of 70%. The payoffs are as follows. Small job shop, moderate market = $20,000; Small job shop, strong market = $57,000. Medium job shop, moderate market = $25,000; medium job shop, strong market = $84,000. Large job shop, moderate market = -$5,000; large job shop, strong market = $106,000. Which capacity choice should the firm make?

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

The staff training centre 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 2100 employees per year. Since the training centre was first put in use, the program has become more complex, so that 1500 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.

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.

The efficiency of a factory is 75% and its utilization 50%. If effective capacity is 1000 find design capacity.

An executive conference centre 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?

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

The Theory of Constraints was popularized by

The local convenience store makes personal pan pizzas. Currently, their oven can produce 55 pizzas per hour. It has a fixed cost of $4,000, and a variable cost of $0.31 per pizza. The owner is considering a bigger oven that can make 90 pizzas per hour. It has a fixed cost of $6,200, but a variable cost of $0.20 per pizza. a. At what quantity do the two ovens have equal costs? b. If the owner expects to sell 29,000 pizzas, should he get the new oven?

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 are the assumptions of the net present value technique?

Expected output is sometimes referred to as rated capacity.