Exam9: Capacity and Constraint Management

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, the net present value of this investment is approximately

Net present value will be greater

The theory of constraints has its origins in

__________ is actual output as a percent of design capacity.

Consider a production line with five stations. Station 1 can produce a unit in 9 minutes. Station 2 can produce a unit in 10 minutes. Station three has two identical machines, each of which can process a unit in 12 minutes (each unit only needs to be processed on one of the two machines). Station 4 can produce a unit in 5 minutes. Station 5 can produce a unit in 8 minutes. Which station is the bottleneck station?

Basic break-even analysis typically assumes that

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

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

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.

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?

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?

Why is the capacity decision important?

A good capacity decision requires that it be tightly integrated with the organization's strategy and investments. But there are other "considerations" to making a good capacity decision. Name them. Describe each in a sentence or two.

A tortilla chip workstation produces 1,000 chips in 20 seconds. Its process time is

__________ cost is the cost that continues even if no units are produced.

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?

What is the fundamental distinction between design capacity and effective capacity? Provide a brief example.

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?

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

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?