Exam 6: Managing Capacity

An entrepreneur identifies a product that she knows will sell like crazy if she can only figure out a way to bring it to her area. The idea is so fantastic that I can't tell you what it is, so we will just refer to it as X. The entrepreneur has identified four ways to bring X to the masses; she can import it, she can smuggle it, she can try to produce it on her own, and she can have a local reputable producer make it for her. The fixed and variable costs for each of these alternatives are shown below. Which of these methods is never the preferred alternative? Import Produce Smuggle Outsource Fixed Cost \ 25,000 \ 500,000 \ 200,000 \ 0 Variable Cost \ 30 \ 10 \ 15 \ 32

Saul Goodman represents several clients and bills at $400 per hour. He forgot to record the time it took to complete each activity, but he knows his eight hour day was spent representing three clients involved in one high profile case. He also remembers that Walt told him once that his learning curve percentage was 85%. How much more should Saul bill his first client than his third client?

An example of a variable cost is:

Wally's Filling Station is manned by one capable attendant that can fill your tank and check your tires, oil, and water in 5 minutes. If four customers arrive each hour, and the service and arrival rates are governed by the Poisson distribution, what is the utilization of the attendant?

Which of these capacity strategies has the benefit of a good balance of productive resources?

The average waiting time on a Thursday night for a table at a popular Chinese restaurant is 30 minutes. If customers arrive at the rate of four per hour and both the service and arrival rates are Poisson distributed, what is the average service time?

Consider the system composed of four processes linked by a conveyor belt. There is no storage between these processes pictured below and market demand of 50 units per hour drives the conveyor belt. Assume that no defective units are made. Which statement is best?

Four entrepreneurial students want to open a shaved ice business during the coming summer. Maxine thinks that demand will be high and therefore they should purchase a large stand and acquire a premium ice shaving machine. Minnie feels strongly that demand will be low and that they should purchase a tarp and some basic hand tools to work the ice. Midelia is pretty sure that demand will fall in-between these two extremes, so they can get by with a shack and a used ice shaving machine. Their financial wizard of the bunch, Probableah, has estimated the costs, revenues, and likelihoods of each level of demand and created the table shown below. What is the expected profit for this venture? Demand Total Revenue Total Expenses Probability Low \ 500 \ 15 .2 Medium \ 2,000 \ 125 .3 High \ 5,000 \ 519 .5

A firm is more likely to develop the internal capacity to perform activities that are strategically important to its success than it is to outsource those activities.

The Theory of Constraints would support the statement that a chain is only as strong as its weakest link.

A steady stream of eager fresh-faced students waits in line to register for spring semester classes. Students arrive at the rate of 100 per hour and it takes the registrar 30 seconds to check their schedule and verify they have paid in full. What is the average time waiting in line and the average number of people in line? How busy is the registrar?

Learning curve theory suggests that productivity will increase as people and systems learn to perform tasks more efficiently.

A wise professor crafts a midterm that is beautiful to behold, painful to take, and a chore to grade. The first exam takes almost an hour and a half to grade (89 minutes and 24.7 seconds to be precise)but the second one takes only seventy-six minutes to complete. Realizing that learning effects are at work, the professor looks at his social calendar and spots an important social engagement at this time on the following day, exactly 24 hours from now. How long will it take to grade the third exam? How long will it take to finish grading exams for the entire class of 30 students?

In operations and supply chain environments that must deal with random demand and variable processing times, it is virtually impossible to achieve very high capacity utilization levels and still provide acceptable customer service.

The first three rooms took The Painter a total of 9 hours to paint. If the learning curve rate is 85%, how long will it take The Painter to paint all 20 rooms in Stately Wayne Manor?

Which of the following statements about capacity strategies is NOT correct?

A company with fixed costs of $10,000 per month has a target price of $165 for their sole product, a heat shield for masonry fireplaces. What level of output represents their break-even point if their variable cost for producing is $35 per unit?

Define theoretical and rated capacity and name four factors that affect a company's capacity. Indicate how each factor impacts rated capacity.

Consider the system composed of four processes linked by a conveyor belt. There is no storage between these processes pictured below. Which statement is best?

The ________ capacity strategy is better positioned to avoid adding extra costs as long as possible.