Question 1

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 gives 1000 = utilization ∗ 3000,utilization = 33.33%.Next use output = efficiency ∗ effective capacity to get 1000 = .5(effective capacity),effective capacity= 2000 units.

Question 2

Why is the capacity decision important?

Accepted Answer

The capacity decision is important for several reasons.First,capacity costs represent a large portion of fixed costs.Second,a facility of the wrong size means that costs are not as low as they could be.If a facility is too large,and portions of it remain idle,the firm's costs are too high because of the higher fixed costs.If a plant is too small,costs are again higher than they might be due to inefficiencies of working in cramped and crowded spaces.Further,a facility too small may lead to lost sales,perhaps even lost markets.

Question 3

Price changes are useful for matching the level of demand to the capacity of a facility.

Accepted Answer

A) True 
 B)False  True

Question 4

TOC was popularized by:

Accepted Answer

A) Goldratt and Cox. 
B) Ford. 
C) Taguchi. 
D) Deming. 
E) Motorola and GE. 
A) Goldratt and Cox. 
B) Ford. 
C) Taguchi. 
D) Deming. 
E) Motorola and GE.

Question 5

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 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,the net present value of this investment is:

Accepted Answer

A) greater than $80,000 but less than $130,000. 
B) greater than $130,000. 
C) less than $30,000. 
D) impossible to calculate,because no interest rate is given. 
E) impossible to calculate,because variable costs are not known. 
A) greater than $80,000 but less than $130,000. 
B) greater than $130,000. 
C) less than $30,000. 
D) impossible to calculate,because no interest rate is given. 
E) impossible to calculate,because variable costs are not known.

Question 7

The bottleneck time is always at least as long as the throughput time.

Accepted Answer

A) True 
 B)False

Question 8

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 1200 employees per year.Since the training center was first put into use,the program has become more complex,so that 1050 now represents the most employees that can be trained per year.In the past year,950 employees were trained.The efficiency of this system is approximately ________ and its utilization is approximately ________.

Accepted Answer

A) 79.2 percent;90.5 percent 
B) 90.5 percent;79.2 percent 
C) 87.5 percent;950 employees 
D) 950 employees;1050 employees 
E) 110.5 percent;114.3 percent 
A) 79.2 percent;90.5 percent 
B) 90.5 percent;79.2 percent 
C) 87.5 percent;950 employees 
D) 950 employees;1050 employees 
E) 110.5 percent;114.3 percent

Question 9

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 10

Suppose that the market has a 70% chance of being favorable and a 30% chance of being unfavorable.A favorable market will yield a profit of $300,000,while an unfavorable market will yield a profit of $20,000.What is the expected monetary value (EMV)in this situation?

Accepted Answer

EMV = (0.7)($300,000

Question 11

Distinguish between utilization and efficiency.

Accepted Answer

Both are ratios,not item counts.Both use

Question 12

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 3 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?

Accepted Answer

A) Station 1 
B) Station 2 
C) Station 3 
D) Station 4 
E) Station 5 
A) Station 1 
B) Station 2 
C) Station 3 
D) Station 4 
E) Station 5

Question 13

In "drum,buffer,rope," what provides the schedule,i.e.the pace of production?

Accepted Answer

A) drum 
B) buffer 
C) rope 
D) all three of the above in combination 
E) none of the above 
A) drum 
B) buffer 
C) rope 
D) all three of the above in combination 
E) none of the above

Question 14

Health Care Systems of the South is about to buy an expensive piece of diagnostic equipment.The company estimates that it will generate uniform revenues of $500,000 for each of the next eight years.What is the present value of this stream of earnings,at an interest rate of 6%? What is the net present value if the machine lasts only six years,not eight? If the equipment cost $2,750,000,should the company purchase it?

Accepted Answer

S = R × X = 500,000 × 6.210 = $3,105,000

Question 15

The capacity planning strategy that delays adding capacity until capacity is below demand,then adds a capacity increment so that capacity is above demand,is said to ________ demand.

Accepted Answer

The answer of The capacity planning strategy that delays adding...

Question 16

Describe how EMV might be used to analyze a capacity decision.

Accepted Answer

The EMV for each capacity decision (perh

Question 17

Expected output is sometimes referred to as rated capacity.

Accepted Answer

A) True 
 B)False

Question 18

Christopher's Cranks uses a machine that can produce 100 cranks per hour.The firm operates 12 hours per day,five days per week.Due to regularly scheduled preventive maintenance,the firm expects the machine to be running during approximately 95% of the available time.Based on experience with other products,the firm expects to achieve an efficiency level for the cranks of 85%.What is the expected weekly output of cranks for this company?

Accepted Answer

A) 5100 
B) 5700 
C) 4845 
D) 969 
E) 6783 
A) 5100 
B) 5700 
C) 4845 
D) 969 
E) 6783

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Substantial research has proved that the only successful method of dealing with bottlenecks is to increase the bottleneck's capacity.

Accepted Answer

A) True 
 B)False

Exam 20: Capacity Planning

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

Why is the capacity decision important?

Price changes are useful for matching the level of demand to the capacity of a facility.

TOC was popularized by:

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

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:

The bottleneck time is always at least as long as the throughput time.

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?

Suppose that the market has a 70% chance of being favorable and a 30% chance of being unfavorable.A favorable market will yield a profit of $300,000,while an unfavorable market will yield a profit of $20,000.What is the expected monetary value (EMV)in this situation?

Distinguish between utilization and efficiency.

In "drum,buffer,rope," what provides the schedule,i.e.the pace of production?

The capacity planning strategy that delays adding capacity until capacity is below demand,then adds a capacity increment so that capacity is above demand,is said to ________ demand.

Describe how EMV might be used to analyze a capacity decision.

Expected output is sometimes referred to as rated capacity.

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

Substantial research has proved that the only successful method of dealing with bottlenecks is to increase the bottleneck's capacity.

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