Question 1

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 2

A firm sells two products.Product R sells for $20;its variable cost is $6.Product S sells for $50;its variable cost is $30.Product R accounts for 60% of the firm's sales,while S accounts for 40%.The firm's fixed costs are $4 million annually.Calculate the firm's break-even point.

Accepted Answer

The contribution for product R is 70% of selling price,or 0.70;the contribution for product S is 0.40.The weighted contribution for R is .70 × .60 = .42;the weighted contribution for S is .40 × .40 = .16.The sum of the weighted contributions is 0.58.The break-even point is $4,000,000 / 0.58 = $6,896,552.

Question 3

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 40%;strong acceptance has a probability of 60%.The payoffs are as follows.Small job shop,moderate market = $24,000;Small job shop,strong market = $54,000.Medium job shop,moderate market = $20,000;medium job shop,strong market = $64,000.Large job shop,moderate market = -$2,000;large job shop,strong market = $96,000.Which capacity choice should the firm make?

Accepted Answer

The expected values for the three decision alternatives (capacities)are: small job shop = $42,000;medium job shop = $46,400;and large job shop = $56,800.The firm should choose the large job shop.

Question 4

A fabrication company wants to increase capacity by adding a new machine.The firm is considering proposals from vendor A and vendor B.The fixed costs for machine A are $90,000 and for machine B,$75,000.The variable cost for A is $15.00 per unit and for B,$18.00.The revenue generated by the units processed on these machines is $21 per unit.If the estimated output is 5000 units,which machine should be purchased?

Accepted Answer

A) machine A 
B) machine B 
C) either machine A or machine B 
D) no purchase because neither machine yields a profit at that volume 
E) purchase both machines since they are both profitable 
A) machine A 
B) machine B 
C) either machine A or machine B 
D) no purchase because neither machine yields a profit at that volume 
E) purchase both machines since they are both profitable

Question 5

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

Accepted Answer

Design capacity is the theoretical maxim

Question 6

Describe the theory of constraints in a sentence.

Accepted Answer

The theory of constraints is t

Question 7

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?

Accepted Answer

Design Capacity = 1,100 partic

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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.

Accepted Answer

5,000 × .943 + 3,000 × .890 + 2,000 × .7

Question 10

The theory of constraints has its origins in

Accepted Answer

A) linear programming theory. 
B) the theory of economies of scale. 
C) material requirements planning. 
D) the theory of finite capacity planning. 
E) Goldratt and Cox's book,The Goal: A Process of Ongoing Improvement. 
A) linear programming theory. 
B) the theory of economies of scale. 
C) material requirements planning. 
D) the theory of finite capacity planning. 
E) Goldratt and Cox's book,The Goal: A Process of Ongoing Improvement.

Question 11

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

Accepted Answer

Output = Efficiency ∗ Effectiv

Question 12

A graphic design studio is considering three new computers.The first model,A,costs $5000.Model B and C cost $3000 and $1000 respectively.If each customer provides $50 of revenue and variable costs are $20/customer,find the number of customers required for each model to break even.

Accepted Answer

A: BEP = 5000/(50 - 20)= 166.6

Question 13

A firm is about to undertake the manufacture of a product,and 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%;strong acceptance has a probability of 40%.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 14

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

Accepted Answer

A) True 
 B)False

Question 15

An organization whose capacity is on that portion of the average unit cost curve that falls as output rises

Accepted Answer

A) has a facility that is below optimum operating level and should build a larger facility. 
B) has a facility that is above optimum operating level and should build a smaller facility. 
C) is suffering from diseconomies of scale. 
D) has utilization higher than efficiency. 
E) has efficiency higher than utilization. 
A) has a facility that is below optimum operating level and should build a larger facility. 
B) has a facility that is above optimum operating level and should build a smaller facility. 
C) is suffering from diseconomies of scale. 
D) has utilization higher than efficiency. 
E) has efficiency higher than utilization.

Question 16

Which of the following represents an aggressive approach to demand management in the service sector when demand and capacity are not particularly well matched?

Accepted Answer

A) inexpensive rates for weekend phone calls 
B) appointments 
C) reservations 
D) first-come,first-served 
E) self-serve 
A) inexpensive rates for weekend phone calls 
B) appointments 
C) reservations 
D) first-come,first-served 
E) self-serve

Question 17

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

Accepted Answer

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

Question 18

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

Accepted Answer

The answer of ________ cost is the cost that continues...

Question 19

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 20

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?

Accepted Answer

Calculations for the original version of

Why is the capacity decision important?

A firm sells two products.Product R sells for $20;its variable cost is $6.Product S sells for $50;its variable cost is $30.Product R accounts for 60% of the firm's sales,while S accounts for 40%.The firm's fixed costs are $4 million annually.Calculate the firm's break-even point.

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

Describe the theory of constraints in a sentence.

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

The theory of constraints has its origins in

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

A graphic design studio is considering three new computers.The first model,A,costs $5000.Model B and C cost $3000 and $1000 respectively.If each customer provides $50 of revenue and variable costs are $20/customer,find the number of customers required for each model to break even.

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

An organization whose capacity is on that portion of the average unit cost curve that falls as output rises

Which of the following represents an aggressive approach to demand management in the service sector when demand and capacity are not particularly well matched?

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

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

Break-even is the number of units at which

Operations and Productivity

Operations Strategy in a Global Environment

Project Management

Forecasting

Sustainability in the Supply Chain and Design of Goods and Services

Managing Quality

Process Strategy and Sustainability

Location Strategies

Layout Strategies

Human Resources,job Design,and Work Measurement

Supply-Chain Management

Inventory Management

Aggregate Planning

Material Requirements Planning Mrpand ERP

Short-Term Scheduling

Jit and Lean Operations

Maintenance and Reliability

Statistical Process Control

Supply Chain Management Analytics

Decision-Making Tools

Linear Programming

Transportation Models

Waiting-Line Models

Learning Curves

Simulation

Filters

Exam 19: Capacity and Constraint Management

Why is the capacity decision important?

A firm sells two products.Product R sells for $20;its variable cost is $6.Product S sells for $50;its variable cost is $30.Product R accounts for 60% of the firm's sales,while S accounts for 40%.The firm's fixed costs are $4 million annually.Calculate the firm's break-even point.

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

Describe the theory of constraints in a sentence.

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

The theory of constraints has its origins in

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

A graphic design studio is considering three new computers.The first model,A,costs $5000.Model B and C cost $3000 and $1000 respectively.If each customer provides $50 of revenue and variable costs are $20/customer,find the number of customers required for each model to break even.

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

An organization whose capacity is on that portion of the average unit cost curve that falls as output rises

Which of the following represents an aggressive approach to demand management in the service sector when demand and capacity are not particularly well matched?

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

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

Break-even is the number of units at which

Operations and Productivity

Operations Strategy in a Global Environment

Project Management

Forecasting

Sustainability in the Supply Chain and Design of Goods and Services

Managing Quality

Process Strategy and Sustainability

Location Strategies

Layout Strategies

Human Resources,job Design,and Work Measurement

Supply-Chain Management

Inventory Management

Aggregate Planning

Material Requirements Planning Mrpand ERP

Short-Term Scheduling

Jit and Lean Operations

Maintenance and Reliability

Statistical Process Control

Supply Chain Management Analytics

Decision-Making Tools

Linear Programming

Transportation Models

Waiting-Line Models

Learning Curves

Simulation

Filters