Deck 20: Capacity and Constraint Management

Question 1

In the service sector,scheduling customers is a type of ________ management,while scheduling the workforce is a type of ________.

Answer 1

demand;capacity

Question 2

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 ________.

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

Answer 2

B

Question 3

Capacity decisions are based on technological concerns,not demand forecasts.

Answer 3

False

Question 4

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

A)lower resort hotel room prices on Wednesdays
B)appointments
C)reservations
D)first-come,first-served rule
E)none of the above

Question 5

Which of the following represents a common way to manage capacity in the service sector?

A)appointments
B)reservations
C)changes in staffing levels
D)first-come,first-served service rule
E)"early bird" specials in restaurants

Question 6

Expected output is sometimes referred to as rated capacity.

Question 7

Utilization will always be lower than efficiency because:

A)effective capacity is less than design capacity.
B)effective capacity is greater than design capacity.
C)effective capacity equals design capacity.
D)expected output is less than actual output.
E)expected output is less than rated capacity.

Question 8

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

Question 9

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

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 reduce facility size.
C)is suffering from diseconomies of scale.
D)has utilization higher than efficiency.
E)has expected output higher than rated capacity.

Question 10

Effective capacity is the:

A)maximum output of a system in a given period.
B)capacity a firm expects to achieve given the current operating constraints.
C)average output that can be achieved under ideal conditions.
D)minimum usable capacity of a particular facility.
E)sum of all of the organization's inputs.

Question 11

A useful tactic for increasing capacity is to redesign a product in order to facilitate more throughput.

Question 12

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

Question 13

Adding a complementary product to what is currently being produced is a demand management strategy used when:

A)demand exceeds capacity.
B)capacity exceeds demand for a product that has stable demand.
C)the existing product has seasonal or cyclical demand.
D)price increases have failed to bring about demand management.
E)efficiency exceeds 100 percent.

Question 14

Utilization is the number of units a facility can hold,receive,store,or produce in a period of time.

Question 15

The Academic Computing Center 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)1350 students
B)1710 students
C)78.9%
D)87.7%
E)90%

Question 16

________ is actual output as a percent of effective capacity.

Question 17

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?

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

Question 18

What is sometimes referred to as rated capacity?

A)efficiency
B)utilization
C)effective capacity
D)expected output
E)design capacity

Question 19

________ is actual output as a percent of design capacity.

Question 20

________ is the number of units a facility can hold,store,receive,or produce in a period of time.

Question 21

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

Question 22

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

Question 23

A good capacity decision requires that it be tightly integrated with the organization's strategy and investments.But there are four other special "considerations" to making a good capacity decision.Identify them.

Question 24

Which of the following is not one of the four principles of bottleneck management?

A)Release work orders to the system at the bottleneck's capacity pace.
B)Lost time at the bottleneck is lost system capacity.
C)Increasing capacity at non-bottleneck stations is a mirage.
D)Increased bottleneck capacity is increased system capacity.
E)Bottlenecks should be moved to the end of the system process.

Question 25

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

Question 26

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?

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

Question 27

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

Question 28

A work system has five stations that have process times of 5,9,4,9,and 8.What is the throughput time of the system?

A)4
B)9
C)18
D)35
E)7

Question 29

An assembly line has 10 stations with times of 1,2,3,4,…,10,respectively.What is the bottleneck time?

A)18.18% of the throughput time
B)100% of the throughput time
C)550% of the throughput time
D)50% of the throughput time
E)1.82% of the throughput time

Question 30

An executive conference center 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?

Question 31

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

Question 32

A tortilla chip workstation produces 1,000 chips in 20 seconds.What is its bottleneck time?

A).02 seconds per chip
B)50 chips per second
C)20 seconds
D)6000 chips per minute
E)20,000 seconds

Question 33

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 1800 employees per year.Since the training center was first put in use,the program has become more complex,so that 1400 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.

Question 34

Why is the capacity decision important?

Question 35

A fleet repair facility has the capacity to repair 800 trucks per month.However,due to scheduled maintenance of their equipment,management feels that they can repair no more than 600 trucks per month.Last month,two of the employees were absent several days each,and only 400 trucks were repaired.What are the utilization and efficiency of the repair shop?

Question 36

Distinguish between utilization and efficiency.

Question 37

A work system has five stations that have process times of 5,9,4,9,and 8.What is the bottleneck time?

A)4
B)9
C)18
D)35
E)7

Question 38

Identify the six tactics for matching capacity to demand.

Question 39

To find the throughput time with simultaneous processes,compute the time over all paths and choose the shortest path through the system.

Question 40

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

Question 41

Break-even is the number of units at which:

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 42

The basic break-even model can be modified to handle more than one product.This extension of the basic model requires:

A)price and sales volume for each product.
B)price and variable cost for each product,and the percent of sales that each product represents.
C)that the firm have very low fixed costs.
D)that the ratio of variable cost to price be the same for all products.
E)sales volume for each product.

Question 43

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

Question 44

In "drum,buffer,rope," the ________ acts like signals between workstations.

Question 45

Basic break-even analysis typically assumes that:

A)revenues increase in direct proportion to the volume of production,while costs increase at a decreasing rate as production volume increases.
B)variable costs and revenues increase in direct proportion to the volume of production.
C)both costs and revenues are made up of fixed and variable portions.
D)costs increase in direct proportion to the volume of production,while revenues increase at a decreasing rate as production volume increases because of the need to give quantity discounts.
E)All of the above are assumptions in the basic break-even model.

Question 46

Explain the importance of a bottleneck operation in a production sequence.

Question 47

A product sells for $5,and has unit variable costs of $3.This product accounts for $20,000 in annual sales,out of the firm's total of $60,000.When performing multiproduct break-even analysis,what is the weighted contribution of this product?

A)0.133
B)0.200
C)0.40
D)0.667
E)$1.667

Question 48

Identify,in proper sequence,the steps in the process of recognizing and managing constraints.

Question 49

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

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

Question 50

Describe the theory of constraints in a sentence.

Question 51

TOC was popularized by:

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

Question 52

TOC strives to reduce the effect of constraints by:

A)offloading work from constrained workstations.
B)increasing constrained workstation capability.
C)changing workstation order to reduce throughput time.
D)A and B
E)A,B,and C

Question 53

Break-even analysis is a powerful analytical tool,but is useful only when the organization produces a single product.

Question 54

The theory of constraints has its origins in:

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 55

Fabricators,Inc.wants to increase capacity by adding a new machine.The fixed costs for machine A are $90,000,and its variable cost is $15 per unit.The revenue is $21 per unit.What is the break-even point for machine A?

A)$90,000 dollars
B)90,000 units
C)$15,000 dollars
D)15,000 units
E)4,286 units

Question 56

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

Question 57

Which of the following statements regarding fixed costs is TRUE?

A)Fixed costs rise by a constant amount for every added unit of volume.
B)While fixed costs are ordinarily constant with respect to volume,they can "step" upward if volume increases result in additional fixed costs.
C)Fixed costs are those costs associated with direct labor and materials.
D)Fixed costs equal variable costs at the break-even point.
E)Fixed cost is the difference between selling price and variable cost.

Question 58

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

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

Question 59

Break-even analysis can be used by a firm that produces more than one product,but:

A)the results are estimates,not exact values.
B)the firm must allocate some fixed cost to each of the products.
C)each product has its own break-even point.
D)the break-even point depends upon the proportion of sales generated by each of the products.
E)None of these statements is true.

Question 60

Which of the following techniques is NOT a technique for dealing with a bottleneck?

A)Schedule throughput to match the capacity of the bottleneck.
B)Increase the capacity of the constraint.
C)Have cross-trained employees available to keep the constraint at full operation.
D)Develop alternate routings.
E)All are techniques for dealing with bottlenecks.

Question 61

Lag and straddle strategies for increasing capacity have what main advantage over a leading strategy?

A)They are cheaper.
B)They are more accurate.
C)They delay capital expenditure.
D)They increase demand.
E)All of the above are advantages.

Question 62

A firm is considering adding a second secretary to answer phone calls and make appointments.The cost of the secretary will be $10/hour and she will work 200 hours each month.If each new client adds $400 of profit to the firm,how many clients must the secretary arrange for the firm to break even?

Question 63

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.

Question 64

A local business owner is considering adding another employee to his staff in an effort to increase the number of hours that the store is open per day.If the employee will cost the owner $4,000 per month and the store takes in $50/hour in revenue with variable costs of $15/hour,how many hours must the new employee work for the owner to break even?

Question 65

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 percent of the firm's sales,while S accounts for 40 percent.The firm's fixed costs are $4 million annually.Calculate the firm's break-even point in dollars.

Question 66

Which of the following is FALSE regarding capacity expansion?

A)"Average" capacity sometimes leads demand,sometimes lags it.
B)If "lagging" capacity is chosen,excess demand can be met with overtime or subcontracting.
C)Total cost comparisons are a rather direct method of comparing capacity alternatives.
D)Capacity may only be added in large chunks.
E)In manufacturing,excess capacity can be used to do more setups,shorten production runs,and drive down inventory costs.

Question 67

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

Question 68

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.

Question 69

A product is currently made in a process-focused shop,where fixed costs are $9,000 per year and variable cost is $50 per unit.The firm sells the product for $200 per unit.What is the break-even point for this operation? What is the profit (or loss)on a demand of 200 units per year?

Question 70

How is break-even analysis useful in the study of the capacity decision? What limitations does this analytical tool have in this application?

Question 71

Multiproduct break-even analysis calculates the ________ of each product,________ it in proportion to each product's share of total sales.

Question 72

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.

Question 73

________ analysis finds the point at which costs equal revenues.

Question 74

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

Question 75

Define fixed costs.

Question 76

Of the four approaches to capacity expansion,the approach that "straddles" demand:

A)uses incremental expansion.
B)uses one-step expansion.
C)at some times leads demand,and at other times lags.
D)works best when demand is not growing but is stable.
E)Choices A and C are both correct.

Question 77

What is a common method used to increase capacity with a lag strategy?

A)overtime
B)subcontracting
C)new facilities
D)new machinery
E)A and B

Question 78

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?

Question 79

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.

Question 80

Define variable costs.What special assumption is made about variable costs in the textbook?