Deck 5: Strategic Capacity Planning for Products and Services

Question 1

Design capacity refers to the maximum output that can possibly be attained.

Answer 1

True

Question 2

Outsourcing some production is a means of supporting a constraint.

Answer 2

False

Question 3

Increasing productivity and also quality will result in increased capacity.

Answer 3

True

Question 4

Capacity planning requires an analysis of needs; what kind, how much and when.

Question 5

Capacity decisions are usually one-time decisions; once they have been made, we know the limits of our operations.

Question 6

Waiting line analysis can be useful for capacity design, especially for service systems.

Question 7

Cost and competitive priorities reduce effective capacities.

Question 8

The break-even quantity can be determined by dividing the fixed costs by the difference between the revenue per unit and the variable cost per unit.

Question 9

The current trend toward global operations has made capacity decisions much easier since we have the whole world in which to consider operations.

Question 10

If the unit cost to buy something is less than the variable cost to make it, the decision to make or buy is based solely on the fixed costs.

Question 11

Stating capacity in dollar amounts generally results in a consistent measure of capacity regardless of the actual units of measure.

Question 12

Capacity decisions often involve a long-term commitment of resources which, when implemented, are difficult or impossible to modify without major added costs.

Question 13

An example of an external factor that influences effective capacity is government safety regulations.

Question 14

Increasing capacity just before a bottleneck operation will improve the output of the process.

Question 15

According to the reading on restaurant sourcing practices, only fast-food restaurants are able to 'bring' in outsourced foods.

Question 16

Capacity increases are usually acquired in fairly large "chunks" rather than in smooth increments.

Question 17

The greater the gap between current and desired capacity the greater the opportunity for profit.

Question 18

Utilization is defined as the ratio of effective capacity to design capacity.

Question 19

In cost-volume analysis, costs that vary directly with volume of output are referred to as fixed costs because they are a fixed percentage of output levels.

Question 20

The term capacity refers to the maximum quantity an operating unit can process over a given period of time.

Question 21

Unbalanced systems are evidenced by ....

A)Top heavy operations
B)Labor unrest
C)Bottleneck operations
D)Increasing capacities
E)Assembly lines

Question 22

Which of the following is the case where capacity is measured in terms of inputs?

A)hospital
B)theater
C)restaurant
D)all of the above
E)none of the above

Question 23

Given the following information, what would utilization be? Effective capacity = 20 units per day
Design capacity = 60 units per day
Actual output = 15 units per day

A)1/4
B)1/3
C)1/2
D)3/4
E)none of these

Question 24

A basic question in capacity planning is:

A)what kind is needed
B)how much is needed
C)when is it needed
D)all of the above
E)none of the above

Question 25

The impact that a significant change in capacity will have on a key vendor is a:

A)supply chain factor
B)process limiting factor
C)internal factor
D)human resource factor
E)operational process factor

Question 26

Given the following information, what would efficiency be? Effective capacity = 50 units per day
Design capacity = 100 units per day
Actual output = 30 units per day

A)40%
B)50%
C)60%
D)80%
E)90%

Question 27

The ratio of actual output to design capacity is:

A)design capacity
B)effective capacity
C)actual capacity
D)efficiency
E)utilization

Question 28

Which of the following is a factor that affects service capacity planning?

A)the need to be near customers
B)the inability to store services
C)the degree of volatility of demand
D)the customer's willingness to wait
E)all of the above

Question 29

Maximum capacity refers to the upper limit of:

A)inventories
B)demand
C)supplies
D)rate of output
E)finances

Question 30

The maximum possible output given a product mix, scheduling difficulties, quality factors, and so on, is:

A)utilization
B)design capacity
C)efficiency
D)effective capacity
E)available capacity

Question 31

Utilization is defined as the ratio of:

A)actual output to effective capacity
B)actual output to design capacity
C)design capacity to effective capacity
D)effective capacity to actual output
E)design capacity to actual output

Question 32

Which of the following is a tactic that helps service capacity management?

A)pricing
B)promotions
C)discounts
D)advertising
E)all of the above

Question 33

Outsourcing some production is a means of _________ a capacity constraint.

A)Identifying
B)Modifying
C)Supporting
D)Overcoming
E)Repeating

Question 34

A reason for the importance of capacity decisions is that capacity:

A)limits the rate of output possible
B)affects operating costs
C)is a major determinant of initial costs
D)is a long-term commitment of resources
E)all of the above

Question 35

Efficiency is defined as the ratio of:

A)actual output to effective capacity
B)actual output to design capacity
C)design capacity to effective capacity
D)effective capacity to actual output
E)design capacity to actual output

Question 36

Given the following information, what would efficiency be? Effective capacity = 80 units per day
Design capacity = 100 units per day
Utilization = 48%

A)20%
B)35%
C)48%
D)60%
E)80%

Question 37

The ratio of actual output to effective capacity is:

A)design capacity
B)effective capacity
C)actual capacity
D)efficiency
E)utilization

Question 38

Which of these factors wouldn't be subtracted from design capacity when calculating effective capacity?

A)personal time
B)maintenance
C)scrap
D)operating hours per day
E)all of the above would be subtracted in the calculation

Question 39

Which of the following is not a determinant of effective capacity?

A)facilities
B)product mix
C)actual output
D)human factors
E)external factors

Question 40

Which of the following is not a strategy to manage service capacity?

A)hiring extra workers
B)backordering
C)pricing and promotion
D)part time workers
E)subcontracting

Question 41

A firm is considering three capacity alternatives: A, B, andC.Alternative A would have an annual fixed cost of $100,000 and variable costs of $22 per unit.Alternative B would have annual fixed costs of $120,000 and variable costs of $20 per unit.Alternative C would have fixed costs of $80,000 and variable costs of $30 per unit.Revenue is expected to be $50 per unit.
(A) Which alternative has the lowest break-even quantity?
(B) Which alternative will produce the highest profits for an annual output of 10,000 units?
(C) Which alternative would require the lowest volume of output to generate an annual profit of $50,000?

Question 42

When buying component parts, risk does not include:

A)loss of control
B)vendor viability
C)interest rate fluctuations
D)need to disclose proprietary information
E)all are risk factors

Question 43

What is the break-even quantity for the following situation? FC = $1,200 per week
VC = $2 per unit
Rev = $6 per unit

A)100
B)200
C)600
D)1,200
E)300

Question 44

A small business owner is contemplating the addition of another product line. Capacity increases and equipment will result in an increase in annual fixed costs of $50,000. Variable costs will be $25 per unit.

A) What unit selling price must the owner obtain to break-even on a volume of 2,500 units a year?
B) Because of market conditions, the owner feels a revenue of $47 is preferred to the value determined in part A. What volume of output will be required to achieve a profit of $16,000 using this revenue?

Question 45

At the break-even point:

A)output equals capacity
B)total cost equals total revenue
C)total cost equals profit
D)variable cost equals fixed cost
E)variable cost equals total revenue

Question 46

Production units have an optimal rate of output where:

A)total costs are minimum
B)average unit costs are minimum
C)marginal costs are minimum
D)rate of output is maximum
E)total revenue is maximum

Question 47

The method of financial analysis which focuses on the length of time it takes to recover the initial cost of an investment is:

A)payback
B)net present value
C)internal rate of return
D)queuing
E)cost-volume

Question 48

Seasonal variations are often easier to deal with in capacity planning than random variations because seasonal variations tend to be:

A)smaller
B)larger
C)predictable
D)controllable
E)less frequent

Question 49

Capacity in excess of expected demand that is intended to offset uncertainty is a:

A)margin protect
B)line balance
C)capacity cushion
D)timing bubble
E)none of the above

Question 50

Capacity planning decisions have both long-term and short-term considerations.Which of the following statements are true? (I) Long-term considerations relate to the overall level of capacity.
(II) Short-term considerations relate to the probable variations in capacity requirements.
(III) Short-term considerations determine the "effective capacity."

A)Only one of the three statements is true.
B)I and II
C)II and III
D)I and III
E)All three statements are correct.

Question 51

Which of the following are assumptions of the break-even model? I.Only one product is involved.
II)Everything that is produced can be sold.
III)The revenue per unit will be the same regardless of volume.

A)I only
B)I and II only
C)II only
D)II and III only
E)I, II and III

Question 52

The method of financial analysis which results in an equivalent interest rate is:

A)payback
B)net present value
C)internal rate of return
D)queuing
E)cost-volume

Question 53

If the output rate is increased but the average unit costs also increase we are experiencing:

A)market share erosion.
B)economies of scale.
C)diseconomies of scale.
D)value added accounting.
E)step-function scale up.

Question 54

For fixed costs of $2,000, revenue per unit of $2, and variable cost per unit of $1.60, the break-even quantity is:

A)1,000
B)1,250
C)2,250
D)5,000
E)none of these

Question 55

An alternative will have fixed costs of $10,000 per month, variable costs of $50 per unit, and revenue of $70 per unit.The break-even point volume is:

A)100
B)2,000
C)500
D)1,000
E)none of these

Question 56

When the output is less than the optimal rate of output, the average unit cost will be:

A)lower
B)the same
C)higher
D)could be either higher or lower
E)could be either higher, lower or the same

Question 57

Which of the following is not a criterion for developing capacity alternatives?

A)design structured, rigid systems
B)take a big-picture approach to capacity changes
C)prepare to deal with capacity in "chunks"
D)attempt to smooth out capacity requirements
E)identify the optimal operating level

Question 58

When determining the timing and degree of capacity change, one can use the approach of:

A)lead time flexibility strategy
B)expand early strategy
C)wait-and-see strategy
D)backordering
E)delayed differentiation

Question 59

Short-term considerations in determining capacity requirements include:

A)demand trend
B)cyclical demand variations
C)seasonal demand variations
D)mission statements
E)new product development plans

Question 60

An investment proposal will have annual fixed costs of $60,000, variable costs of $35 per unit of output, and revenue of $55 per unit of output.
(A) Determine the break-even quantity.
(B) What volume of output will be necessary for an annual profit of $60,000?

Question 61

How many HIV blood analyses would he have to perform in order to break even?

A)12,000
B)2,400
C)3,000
D)1,000
E)5,000

Question 62

What would the profit be if she were to produce and sell 5,000 rosebushes?

A)$0
B)$9,000
C)$15,000
D)$10,000
E)$30,000

Question 63

What would be his profit if he were to perform 5,000 HIV blood analyses?

A)$0
B)$40,000
C)$60,000
D)$25,000
E)$100,000

Question 64

What would be the county's annual profit if they were to process 4,000 prisoners per year at this new location?

A)$0
B)$75,000
C)$50,000
D)$100,000
E)$300,000

Question 65

If, for this machine, design capacity is 50 cords per day, effective capacity is 40 cords per day, and actual output is anticipated to be 35 cords per day, what would be its utilization?

A)100%
B)80%
C)75%
D)70%
E)0%

Question 66

If, for this machine, design capacity is 50 cords per day, effective capacity is 40 cords per day, and actual output is expected to be 32 cords per day, what would be its efficiency?

A)100%
B)80%
C)75%
D)70%
E)0%

Question 67

How many prisoners would they have to process annually to make a profit of $100,000 at this new location?

A)5,000
B)8,000
C)2,000
D)4,000
E)6,000

Question 68

The efficiency of a productive unit is 60%.The unit produces an average of 20 forklift trucks per day.Determine the effective capacity of the unit.

Question 69

If her available land has design and effective capacities of 3,000 and 2,000 rosebushes per year respectively, and she plans to grow 1,200 rosebushes each year on this land, what will be the utilization of this land?

A)0%
B)40%
C)60%
D)67%
E)100%

Question 70

How many rosebushes would she have to produce and sell in order to make a profit of $6,000?

A)1,600
B)2,400
C)3,000
D)1,000
E)4,000

Question 71

If their holding area at this new location has design and effective capacities of 10,000 and 7,500 prisoners processed annually, respectively, and they plan to be 80% efficient in their use of this space, how many prisoners does the county plan to process per year?

A)5,000
B)8,000
C)2,000
D)4,000
E)6,000

Question 72

How many prisoners would they have to process annually to break even at this new location?

A)5,000
B)8,000
C)2,000
D)4,000
E)6,000

Question 73

If her available land has design and effective capacities of 3,000 and 2,000 rosebushes per year, respectively, and she expects to be 80% efficient in her use of this land, how many rosebushes does Rose plan to grow each year on this land?

A)1,600
B)2,400
C)3,000
D)2,000
E)1,000

Question 74

What would the potential profit be if he were to split 4,000 cords of wood with this machine?

A)$0
B)$200,000
C)$100,000
D)$75,000
E)$50,000

Question 75

How many cords of wood would he have to split with this machine to make a profit of $30,000?

A)3,200
B)1,500
C)2,000
D)1,000
E)500

Question 76

How many cords of wood would he have to split with this machine to break even?

A)5,000
B)3,000
C)2,000
D)1,000
E)0

Question 77

If the holding area at this new location has design and effective capacities of 10,000 and 7,500 prisoners processed annually, respectively, and 5,000 prisoners will be processed per year, what will be the utilization of the holding area?

A)0%
B)30%
C)50%
D)60%
E)100%

Question 78

The utilization of a machine is 50%.The machine has a design capacity of 70 units per hour and an effective capacity of 60 units per hour.Find the efficiency of the machine.

Question 79

How many HIV blood analyses would he have to perform in order to make a profit of $15,000?

A)3,000
B)4,800
C)5,000
D)12,000
E)3,750

Question 80

How many rosebushes would she have to produce and sell in order to break even?

A)1,600
B)2,400
C)2,000
D)1,000
E)1,500