Deck 6: Capacity Planning

Question 1

An expansionist capacity strategy minimizes the risks of overexpansion due to overly optimistic demand forecasts.

Answer 1

False

Question 2

One reason economies of scale drive down cost is the spreading of fixed costs.

Answer 2

True

Question 3

One advantage of a smaller capacity cushion is that it is less expensive than a larger cushion.

Answer 3

True

Question 4

An expansionist capacity strategy involves large,infrequent jumps in capacity,where a wait-and-see strategy involves smaller,more frequent jumps.

Question 5

A capacity cushion is the amount of inventory that a firm maintains to handle sudden increases in demand or temporary loss of production capacity.

Question 6

A wait-and-see capacity strategy minimizes the chances of lost sales due to insufficient capacity.

Question 7

Capacity is the maximum rate of output of a process.

Question 8

A smaller capacity cushion may be required if a process is highly capital intensive.

Question 9

A process's capacity requirement states the future process capacity needed to meet projected customer demands,and includes an allowance for the desired capacity cushion.

Question 10

Capacity cushions may be lowered if companies smooth the output rate by raising prices when inventory is low and decreasing prices when it is high.

Question 11

Diseconomies of scale is a concept that states that the average unit cost of a service or good can be reduced by increasing its output rate.

Question 12

A firm may preempt the expansion of competitive firms by using an expansionist capacity strategy and announcing a large capacity expansion.

Question 13

Capacity decisions should be made separately from strategic decisions.

Question 14

Capacity can be expressed by output or input measures.

Question 15

Input measures of capacity are inherently more accurate than output measures of capacity.

Question 16

Economies of scale drive down cost even though the cost of purchased materials can be expected to increase.

Question 17

A larger capacity cushion can help firms uncover process inefficiencies,so they can find ways to correct them.

Question 18

A larger capacity cushion may be required due to variation in demand,changing product mix,or supply uncertainty.

Question 19

A planning horizon is defined as the period beyond which the company does not have customer orders.

Question 20

Utilization is the degree to which equipment,space,or labor is currently being used.

Question 21

Waiting line models are often used for capacity planning.

Question 22

The capacity requirement for a year's output is inversely proportional to the total number of hours per year during which the process operates.

Question 23

Long-term capacity decisions that confront managers include all of the following except:

A)capital equipment.
B)additional land.
C)buildings.
D)workforce size.

Question 24

Which one of the following factors usually motivates a smaller capacity cushion?

A)unevenly distributed demands
B)high capital intensity
C)high penalty costs for overtime usage
D)requests for quick customer services

Question 25

Which one of the following factors usually calls for a larger capacity cushion?

A)uncertain demand
B)high capital intensity
C)more reliable equipment
D)high worker flexibility

Question 26

Long-term capacity plans deal with:

A)investments in new facilities.
B)workforce size.
C)inventories.
D)overtime budgets.

Question 27

A manufacturing plant is capable of producing 10 tons of product per day when it runs three shifts with no breakdowns and plenty of raw materials.Over the past week,the plant has produced an average of 7.3 tons per day since the third shift has devoted much of their time to preventive maintenance.What is the capacity of the plant?

A)10 tons/day
B)7.3 tons/day
C)73%
D)137%

Question 28

Output measures are used for estimating capacity requirements when product variety and process divergence are high.

Question 29

Regarding the measurement of capacity,when a firm provides a relatively small number of standardized products and services:

A)capacity cannot be determined reliably.
B)input measures are typically used.
C)output measures are typically used.
D)utilization becomes equal to capacity.

Question 30

The transition from economies of scale to diseconomies of scale:

A)is more likely to occur in a service operation.
B)is more likely to occur in a manufacturing operation.
C)is more likely to occur when utilization is low.
D)contains the point at which average unit costs are at their lowest.

Question 31

As the desired capacity cushion increases,the processing hours required for a year's demand decrease.

Question 32

When a firm makes a long-term capacity decision,selecting the base case alternative means doing nothing and losing orders from any demand that exceeds current capacity,or incurring costs due to excess capacity.

Question 33

Large,infrequent jumps in capacity are characteristic of companies that:

A)have an expansionist strategy.
B)have a wait-and-see strategy.
C)have low utilization.
D)have high utilization.

Question 34

A lumber mill is capable of producing 10,000 board feet of lumber per day when it runs ten hours per day with minimal breaks.Over the past year,forestry legislation has reduced the availability of raw materials,so the mill has produced an average of 4,575 board feet per day.What is the capacity of the plant?

A)4,575 board feet/day
B)10,000 board feet/day
C)45.75%
D)219%

Question 35

The degree to which equipment,space,or labor is being used is commonly referred to as:

A)capacity.
B)output.
C)utilization.
D)cushion.

Question 36

Input measures include such metrics as:

A)the number of customers served per hour.
B)the number of trucks produced per day.
C)the number of machine hours available.
D)the number of bills processed in a week.

Question 37

Cash flow is the difference between the flows of funds into and out of an organization over a period of time.

Question 38

Kristen made a batch of chocolate chip cookie dough and then had to clean the utensils and mixing bowl before she made a batch of oatmeal raisin cookie dough.The time spent cleaning the bowl and utensils is an example of setup time.

Question 39

A manufacturing plant is capable of producing 10 tons of product per day when it runs three shifts with no breakdowns and plenty of raw materials.Over the past week,the plant has produced an average of 7.3 tons per day because the third shift has devoted much of their time to preventive maintenance.What is the utilization of the plant?

A)10 tons/day
B)7.3 tons/day
C)137%
D)73%

Question 40

A lumber mill is capable of producing 10,000 board feet of lumber per day when it runs ten hours per day with minimal breaks.Over the past year,forestry legislation has reduced the availability of raw materials,so the mill has produced an average of 4,575 board feet per day.What is the utilization of the plant?

A)4,575 board feet/day
B)10,000 board feet/day
C)219%
D)45.75%

Question 41

The lock box department at Bank 21 handles the processing of monthly loan payments to the bank,monthly and quarterly premium payments to a local insurance company,and bill payments for 85 of the bank's largest commercial customers.The payments are processed by machine operators,with one operator per machine.An operator can process one payment in 0.25 minute.Setup times are negligible in this situation.A capacity cushion of 20 percent is needed for the operation.The average monthly (not annual)volume of payments processed through the department currently is 400,000.However,it is expected to increase by 20 percent.The department operates eight hours per shift,two shifts per day,260 days per year.How many machines (not operators)are needed to satisfy the new total processing volume? (Round up to the next whole integer. )

A)fewer than 7
B)7
C)8
D)more than 8

Question 42

Which one of the following statements concerning capacity cushions is best?

A)Large capacity cushions are used more often when future demand is level and known.
B)Small capacity cushions are used extensively in capital intensive firms.
C)Capacity cushions are used primarily in manufacturing organizations,not in service organizations.
D)Small cushions are used in organizations where the products and services produced often change.

Question 43

The Southeast Manufacturing Company is producing two types of products: A and B.Demand forecasts for next year and other production-related information are provided in the following table: Both of these products are produced at the same workstation,called the Automatic Lathe.Currently,the company has 12 automatic lathes,and financial constraints prevent any expansion for the next year.It works 250 days per year with two 8-hour shifts and desires a 25 percent capacity cushion.Which one of the following alternatives will allow next year's demand to be fully covered?

A)Do nothing.
B)Increase the capacity cushion to 30 percent.
C)Increase the batch size of product B to 300 units.
D)Decrease the capacity cushion by 1 percent.

Question 44

If a system is well balanced,which one of the following changes usually calls for a larger capacity cushion?

A)higher capital intensity
B)higher worker flexibility
C)requests for fast delivery times
D)higher inventories

Question 45

Up,Up & Away is a producer of kites and windsocks.Relevant data concerning their production for the upcoming fiscal year are as follows: Assume: 1 shift/day,8 hours/shift,5 days/week,and 50 weeks/year; They currently have four machines,and management wants a capacity cushion of 20 percent.
Which of the following alternatives will enable Up,Up & Away to meet all of the upcoming year's demand using the minimum number of machines?

A)Add six additional machines.
B)Add five additional machines.
C)Add four additional machines.
D)Add three additional machines.

Question 46

Table 6.1
The Union Manufacturing Company is producing two types of products: A and B.The demand forecasts,batch size,and time standards follow:
Both products are produced on the same machine,called Mark I.
Use the information in Table 6.1.The company works 250 days per year and operates two shifts,each covering 8 hours.If a 15 percent capacity cushion is maintained,how many hours of capacity can the company expect from each of its Mark I machines?

A)fewer than 3000
B)between 3000 and 3500
C)between 3501 and 4000
D)more than 4000

Question 47

Table 6.1
The Union Manufacturing Company is producing two types of products: A and B.The demand forecasts,batch size,and time standards follow:
Both products are produced on the same machine,called Mark I.
Using Table 6.1,what is the total number of hours required of Mark I equipment for the next year?

A)fewer than 29,000 hours
B)between 29,000 and 30,000 hours
C)between 30,000 and 31,000 hours
D)more than 31,000 hours

Question 48

A wait-and-see capacity strategy does all of the following EXCEPT:

A)lag behind demand.
B)minimize the chance of lost sales due to insufficient capacity.
C)meet capacity shortfalls with overtime,temporary workers,subcontracting,and stockouts.
D)reduce the risk of overexpansion based on overly optimistic demand forecasts.

Question 49

A well-educated operations manager used the capacity requirements equation to determine the number of crackerbox welders to purchase for the shop,given the standard time per unit,hours available per machine,among other relevant parameters.He studied the answer,2.2,and concluded that:

A)he had made a mistake,since it isn't possible to purchase a fractional welder.
B)he needed to decrease his desired capacity cushion to bring him up to exactly three welders.
C)he should buy two welders and authorize 10% overtime to reach the 2.2 figure.
D)he should buy two welders and reduce the time per part by 10% to reduce the capacity need to two welders.

Question 50

The single milling machine at Stout Manufacturing was severely overloaded last year.The plant operates eight hours per day,five days per week,and 50 weeks per year.Management prefers a capacity cushion of 15 percent.Two major types of products are routed through the milling machine.The annual demand for product A is 3000 units and 2000 units for product B.The batch size for A is 20 units and 40 units for B.The standard processing time for A is 0.5 hours/unit and 0.8 hours/unit for B.The standard setup time for product A is 2 hours and 8 hours for product B.How many new milling machines are required if Stout does not resort to any short-term capacity options?

A)no new machines
B)1 or 2 new machines
C)3 or 4 new machines
D)more than 4 new machines

Question 51

A well-educated operations manager used the capacity requirements equation to determine the number of crackerbox welders to purchase for the shop,given the standard time per unit,hours available per machine,among other relevant parameters.He studied the answer,12.6,and concluded that:

A)he had made a mistake,since it isn't possible to purchase a fractional welder.
B)he needed to decrease his desired capacity cushion to bring him up to an even thirteen welders.
C)he should buy twelve welders and spend 50% more time per part to reach the 12.6 figure.
D)he should buy twelve welders and use all of them at 5% overtime to achieve the necessary output.

Question 52

An expansionist capacity strategy does all of the following EXCEPT:

A)stay ahead of demand.
B)minimize the chance of lost sales due to insufficient capacity.
C)result in economies of scale and a fast rate of learning,yielding reduced manufacturing costs.
D)involve small,frequent jumps in capacity.

Question 53

Table 6.2
High Tech,Inc.is producing two types of products: A and B.Both are produced at the same sawing operation.Because of demand uncertainties,the operations manager obtained three demand forecasts (pessimistic,expected,and optimistic).The demand forecasts,batch sizes (units/batch),processing times (hr/unit),and setup times (hr/batch)follow. The sawing machines operate on two 8-hour shifts,5 days per week,and 50 weeks per year.The manager wants to maintain a 10 percent capacity cushion.
Using the information from Table 6.2,what is the minimum total number of hours required of sawing equipment for the next year?

A)fewer than 85,000 hours
B)more than 85,000 but fewer than 95,000
C)more than 95,000 but fewer than 105,000
D)more than 105,000 hours

Question 54

Table 6.2
High Tech,Inc.is producing two types of products: A and B.Both are produced at the same sawing operation.Because of demand uncertainties,the operations manager obtained three demand forecasts (pessimistic,expected,and optimistic).The demand forecasts,batch sizes (units/batch),processing times (hr/unit),and setup times (hr/batch)follow. The sawing machines operate on two 8-hour shifts,5 days per week,and 50 weeks per year.The manager wants to maintain a 10 percent capacity cushion.
Using the information from Table 6.2,how many hours of capacity can the company expect from each of its sawing machines?

A)fewer than 3500 hours
B)more than 3500 hours but fewer than 3700 hours
C)more than 3700 hours but fewer than 3900 hours
D)more than 3900 hours

Question 55

The time required to change a machine from making one product or service to the next is called:

A)cycle time.
B)setup time.
C)queue time.
D)hold time.

Question 56

Which one of the following statements about capacity cushions is best?

A)Companies with flexible flow processes tend to have small capacity cushions.
B)Companies with high capital costs tend to have large capacity cushions.
C)Companies that have considerable customization tend to have larger capacity cushions.
D)Constant demand rates require larger-capacity cushions.

Question 57

A wait-and-see capacity strategy:

A)involves small,frequent jumps in capacity.
B)minimizes the chance of lost sales due to insufficient capacity.
C)can result in economies of scale and a fast rate of learning,yielding reduced manufacturing costs.
D)stays ahead of demand.

Question 58

Table 6.1
The Union Manufacturing Company is producing two types of products: A and B.The demand forecasts,batch size,and time standards follow:
Both products are produced on the same machine,called Mark I.
Use the information in Table 6.1.How many Mark I machines are required to produce Union Manufacturing's for the year's production?

A)fewer than 4 machines
B)more than 4 but fewer than or equal to 6 machines
C)more than 6 but fewer than or equal to 8 machines
D)more than 8 machines

Question 59

An expansionist capacity strategy:

A)lags behind demand.
B)reduces the risk of overexpansion based on overly optimistic demand forecasts.
C)can preempt expansion by competitors by announcing a large capacity expansion.
D)meets capacity shortfalls with overtime,temporary workers,subcontracting,and stockouts.

Question 60

If a system is well balanced,which one of the following changes usually calls for a smaller capacity cushion?

A)higher customization
B)more of a flexible-flow strategy
C)higher yield losses
D)higher capital intensity

Question 61

Table 6.5
The T.H.King Company has introduced a new product line that requires two work centers,A and B for manufacture.Work Center A has a current capacity of 10,000 units per year,and Work Center B is capable of 12,500 units per year.This year (year 0),sales of the new product line are expected to reach 10,000 units.Growth is projected at an additional 1,000 units each year through year 5.Pre-tax profits are expected to be $30 per unit throughout the 5-year planning period.Two alternatives are being considered:
Use the information in Table 6.5.What is the pre-tax cash flow (net present value)for alternative #1 compared to the base case of doing nothing for the next five years?

A)negative pre-tax cash flow
B)more than $0 but less than $40,000
C)more than $40,000 but less than $80,000
D)more than $80,000

Question 62

Table 6.2
High Tech,Inc.is producing two types of products: A and B.Both are produced at the same sawing operation.Because of demand uncertainties,the operations manager obtained three demand forecasts (pessimistic,expected,and optimistic).The demand forecasts,batch sizes (units/batch),processing times (hr/unit),and setup times (hr/batch)follow. The sawing machines operate on two 8-hour shifts,5 days per week,and 50 weeks per year.The manager wants to maintain a 10 percent capacity cushion.
Using the information from Table 6.2,if the operation currently has 18 machines and the manager is willing to expand capacity by 20 percent through short-term options,what is the capacity gap (in terms of number of machines)if you assume the optimistic demand forecasts?

A)fewer than or equal to 10
B)more than 10 but fewer than or equal to 12
C)more than 12 but fewer than or equal to 14
D)more than 14

Question 63

Table 6.2
High Tech,Inc.is producing two types of products: A and B.Both are produced at the same sawing operation.Because of demand uncertainties,the operations manager obtained three demand forecasts (pessimistic,expected,and optimistic).The demand forecasts,batch sizes (units/batch),processing times (hr/unit),and setup times (hr/batch)follow. The sawing machines operate on two 8-hour shifts,5 days per week,and 50 weeks per year.The manager wants to maintain a 10 percent capacity cushion.
Using the information from Table 6.2,what is the maximum number of machines needed (assuming no reliance on short-term option)?

A)fewer than or equal to 25
B)more than 25 but fewer than or equal to 28
C)more than 28 but fewer than or equal to 31
D)more than 31

Question 64

Table 6.3
The North Bend Manufacturing Company is producing two types of products,A and B.Demand forecasts for next year and other production-related information are provided in the following table:
Both products A and B are produced at the same operation called MASAC27A.
Use the information in Table 6.3 to help answer this question.Additionally,the company works 250 days every year and operates 2 shifts,each of which covers 8 hours.If a 25 percent capacity cushion is maintained,how many machines does the company need next year to fully cover the demand?

A)fewer than 13 machines
B)13 machines
C)14 machines
D)more than 14 machines

Question 65

Table 6.4
Mr.Lee is considering a capacity expansion for his supermarket.The annual sales projected for the next five years follow.The current capacity is equivalent to $300,000 sales.Assume a 20 percent pretax profit margin.

Using the information in Table 6.4,if Lee expands the capacity to an equivalent of $360,000 sales now (year 0),how much would pretax cash flow in year 5 increase because of this expansion?

A)less than $7000
B)more than $7000 but less than $10,000
C)more than $10,000 but less than $13,000
D)more than $13,000

Question 66

Table 6.3
The North Bend Manufacturing Company is producing two types of products,A and B.Demand forecasts for next year and other production-related information are provided in the following table:
Both products A and B are produced at the same operation called MASAC27A.
Use the information in Table 6.3 to help answer this question.Currently,the company has 12 MASAC27A machines,and financial constraints prevent any expansion for the next year.Which one of the following alternatives will allow next year's demand to be fully covered?

A)Do nothing.
B)Increase the capacity cushion to 30 percent.
C)Increase the batch size of product B to 300 units.
D)Decrease the capacity cushion by 1 percent.

Question 67

Table 6.4
Mr.Lee is considering a capacity expansion for his supermarket.The annual sales projected for the next five years follow.The current capacity is equivalent to $300,000 sales.Assume a 20 percent pretax profit margin.

Using the information in Table 6.4,if Lee expands the capacity to an equivalent of $360,000 sales now (year 0),how much would pretax cash flow in year 1 increase because of this expansion?

A)less than $3000
B)more than $3000 but less than $5000
C)more than $5000 but less than $7000
D)more than $7000

Question 68

Table 6.6
Burdell Labs is a diagnostic laboratory that does various tests (blood tests,urine tests,etc. )for doctors' offices in the Indianapolis area.Test specimens are picked up at the doctors' offices and are transported to the testing facility,with uniform arrivals throughout the day.All tests go through two testing centers in the testing facility,Test Center A and Test Center B.A has a current capacity of 1,000 units per week,and B is capable of 1,500 units per week.The facility operates 50 weeks per year.This year (year 0),test volumes are expected to reach 1,000 units per week.Growth per week is projected at an additional 200 units through year 5 (i.e. ,1,200 per week in year #1,1,400 per week in year #2,etc. ).Pre-tax profits are expected to be $5 per test throughout the 5-year planning period.Two alternatives are being considered:
Expand both Test Centers A and B at the end of year 0 to a capacity of 2,000 units per week,at a total cost for both Test Centers of $300,000;

Question 69

The Northern Manufacturing Company is producing products A and B,using the same machine called MASAC27A.Demand forecasts for next year and other production-related information are provided in the following table. The company works 250 days per year and operates 2 shifts each day,each shift covering 8 hours.If 25 percent of capacity cushion is maintained throughout the year,how many machines (MASAC27A)does the company need next year to meet the demand? (Round your answer up to the next whole machine. )

A)fewer than 11 machines
B)11 machines
C)12 machines
D)more than 12 machines

Question 70

Innovative Inc.is experiencing a boom for the products it has introduced recently.The estimated annual sales projected for the next five years are given in the following table.The current capacity is equivalent to only $100 million sales.The company is considering the alternative of expanding capacity to an equivalent of $250 million sales.Assume a 25 percent pretax profit margin.What is the increase in total pretax cash flow (summed over all years)that would be enjoyed because of the expansion?

A)less than or equal to $40 million
B)more than $40 million but less than or equal to $70 million
C)more than $70 million but less than or equal to $100 million
D)more than $100 million

Question 71

Sleep Tight Motel has the opportunity to purchase an adjacent plot of land.Building on this land would increase their capacity from the current sales level of $515,000/year to $600,000/year.Sleep Tight experiences a 20 percent before-tax profit margin.It wishes to estimate the additional before-tax profits that the expansion will produce.Using the following information,how much more before-tax cash flow would be realized just in year 10 alone?

A)less than or equal to $20,000
B)greater than $20,000 but less than or equal to $25,000
C)greater than $25,000 but less than or equal to $30,000
D)greater than 30,000

Question 72

A company's production facility,consisting of two identical machines,currently caters only to product A.The annual demand for the product is 4000 units.Management has now decided to introduce another product,B,which uses the same facilities as that of product A.Product B has an annual demand of 2000 units.In view of the uncertainties involved in producing two products,management desires to have an overall 10 percent capacity cushion.Given the following additional information,how many more machines are required? (Assume 8 hours/shift,2 shifts/day,250 days/year,and that no overtime is allowed).

A)No additional machines are necessary.
B)One additional machine is necessary.
C)Two additional machines are necessary.
D)More than two additional machines are necessary.

Question 73

Table 6.4
Mr.Lee is considering a capacity expansion for his supermarket.The annual sales projected for the next five years follow.The current capacity is equivalent to $300,000 sales.Assume a 20 percent pretax profit margin.

Using the information in Table 6.4,if Lee expands the capacity to an equivalent of $360,000 sales now (year 0),and then expands the capacity to an equivalent of $400,000 sales at the beginning of year 4,how much would pretax cash flow increase in total for all years (years 1 through 5)?

A)less than $30,000
B)more than $30,000 but less than $40,000
C)more than $40,000 but less than $50,000
D)more than $50,000

Question 74

Table 6.3
The North Bend Manufacturing Company is producing two types of products,A and B.Demand forecasts for next year and other production-related information are provided in the following table:
Both products A and B are produced at the same operation called MASAC27A.
Using the information in Table 6.3,what is the total number of hours required for MASAC27A equipment for the next year?

A)34,000 hours
B)34,285 hours
C)36,820 hours
D)312,000 hours

Question 75

John Owen owns a drugstore that is experiencing significant growth.Owen is trying to decide whether to expand its capacity,which currently is $200,000 in sales per quarter.Sales are seasonal.Forecasts of capacity requirements,expressed in sales per quarter for the next year,follow. Owen is considering expanding capacity to the $250,000 level in sales per quarter.The before-tax profit margin from additional sales is 15 percent.How much would before-tax profits increase next year because of this expansion?

A)less than $15,000
B)more than $15,000 but less than $16,000
C)more than $16,000 but less than $17,000
D)more than $17,000

Question 76

George P.Burdell owns a hot tub store that is experiencing significant growth.Burdell is trying to decide whether to expand the store's capacity,which currently is at $750,000 in sales per quarter.He is thinking about expanding to the $850,000 level.The before-tax profit from additional sales is 20 percent.Sales are seasonal,with peaks in the spring and summer quarters.Forecasts of capacity requirements,expressed in ($000)sales per quarter,for next year (year 2)are: Demand in year 3 and beyond is expected to exceed $850,000 per quarter.Burdell is considering expansion at the end of the fourth quarter of this year (year 1).How much would before-tax profits in year 2 increase because of this expansion?

A)less than $28,000
B)more than $28,000 but less than $32,000
C)more than $32,000 but less than $36,000
D)more than $36,000

Question 77

Table 6.5
The T.H.King Company has introduced a new product line that requires two work centers,A and B for manufacture.Work Center A has a current capacity of 10,000 units per year,and Work Center B is capable of 12,500 units per year.This year (year 0),sales of the new product line are expected to reach 10,000 units.Growth is projected at an additional 1,000 units each year through year 5.Pre-tax profits are expected to be $30 per unit throughout the 5-year planning period.Two alternatives are being considered:
Expand both Work Centers A and B at the end of year 0 to a capacity of 15,000 units per year,at a total cost for both Work Centers of $200,000;

Question 78

Table 6.5
The T.H.King Company has introduced a new product line that requires two work centers,A and B for manufacture.Work Center A has a current capacity of 10,000 units per year,and Work Center B is capable of 12,500 units per year.This year (year 0),sales of the new product line are expected to reach 10,000 units.Growth is projected at an additional 1,000 units each year through year 5.Pre-tax profits are expected to be $30 per unit throughout the 5-year planning period.Two alternatives are being considered:
Use the information in Table 6.5.What action,if any,should the King Company take?

A)Do nothing-neither alternative provides a positive net present value after five years.
B)Select Alternative #1.
C)Select alternative #2.
D)Either alternative may be selected,since the positive net present values are the same after five years.

Question 79

Table 6.5
The T.H.King Company has introduced a new product line that requires two work centers,A and B for manufacture.Work Center A has a current capacity of 10,000 units per year,and Work Center B is capable of 12,500 units per year.This year (year 0),sales of the new product line are expected to reach 10,000 units.Growth is projected at an additional 1,000 units each year through year 5.Pre-tax profits are expected to be $30 per unit throughout the 5-year planning period.Two alternatives are being considered:
Use the information in Table 6.5.What is the pre-tax cash flow (net present value)for alternative #2 compared to the base case of doing nothing for the next five years?

A)negative pre-tax cash flow
B)more than $0 but less than $40,000
C)more than $40,000 but less than $80,000
D)more than $80,000

Question 80

Table 6.2
High Tech,Inc.is producing two types of products: A and B.Both are produced at the same sawing operation.Because of demand uncertainties,the operations manager obtained three demand forecasts (pessimistic,expected,and optimistic).The demand forecasts,batch sizes (units/batch),processing times (hr/unit),and setup times (hr/batch)follow. The sawing machines operate on two 8-hour shifts,5 days per week,and 50 weeks per year.The manager wants to maintain a 10 percent capacity cushion.
Using the information from Table 6.2,what is the minimum number of machines needed (assuming no reliance on short-term options)?

A)fewer than or equal to 22
B)more than 22 but fewer than or equal to 25
C)more than 25 but fewer than or equal to 28
D)more than 28