Deck 4: Capacity Planning

Question 1

Capacity can be expressed by output or input measures.

Answer 1

True

Question 2

One of the many steps in the production of toothpaste is to screw the caps on the tubes,which is still a manual process,performed by one man,Mr.Bucket.Which statement about this situation is BEST?

A)This is most appropriate for an output measure of capacity.
B)This is most appropriate for an input measure of capacity.
C)Utilization of the worker at this process step cannot be measures as it is a manual process.
D)In this case,the capacity of this step is not the maximum rate of output.

Answer 2

A

Question 3

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.

Answer 3

False

Question 4

Although the fire marshal had declared the capacity of the classroom at 45 students,the introduction to operations management class was so popular,the average attendance was 55 students,literally standing room only.Shouts of "You the man!" accompanied the successful solution of problems such as this: What is the utilization of the operations management professor?

A)122%
B)100%
C)55 students
D)45 students

Question 5

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 6

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 7

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 8

Capacity decisions should be linked closely to ________ and ________ throughout the organization.

Question 9

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

Question 10

________ is the maximum rate of output for a process.

Question 11

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 12

Long-term capacity plans deal with:

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

Question 13

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

Question 14

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 15

Although the fire marshal had declared the capacity of the classroom at 55 students,the introduction to operations management class was so popular,the average attendance was 75 students,literally standing room only.Squeals of excitement and the occasional burning of an overturned car accompanied the successful solution of problems such as this: What is the utilization of the operations management professor?

A)100%
B)136%
C)75
D)55

Question 16

The test bank author abandoned his teaching duties when he was in the zone working on a test bank.Normally scheduled to teach a nine hour load during the semester,he generally made his way to one three hour class a week,one where his students could propose devious problems that were sure to confound generations of test takers.What is the test bank author's utilization for his teaching duties?

A)three hours
B)nine hours
C)33%
D)300%

Question 17

Capacity is the maximum rate of output of a process.

Question 18

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 19

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 20

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

Question 21

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 22

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 23

Give four principal reasons economies of scale can occur when output increases.Provide examples of each for a service firm.

Question 24

________ occurs when the average cost per unit increases as the facility's size increases.

Question 25

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

Question 26

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 27

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

Question 28

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

Question 29

The seven-person maintenance function at a hospital performs both preventive and corrective maintenance on hundreds of items each month.All the workers are scheduled for 40 hours per week and there are four weeks in a month.It is the goal of the maintenance department to achieve 90% utilization with a mix of two-thirds preventive maintenance and one-third corrective maintenance.How many hours each month are spent performing corrective maintenance if they achieve their 90% utilization and correct/preventive mix targets?

Question 30

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

Question 31

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

Question 32

Discuss the relationship between setup time and utilization.

Question 33

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

Question 34

The seven-person maintenance function at a hospital performs both preventive and corrective maintenance on hundreds of items each month.All the workers are scheduled for 40 hours per week and there are four weeks in a month.It is the goal of the maintenance department to achieve 90% utilization with a mix of two-thirds preventive maintenance and one-third corrective maintenance.How many hours each month are spent performing preventive maintenance if they achieve their 90% utilization and correct/preventive mix targets?

Question 35

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 36

Define utilization and give a service process example of it.

Question 37

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

Question 38

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

Question 39

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

Question 40

Lucy's Pancake House,a no-frills diner along a major interstate,has discovered that if precious employee time is not wasted on frivolous duties such as cleaning work surfaces,properly storing ingredients,and pest control,they can achieve an average output rate of 25 customers per hour.If the diner was designed to accommodate a maximum of 30 customers per hour,what is the utilization?

Question 41

It takes a service rep an average of two minutes to take a customer's information.Over the course of a work week,the rep handles 160 calls a day during her eight hour shift.What is the service rep's capacity cushion?

A)20%
B)33%
C)50%
D)67%

Question 42

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 43

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

Question 44

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 45

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 46

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 47

If demand is increasing,and you also prefer to increase the time between capacity increments,then the size of increments should ________.

Question 48

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 49

Define each of the following capacity strategies: expansionist,wait-and-see,and follow-the-leader.

Question 50

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 51

Depict the expansionist strategy graphically as a plot of capacity against time and discuss the benefits of adopting this strategy.

Question 52

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 53

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 54

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

Question 55

________ is the amount of reserve capacity that a firm maintains to handle a sudden increase in demand or temporary losses of production capacity.

Question 56

It takes a service rep an average of two and a half minutes to take a customer's information.Over the course of a work week,the rep handles 160 calls a day during her eight hour shift.What is the service rep's capacity cushion?

A)16%
B)33%
C)50%
D)66%

Question 57

What is a capacity cushion? Provide examples of capacity cushions in a university setting and an automotive producer.

Question 58

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

Question 59

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 60

What factors should be considered when selecting the appropriate capacity cushion? How does the choice of capacity cushion relate to other decisions in operations management? To other functional areas?

Question 61

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 62

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 63

A standard work year is 2000 hours at the Luther Mill and it takes about an hour and a half to fill a customer order.Last year saw 15,000 customer orders at the mill and the manager has a new John Deere in mind as a company car,so he hopes that there is an increase of 15% in customer orders for next year.If the manager hires fourteen workers,what is the capacity cushion?

A)7)6%
B)8)2%
C)6)9%
D)8)8%

Question 64

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 65

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 66

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 67

Table 4.1
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 4.1.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 68

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 69

A standard work year is 2080 hours at the Luther Mill and it takes about 2 hours to fill a customer order.The manager at the mill is always concerned about employee idle time,so he aims for a capacity cushion of two percent.Last year saw 15,000 customer orders at the mill and the manager has a new Mercedes in mind as a company car,so he hopes that there is an increase of 10% in customer orders for next year.How many workers will the manager need to have at the mill next year?

A)10
B)13
C)16
D)19

Question 70

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 71

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 72

Table 4.1
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 4.1.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 73

A standard work year is 2000 hours at the Luther Mill and it takes about an hour and a half to fill a customer order.The manager at the mill is always concerned about employee idle time,so he aims for a capacity cushion of two percent.Last year saw 15,000 customer orders at the mill and the manager has a new John Deere in mind as a company car,so he hopes that there is an increase of 15% in customer orders for next year.How many workers will the manager need to have at the mill next year?

A)10
B)13
C)16
D)19

Question 74

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 75

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 76

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

Question 77

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 78

Table 4.1
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 4.1,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 79

A standard work year is 2000 hours at the Luther Mill and it takes about an hour and a half to fill a customer order.Last year saw 25,000 customer orders at the mill and the manager has a rebuilt Ford 9N in mind as a company car,so he hopes that there is an increase of 2% in customer orders for next year.If the manager hires twenty workers,what is the capacity cushion?

A)3)8%
B)3)1%
C)5)1%
D)4)3%

Question 80

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.