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MBA Operations Management - 2017 - 11th Edition (Krajewski) - Quiz - Chapter 4

MBA Operations Management

MBA Operations Management - 2017

Operations Management, 11e (Krajewski et al.)

Chapter 4: Capacity Planning 

 

 

Operations Management, 11e (Krajewski et al.)

Chapter 4: Capacity Planning

 

4.1  Planning Long-Term Capacity

 

1) Capacity is the maximum rate of output of a process.

Answer:  TRUE

Reference:  Planning Long-Term Capacity

Difficulty:  Easy

Keywords:  capacity, maximum output rate

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

2) Capacity can be expressed by output or input measures.

Answer:  TRUE

Reference:  Planning Long-Term Capacity

Difficulty:  Moderate

Keywords:  capacity, input measures, output measures

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

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

Answer:  FALSE

Reference:  Planning Long-Term Capacity

Difficulty:  Moderate

Keywords:  input measures, output measures, capacity

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

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

Answer:  TRUE

Reference:  Planning Long-Term Capacity

Difficulty:  Easy

Keywords:  utilization, equipment used, space used, labor used

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

 

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

Answer:  TRUE

Reference:  Planning Long-Term Capacity

Difficulty:  Moderate

Keywords:  economies of scale, fixed cost

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

6) 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:  FALSE

Reference:  Planning Long-Term Capacity

Difficulty:  Easy

Keywords:  diseconomies of scale, average unit cost, output rate

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

7) Long-term capacity plans deal with:

  1. A) investments in new facilities.
  2. B) workforce size.
  3. C) inventories.
  4. D) overtime budgets.

Answer:  A

Reference:  Planning Long-Term Capacity

Difficulty:  Moderate

Keywords:  long-term capacity, new facilities

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

8) Long-term capacity decisions that confront managers include all of the following EXCEPT:

  1. A) capital equipment.
  2. B) additional land.
  3. C) buildings.
  4. D) workforce size.

Answer:  D

Reference:  Planning Long-Term Capacity

Difficulty:  Moderate

Keywords:  long-term capacity

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

 

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

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

Answer:  C

Reference:  Planning Long-Term Capacity

Difficulty:  Moderate

Keywords:  output measure, capacity

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

10) 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?

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

Answer:  A

Reference:  Planning Long-Term Capacity

Difficulty:  Moderate

Keywords:  capacity, maximum output rate

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

11) Input measures include such metrics as:

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

Answer:  C

Reference:  Planning Long-Term Capacity

Difficulty:  Moderate

Keywords:  input measure, capacity

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

 

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

  1. A) capacity.
  2. B) output.
  3. C) utilization.
  4. D) cushion.

Answer:  C

Reference:  Planning Long-Term Capacity

Difficulty:  Moderate

Keywords:  utilization, capacity

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

13) 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?

  1. A) 122%
  2. B) 100%
  3. C) 55 students
  4. D) 45 students

Answer:  A

Reference:  Planning Long-Term Capacity

Difficulty:  Easy

Keywords:  utilization, capacity

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

14) 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?

  1. A) 100%
  2. B) 136%
  3. C) 75
  4. D) 55

Answer:  B

Reference:  Planning Long-Term Capacity

Difficulty:  Easy

Keywords:  utilization, capacity

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

15) 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?

  1. A) three hours
  2. B) nine hours
  3. C) 33%
  4. D) 300%

Answer:  C

Reference:  Planning Long-Term Capacity

Difficulty:  Moderate

Keywords:  utilization, capacity

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

16) 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?

  1. A) 10 tons/day
  2. B) 7.3 tons/day
  3. C) 137%
  4. D) 73%

Answer:  D

Reference:  Planning Long-Term Capacity

Difficulty:  Moderate

Keywords:  utilization, capacity

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

 

17) 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?

  1. A) 10 tons/day
  2. B) 7.3 tons/day
  3. C) 73%
  4. D) 137%

Answer:  A

Reference:  Planning Long-Term Capacity

Difficulty:  Moderate

Keywords:  utilization, capacity

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

18) The transition from economies of scale to diseconomies of scale:

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

Answer:  D

Reference:  Planning Long-Term Capacity

Difficulty:  Moderate

Keywords:  economies of scale, diseconomies of scale

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

19) ________ is the maximum rate of output for a process.

Answer:  Capacity

Reference:  Planning Long-Term Capacity

Difficulty:  Easy

Keywords:  capacity, maximum rate of output

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

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

Answer:           processes, supply chains

Reference:  Planning Long-Term Capacity

Difficulty:  Moderate

Keywords:  capacity decision, strategy, process, supply chains

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

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

Answer:  Utilization

Reference:  Planning Long-Term Capacity

Difficulty:  Easy

Keywords:  utilization, use of equipment, space, labor

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

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

Answer:  economies of scale

Reference:  Planning Long-Term Capacity

Difficulty:  Easy

Keywords:  economies of scale

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

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

Answer:  Diseconomies of scale

Reference:  Planning Long-Term Capacity

Difficulty:  Easy

Keywords:  diseconomies of scale

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

24) Define utilization and give a service process example of it.

Answer:  Utilization is expressed as a percent and is the degree to which equipment, space, or labor is currently being used. Examples will vary.

Reference:  Planning Long-Term Capacity

Difficulty:  Easy

Keywords:  utilization, capacity

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

25) Discuss the relationship between setup time and utilization.

Answer:  Setup time is the time required to adjust a process when switching from making one product to another and is unproductive time in the sense that no product is being built during the setup. Utilization is the ratio of the average output rate to the maximum capacity. As output rate increases, the resource is more productive and utilization rises. Setups enable output but do not create it, so the faster a setup can be performed, the more of the total time is productive, thus increasing utilization.

Reference:  Planning Long-Term Capacity

Difficulty:  Easy

Keywords:  setup time, utilization

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

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

Answer:  The four reasons are spreading fixed costs, reducing construction costs, cutting costs of purchased materials, and finding process advantages. Examples will vary, but spreading fixed costs might include managers' salaries, rent, and utilities applied to a larger output volume. In construction, the costs of architect's fees, permits, rental of construction equipment, and land might be the same regardless of the size of the store front under consideration. Higher volume of purchased materials might allow the purchasing firm to take advantage of price breaks or delivery scheduling. Finally, process advantages could include more efficient technology, like card readers at gas pumps, RFID for inventory tags, etc.

Reference:  Planning Long-Term Capacity

Difficulty:  Moderate

Keywords:  economies of scale, output

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

27) 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?

Answer: 

Utilization =  × 100%

Utilization = × 100% = 83.3%

Reference:  Planning Long-Term Capacity

Difficulty:  Easy

Keywords:  utilization, capacity

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

28) 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?

Answer: 

Utilization =  × 100%

Utilization =  × 100% = 90% ×

Corrective Hours = 30% × 7 × 40 × 4

Corrective Hours = 336 hours

Reference:  Planning Long-Term Capacity

Difficulty:  Easy

Keywords:  utilization, capacity

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

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 preventive maintenance if they achieve their 90% utilization and correct/preventive mix targets?

Answer: 

Utilization =  × 100%

Utilization =  × 100% = 90% ×

Preventive Hours = 60% × 7 × 40 × 4

Preventive Hours = 672 hours

Reference:  Planning Long-Term Capacity

Difficulty:  Easy

Keywords:  utilization, capacity

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

 

4.2  Capacity Timing and Sizing Strategies

 

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

Answer:  FALSE

Reference:  Capacity Timing and Sizing Strategies

Difficulty:  Moderate

Keywords:  capacity cushion

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

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

Answer:  TRUE

Reference:  Capacity Timing and Sizing Strategies

Difficulty:  Moderate

Keywords:  capacity cushion, variation in demand, changing product mix, supply uncertainty

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

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

Answer:  TRUE

Reference:  Capacity Timing and Sizing Strategies

Difficulty:  Moderate

Keywords:  capacity cushion, capital intensity

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

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

Answer:  FALSE

Reference:  Capacity Timing and Sizing Strategies

Difficulty:  Moderate

Keywords:  capacity cushion, process inefficiencies

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

 

5) 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.

Answer:  TRUE

Reference:  Capacity Timing and Sizing Strategies

Difficulty:  Moderate

Keywords:  capacity cushion, output rate, changes in pricing, inventory levels

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

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

Answer:  TRUE

Reference:  Capacity Timing and Sizing Strategies

Difficulty:  Moderate

Keywords:  expansionist strategy, wait-and-see strategy, size and timing of capacity increases

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

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

Answer:  FALSE

Reference:  Capacity Timing and Sizing Strategies

Difficulty:  Moderate

Keywords:  expansionist strategy, lost sales, insufficient capacity

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

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

Answer:  TRUE

Reference:  Capacity Timing and Sizing Strategies

Difficulty:  Moderate

Keywords:  expansionist strategy, capacity expansion

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

 

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

Answer:  FALSE

Reference:  Capacity Timing and Sizing Strategies

Difficulty:  Moderate

Keywords:  wait-and-see strategy, overexpansion, demand forecasts

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

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

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

Answer:  A

Reference:  Capacity Timing and Sizing Strategies

Difficulty:  Moderate

Keywords:  expansionist capacity strategy

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

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

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

Answer:  B

Reference:  Capacity Timing and Sizing Strategies

Difficulty:  Moderate

Keywords:  capacity cushion, capital intensity

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

 

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

  1. A) uncertain demand
  2. B) high capital intensity
  3. C) more reliable equipment
  4. D) high worker flexibility

Answer:  A

Reference:  Capacity Timing and Sizing Strategies

Difficulty:  Moderate

Keywords:  capacity cushion, demand variability

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

13) Which one of the following statements about capacity cushions is BEST?

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

Answer:  C

Reference:  Capacity Timing and Sizing Strategies

Difficulty:  Moderate

Keywords:  capacity cushion, customization

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

14) Which one of the following statements concerning capacity cushions is BEST?

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

Answer:  B

Reference:  Capacity Timing and Sizing Strategies

Difficulty:  Moderate

Keywords:  capacity cushion, capital intensity

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

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

  1. A) higher capital intensity
  2. B) higher worker flexibility
  3. C) requests for fast delivery times
  4. D) higher inventories

Answer:  C

Reference:  Capacity Timing and Sizing Strategies

Difficulty:  Moderate

Keywords:  balanced system, cushion capacity

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

16) 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?

  1. A) 20%
  2. B) 33%
  3. C) 50%
  4. D) 67%

Answer:  B

Reference:  Capacity Timing and Sizing Strategies

Difficulty:  Moderate

Keywords:  capacity cushion

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

17) 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?

  1. A) 16%
  2. B) 33%
  3. C) 50%
  4. D) 66%

Answer:  A

Reference:  Capacity Timing and Sizing Strategies

Difficulty:  Moderate

Keywords:  capacity cushion

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

18) An expansionist capacity strategy:

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

Answer:  C

Reference:  Capacity Timing and Sizing Strategies

Difficulty:  Moderate

Keywords:  capacity cushion, capacity expansion

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

19) A wait-and-see capacity strategy:

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

Answer:  A

Reference:  Capacity Timing and Sizing Strategies

Difficulty:  Moderate

Keywords:  capacity cushion, capacity jumps

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

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

Answer:  Capacity cushion

Reference:  Capacity Timing and Sizing Strategies

Difficulty:  Moderate

Keywords:  capacity cushion, reserve capacity

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

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

Answer:  increase

Reference:  Capacity Timing and Sizing Strategies

Difficulty:  Moderate

Keywords:  demand increase, time between capacity increments

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

22) 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?

Answer:  The appropriate size of the capacity cushion varies by industry. Large cushions are necessary when future demand is uncertain, resource flexibility is low, product mix changes, uncertainty exists regarding suppliers, and employee absenteeism and penalty costs for overtime and subcontracting exist. Small-capacity cushions reduce costs and expose problems in the system. Capacity cushions are linked to competitive priorities, quality management, capital intensity, resource flexibility, inventory, scheduling, and location. Obviously, many of these decisions cut across functional boundaries.

Reference:  Capacity Timing and Sizing Strategies

Difficulty:  Hard

Keywords:  capacity cushion

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

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

Answer:  Expansionist means large, infrequent jumps in capacity. Wait-and-see means smaller and more frequent jumps. Follow-the-leader means to expand when others do.

Reference:  Capacity Timing and Sizing Strategies

Difficulty:  Moderate

Keywords:  capacity strategy, expansionist, wait-and-see, follow-the-leader

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

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

Answer: 

 

The expansionist means large, infrequent jumps in capacity. Several factors favor the expansionist strategy. Expansion can result in economies of scale and a faster rate of learning, thus helping a firm reduce its costs and compete on price. This strategy might increase the firm's market share or act as a form of preemptive marketing. By making a large capacity expansion or announcing that one is imminent, the firm can preempt the expansion of other firms. These other firms must sacrifice some of their market share or risk burdening the industry with overcapacity. To be successful, however, the preempting firm must have the credibility to convince the competition that it will carry out its plans and must signal its plans before the competition can act.

Reference:  Capacity Timing and Sizing Strategies

Difficulty:  Moderate

Keywords:  capacity strategy, expansionist

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

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

Answer:  The term capacity cushion refers to the amount of reserve capacity a process uses to handle sudden increases in demand or temporary losses of production capacity. It measures the amount by which the average utilization (in terms of total capacity) falls below 100%. Examples will vary, but in the academic milieu may include adjunct faculty, off-campus apartments, and online sections of a class. In the automotive setting cushions could include parts inventory, subcontractors, and excess/idled equipment.

Reference:  Capacity Timing and Sizing Strategies

Difficulty:  Moderate

Keywords:  capacity cushion

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

4.3  A Systematic Approach to Long-Term Capacity Decisions

 

1) 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.

Answer:  TRUE

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity requirement, customer demand, capacity cushion

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

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

Answer:  FALSE

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  time horizon

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

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

Answer:  FALSE

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  input measures, capacity requirements, product variety, process divergence

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

4) 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.

Answer:  TRUE

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  setup time

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

 

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

Answer:  FALSE

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity cushion, capacity requirement

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

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

Answer:  TRUE

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity requirement

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

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

Answer:  TRUE

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Easy

Keywords:  cash flow

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

8) 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.

Answer:  TRUE

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  base case alternative, capacity decisions, capacity

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

 

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

  1. A) cycle time.
  2. B) setup time.
  3. C) queue time.
  4. D) hold time.

Answer:  B

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  setup time

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

10) 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:

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

Answer:  D

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity, cushion

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

 

11) 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:

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

Answer:  C

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity, cushion

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

12) 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?

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

Answer:  B

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity requirement, evaluate alternatives, select alternative

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 


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:

 

 

Product A

Product B

Demand forecast (units/yr)

1,000

4,000

Batch size (units/batch)

20

10

Processing time (hr/unit)

3.2

4.5

Setup time (hr/batch)

10

20

 

Both products are produced on the same machine, called Mark I.

 

13) Using Table 4.1, what is the total number of hours required of Mark I equipment for the next year?

  1. A) fewer than 29,000 hours
  2. B) between 29,000 and 30,000 hours
  3. C) between 30,000 and 31,000 hours
  4. D) more than 31,000 hours

Answer:  B

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity requirement, evaluate alternatives

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

14) 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?

  1. A) fewer than 3000
  2. B) between 3000 and 3500
  3. C) between 3501 and 4000
  4. D) more than 4000

Answer:  B

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity requirement, evaluate alternatives

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

 

15) Use the information in Table 4.1. How many Mark I machines are required to produce Union Manufacturing's for the year's production?

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

Answer:  D

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity requirement, evaluate alternatives, select alternative

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

16) 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?

  1. A) 10
  2. B) 13
  3. C) 16
  4. D) 19

Answer:  C

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity requirement

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

17) 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?

  1. A) 10
  2. B) 13
  3. C) 16
  4. D) 19

Answer:  B

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity requirement

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

18) 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?

  1. A) 7.6%
  2. B) 8.2%
  3. C) 6.9%
  4. D) 8.8%

Answer:  A

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity requirement

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

 

19) 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?

  1. A) 3.8%
  2. B) 3.1%
  3. C) 5.1%
  4. D) 4.3%

Answer:  A

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity requirement

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

20) 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:

 

 

Product A

Product B

Demand forecast (units/yr)

4,000

12,000

Batch size (units/batch)

80

150

Processing time (hr/unit)

2.5

2.0

Setup time (hr/batch)

18

24

 

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?

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

Answer:  C

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity requirement, evaluate alternatives, select alternative

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

 

21) 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.)

  1. A) fewer than 7
  2. B) 7
  3. C) 8
  4. D) more than 8

Answer:  C

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Hard

Keywords:  capacity requirement, evaluate alternatives, select alternative

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

22) 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).

 

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

Answer:  C

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity requirement, evaluate alternatives, select alternative

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

23) 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.

 

 

Product A

Product B

Demand forecast (units/yr)

4,000

12,000

Batch size (units/batch)

80

150

Processing time (hr/unit)

2.5

2.0

Setup time (hr/batch)

16

12

 

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.)

  1. A) fewer than 11 machines
  2. B) 11 machines
  3. C) 12 machines
  4. D) more than 12 machines

Answer:  C

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity requirement, evaluate alternatives, select alternative

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

24) 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:

 

Quarter

($000)

1

720

2

800

3

890

4

690

 

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?

  1. A) less than $28,000
  2. B) more than $28,000 but less than $32,000
  3. C) more than $32,000 but less than $36,000
  4. D) more than $36,000

Answer:  D

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity requirement, before-tax profit

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

25) 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?

 

Year

Capacity Requirement (Annual Sales)

1

$515,000

2

$517,000

3

$520,000

4

$525,000

5

$540,000

6

$560,000

7

$565,000

8

$575,000

9

$600,000

10

$620,000

 

  1. A) less than or equal to $20,000
  2. B) greater than $20,000 but less than or equal to $25,000
  3. C) greater than $25,000 but less than or equal to $30,000
  4. D) greater than 30,000

Answer:  A

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity requirement, cash flow

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

26) 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?

 

Year

Annual Sales

(in $ million)

1

100

2

140

3

170

4

200

5

250

 

  1. A) less than or equal to $40 million
  2. B) more than $40 million but less than or equal to $70 million
  3. C) more than $70 million but less than or equal to $100 million
  4. D) more than $100 million

Answer:  C

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity requirement, cash flow

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

 

27) 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.

 

Quarter

($000)

1

240

2

180

3

220

4

260

 

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?

  1. A) less than $15,000
  2. B) more than $15,000 but less than $16,000
  3. C) more than $16,000 but less than $17,000
  4. D) more than $17,000

Answer:  C

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity requirement, evaluate alternatives, cash flow

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking


Scenario 4.5

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:

 

1)   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;

2)   Expand Work Center A at the end of year 0 to 12,500 units per year, matching Work Center B, at a cost of $100,000, then expanding both Work Centers to 15,000 units per year at the end of year 3, at an additional cost at that time of $200,000.

 

The King Company will not consider projects that don't show a 5th year positive net present value using a discount rate of 15%.

 

28) Use the information in Scenario 4.5. 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?

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

Answer:  C

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity requirement, evaluate alternatives, cash flow

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

29) Use the information in Scenario 4.5. 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?

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

Answer:  B

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity requirement, evaluate alternatives, cash flow

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

30) Use the information in Scenario 4.5. What action, if any, should the King Company take?

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

Answer:  B

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity requirement, evaluate alternatives, cash flow

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

Scenario 4.6

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:

 

1)   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;

2)   Expand Test Center A at the end of year 0 to 1,500 units per week, matching Test Center B, at a cost of $100,000, then expanding both Test Centers to 2,000 units per year at the end of year 3, at an additional cost at that time of $250,000.

 

Burdell Labs will not consider projects that don't show a 5th year positive net present value using a discount rate of 15%.

 

31) Use the information in Scenario 4.6. 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?

  1. A) negative pre-tax cash flow
  2. B) more than $0 but less than $80,000
  3. C) more than $80,000 but less than $160,000
  4. D) more than $160,000

Answer:  C

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity requirement, evaluate alternatives, cash flow

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

32) Use the information in Scenario 4.6. 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?

  1. A) negative pre-tax cash flow
  2. B) more than $0 but less than $80,000
  3. C) more than $80,000 but less than $160,000
  4. D) more than $160,000

Answer:  D

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity requirement, evaluate alternatives, cash flow

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

33) Use the information in Scenario 4.6. What action, if any, should the Burdell Labs take?

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

Answer:  C

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity requirement, evaluate alternatives, cash flow

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking


Scenario 4.7

The B. Sharp Company has a rapidly growing product line that requires two work centers, X and Y for manufacture. Work Center X has a current capacity of 50,000 units per year, and Work Center Y is capable of 55,000 units per year. This year (year 0), sales of the product line are expected to reach 50,000 units. Growth is projected at an additional 3,000 units each year through year 3. Pre-tax profits are expected to be $60 per unit throughout the 3-year planning period. Two alternatives are being considered:

 

1)   Expand both Work Centers X and Y at the end of year 0 to a capacity of 60,000 units per year, at a total cost for both Work Centers of $500,000;

2)   Expand Work Center X at the end of year 0 to 55,000 units per year, matching Work Center Y, at a cost of $300,000, then expanding both Work Centers to 60,000 units per year at the end of year 2, at an additional cost at that time of $350,000.

 

The Sharp Company will not consider projects that don't show a 3rd year positive net present value using a discount rate of 20%.

 

34) Use the information in Scenario 4.7. 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?

  1. A) negative pre-tax cash flow
  2. B) more than $0 but less than $100,000
  3. C) more than $100,000 but less than $200,000
  4. D) more than $200,000

Answer:  D

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity requirement, evaluate alternatives, cash flow

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

35) Use the information in Scenario 4.7. 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?

  1. A) negative pre-tax cash flow
  2. B) more than $0 but less than $100,000
  3. C) more than $100,000 but less than $200,000
  4. D) more than $200,000

Answer:  C

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity requirement, evaluate alternatives, cash flow

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

36) Use the information in Scenario 4.7. What action, if any, should the Sharp Company take?

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

Answer:  B

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity requirement, evaluate alternatives, cash flow

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

Scenario 4.8

The Summerville Vitamin Company manufactures bottles of animal-shaped chewable vitamins for children. This product line requires two work centers, tablet manufacturing and packaging. The tablet manufacturing work center has a current capacity of 140,000 bottles per month, and packaging is capable of 100,000 units per month. This year (year 0), monthly sales of the product line are expected to reach 100,000 units. Growth per month is projected at an additional 25,000 units through year 4 (i.e., 125,000 per month in year #1, 150,000 per month in year #2, etc.). Pre-tax profits are expected to be $5 per unit throughout the 4-year planning period. Two alternatives are being considered:

 

1)  Expand both tablet manufacturing and packaging at the end of year 0 to a capacity of 200,000 units per month, at a total cost for both work centers of $2,250,000;

2)  Expand packaging at the end of year 0 to 140,000 units per year, matching tablet manufacturing, at a cost of $1,200,000, then expanding both work centers to 200,000 units per month at the end of year 2, at an additional cost at that time of $1,400,000.

 

Summerville will not consider projects that don't show a 4th year positive net present value using a discount rate of 25%.

 

37) Use the information in Scenario 4.8. What is the pre-tax cash flow (net present value) for alternative #1 compared to the base case of doing nothing for the next four years?

  1. A) less than or equal to $5.1 million
  2. B) more than $5.1 million but less than $5.3 million
  3. C) more than $5.3 million less than $5.5 million
  4. D) more than $5.5 million

Answer:  D

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity requirement, evaluate alternatives, cash flow

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

38) Use the information in Scenario 4.8. What is the pre-tax cash flow (net present value) for alternative #2 compared to the base case of doing nothing for the next four years?

  1. A) less than or equal to $5.1 million
  2. B) more than $5.1 million but less than $5.3 million
  3. C) more than $5.3 million less than $5.5 million
  4. D) more than $5.5 million

Answer:  C

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity requirement, evaluate alternatives, cash flow

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

39) Use the information in Scenario 4.8. What action, if any, should Summerville take?

  1. A) Find another option—neither alternative provides a positive net present value after four years.
  2. B) Select Alternative #1.
  3. C) Select alternative #2.
  4. D) Either alternative may be selected, since the positive net present values are the same after four years.

Answer:  B

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity requirement, evaluate alternatives, cash flow

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

40) Which of these phrases best describes the term base case?

  1. A) the do-nothing alternative
  2. B) thinking outside the box
  3. C) working smarter, not harder
  4. D) working harder, not smarter

Answer:  A

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Easy

Keywords:  base case

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

 

41) A process's ________ is what its capacity should be for some future time period to meet the demand of its customers, allowing for the desired capacity cushion.

Answer:  capacity requirement

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity requirement

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

42) A process's ________ is the length of time it takes to switch from making one type of product to another.

Answer:  setup time

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  setup

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

43) The ________ is the set of consecutive time periods considered for planning purposes.

Answer:  planning horizon

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Easy

Keywords:  planning horizon

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

44) A ________ is the difference between demand and current capacity.

Answer:  capacity gap

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Easy

Keywords:  capacity gap

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

45) ________ are more appropriate measures of capacity in situations where a task that is initially difficult and time-consuming to perform becomes second-nature and short in duration.

Answer:  Input measures

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Easy

Keywords:  input measures

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

46) The ________ is the act of doing nothing and losing orders from any demand that exceeds capacity, or incurs costs because capacity is too large.

Answer:  base case

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Easy

Keywords:  base case

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

47) What are the four steps involved in making capacity decisions?

Answer:  The steps are: 1) estimate future capacity requirements, 2) identify gaps by comparing requirements with alternatives, 3) develop alternative plans for filling the gaps, and 4) evaluate alternatives, both qualitatively and quantitatively, and make a final choice.

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity decision, steps

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

48) A printing company works on three types of printing jobs, each of which could be produced on the same model printing machine. The predicted annual demands and typical order sizes are shown in the table. The company has 2000 production hours available each year and requires a 10% capacity cushion to allow for preventive maintenance, breakdowns, and other unforeseen circumstances. How many printing machines must they have under these circumstances?

 

Job Type

Job A

Job B

Job C

Demand

6000

4000

5000

Process time per unit

.8

.75

.25

Average order size

40

100

50

setup time (hours)

1

.75

.5

 

Answer: 

M =       = 5.15 → 6

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  utilization, capacity

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

49) A printing company works on three types of printing jobs, each of which could be produced on the same model printing machine. The predicted annual demands and typical order sizes are shown in the table. The company has 2000 production hours available each year and requires a 10% capacity cushion to allow for preventive maintenance, breakdowns, and other unforeseen circumstances. They have floor space for five printing machines. If the time needed to set up a printing machine to switch from one job to the next is identical for all three job types, what must their setup time be to achieve their required output?

 

Job Type

Job A

Job B

Job C

Demand

6000

4000

5000

Process time per unit

.8

.75

.25

Average order size

40

100

50

 

Answer:  It can't be done; the production time required is 4800 + 3000 + 1250 = 9050 hours, which exceeds the 9000 hours available. The setup time would need to be a negative one-sixth of an hour in order to meet the five machine limit.

 

M =              

    = 5.00

5 × 1800 = [4800 + 150s] + [3000 + 40s] + [1250 + 100s]

9000 - 4800 - 3000 - 1250 = 290s

-50 = 290s

s = -.1724 hours

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Hard

Keywords:  utilization, capacity

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

50) The single milling machine at Fred's Manufacturing was severely overloaded last year. The plant operates 8 hours per day, 5 days per week, and 50 weeks per year. Management prefers a capacity cushion of 20 percent. Two major types of products are routed through the milling machine. The annual demand for product A is 4000 units and 3000 units for product B. The batch size for A is 20 units and 30 units for B. The standard processing time for A is 0.5 hours/unit and 0.8 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 Fred's does not resort to any short-term capacity options?

Answer: 

M =

 

where M = number of machines required, D = number of units forecast per year, p = processing time in hours per unit, N = total number of hours per year that the process operates, C = desired capacity cushion, Q = number of units in each batch, and s = setup time.

 

M =  = 3.5 → 4 machines

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity requirement

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

51) The Union Manufacturing Company is producing two types of products: A and B. The demand forecasts, batch size, and time standards for the Mark I operation follow:

 

 

Product A

Product B

Demand forecast (units/yr)

1,000

4,000

Batch size (units/batch)

20

10

Processing time (hr/unit)

3.2

4.5

Setup time (hr/batch)

10

20

 

The company works 250 days per year and operates 2 shifts, each covering 8 hours. If a 20 percent capacity cushion is maintained, how many new Mark I machines are required if Union does not resort to any short-term capacity options?

Answer: 

M =

 

where M = number of machines required, D = number of units forecast per year, p = processing time (in hours per unit), N = total number of hours per year that the process operates, C = desired capacity cushion, Q = number of units in each batch, and s = setup time.

 

M =  = 9.28 → 10 machines

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Moderate

Keywords:  capacity requirement

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

 

52) Larry's Wickets, Inc. is producing two types of products: A and B. Both are produced at the same machining 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 machines operate on two 8-hour shifts, 5 days per week, and 50 weeks per year. The manager wants to maintain a 20 percent capacity cushion.

  1. What is the minimum number of hours required of the machining equipment for the next year?
  2. How many hours of capacity can the company expect from each machine?
  3. What is the minimum number of machines needed (assuming no reliance on short-term options)?
  4. What is the maximum number of machines needed (assuming no reliance on short-term options)?

Answer: 

 

 

  1. 81,800 hours
  2. 3,200 hours
  3. 26 machines
  4. 34 machines

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Hard

Keywords:  capacity cushion, capacity requirement

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

 

53) 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:

1)   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;

2)   Expand Work Center A at the end of year 0 to 12,500 units per year, matching Work Center B, at a cost of $100,000, then expanding both Work Centers to 15,000 units per year at the end of year 3, at an additional cost at that time of $200,000.

 

The King Company will not consider projects that don't show a 5th year positive net present value using a discount rate of 15%. What are the pre-tax cash flows for the two alternatives compared to the base case of doing nothing for the next five years, and what action, if any, should the company take?

Answer:  The following table summarizes demand and output capabilities for the two alternatives:

 

Alternative #1 Net Present Value (in $000s)

= -200 + 30/1.15 + 60/(1.15)2 + 90/(1.15)3 + 120/(1.15)4 + 150/(1.15)5

= -200 + 26.1 + 45.4 + 59.2 + 68.6 + 74.6 = $73.9

Alternative #2 Net Present Value (in $000s)

= -100 + 30/1.15 + 60/(1.15)2 + (75 - 200)/(1.15)3 + 120/(1.15)4 + 150/(1.15)5

= -100 + 26.1 + 45.4 - 82.2 + 68.6 + 74.6 = $32.5

 

 

Both alternatives have a positive net present value after five years at a discount rate of 15%. However, Alternative #1 has a higher net present value after the five-year period ($73,900 versus $32,500) and should therefore be the alternative selected.

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Hard

Keywords:  evaluating alternatives, net present value, pre-tax cash flow, discount rate

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

 

54) 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 is projected at an additional 200 units each week 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:

 

1)   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;

2)   Expand Test Center A at the end of year 0 to 1,500 units per week, matching Test Center B, at a cost of $100,000, then expanding both Test Centers to 2,000 units per year at the end of year 3, at an additional cost at that time of $250,000.

 

Burdell Labs will not consider projects that don't show a 5th year positive net present value using a discount rate of 15%. What are the pre-tax cash flows for the two alternatives compared to the base case of doing nothing for the next five years, and what action, if any, should Burdell take?

Answer:  The following table summarizes demand and output capabilities for the two alternatives:

 

 

Alternative #1 Net Present Value (in $000s)

= -300 + 50/1.15 + 100/(1.15)2 + 150/(1.15)3 + 200/(1.15)4 + 250/(1.15)5

= -300 + 43.5 + 75.6 + 98.6 + 114.4 + 124.3 = $156.4

Alternative #2 Net Present Value (in $000s)

= -100 + 50/1.15 + 100/(1.15)2 + (125 - 250)/(1.15)3 + 200/(1.15)4 + 250/(1.15)5

= -100 + 43.5 + 75.6 - 82.2 + 114.4 + 124.3 = $175.6

 

 

Both alternatives have a positive net present value after five years at a discount rate of 15%. However, Alternative #2 has a higher net present value after five years ($175,600 versus $156,400) and should therefore be the alternative selected.

Reference:  A Systematic Approach to Long-Term Capacity Decisions

Difficulty:  Hard

Keywords:  evaluating alternatives, net present value, pre-tax cash flow, discount rate

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

4.4  Tools for Capacity Planning

 

1) Waiting line models are often used for capacity planning.

Answer:  TRUE

Reference:  Tools for Capacity Planning

Difficulty:  Moderate

Keywords:  waiting line models, capacity planning

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

2) Which of the following descriptions about waiting line models is BEST?

  1. A) They account for major events such as competitor actions.
  2. B) They account for the random, independent behavior of many customers.
  3. C) They assume that each branch can give the highest expected payoff.
  4. D) They deal with the certainty and stability in demand.

Answer:  B

Reference:  Tools for Capacity Planning

Difficulty:  Moderate

Keywords:  waiting line model

Learning Outcome:  Apply waiting-line theories and models

AACSB:  Application of Knowledge

 

3) What information would managers use to choose the best cost-effective capacity to balance customer service with the cost of adding capacity?

  1. A) decision trees
  2. B) economies of scale
  3. C) capacity cushion
  4. D) waiting line models

Answer:  D

Reference:  Tools for Capacity Planning

Difficulty:  Moderate

Keywords:  waiting line model

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

 

4) When future demand is uncertain and sequential decisions are involved in capacity planning, a manager should use a:

  1. A) waiting line model.
  2. B) cash flow analysis.
  3. C) decision tree.
  4. D) gap analysis.

Answer:  C

Reference:  Tools for Capacity Planning

Difficulty:  Moderate

Keywords:  decision tree, capacity planning

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Application of Knowledge

Figure 4.1

 

5) A manager weighs three options for capacity cushion as depicted in Figure 4.1. If the dollar amounts expressed in the figure are cash flows, which option is optimal?

  1. A) large cushion
  2. B) medium cushion
  3. C) small cushion
  4. D) Not enough information is given to select an option.

Answer:  B

Reference:  Tools for Capacity Planning

Difficulty:  Moderate

Keywords:  decision tree, capacity planning, cushion

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

 

6) A manager weighs three options for capacity cushion as depicted in Figure 4.1. If the dollar amounts expressed in the figure are cash flows, what is the value of the optimal decision?

  1. A) $11,700
  2. B) $11,500
  3. C) $12,300
  4. D) $10,500

Answer:  A

Reference:  Tools for Capacity Planning

Difficulty:  Moderate

Keywords:  decision tree, capacity planning, cushion

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

7) A manager weighs three options for capacity cushion as depicted in Figure 4.1. If the dollar amounts expressed in the figure are costs, what is the optimal decision?

  1. A) large cushion
  2. B) medium cushion
  3. C) small cushion
  4. D) Not enough information is given to select an option.

Answer:  C

Reference:  Tools for Capacity Planning

Difficulty:  Moderate

Keywords:  decision tree, capacity planning, cushion

Learning Outcome:  Explain options for managing bottlenecks and managing capacity in service and manufacturing processes.

AACSB:  Analytical Thinking

 

8) A capacity decision in a call center, such as the number of customer service representatives to answer the phone during a peak period, can be addressed using a(n) ________.

Answer:  waiting-line (queuing) model

Reference:  Tools for Capacity Planning

Difficulty:  Easy

Keywords:  waiting-line models, queuing

AACSB:  Application of Knowledge

 

9) Extremely complex service capacity problems for which there are no optimizing equations should be analyzed using ________.

Answer:  simulation

Reference:  Tools for Capacity Planning

Difficulty:  Easy

Keywords:  simulation

AACSB:  Application of Knowledge

 

 

10) ________ are useful capacity analysis tools when the future is uncertain and capacity decisions can be made in a sequential fashion.

Answer:  Decision trees

Reference:  Tools for Capacity Planning

Difficulty:  Easy

Keywords:  decision tree

AACSB:  Application of Knowledge

 

11) Capacity planning requires a demand forecast for an extended period of time into the future. What concerns would you have regarding an extended forecast as a capacity planner?

Answer:  Unfortunately, forecast accuracy declines as the forecasting horizon lengthens. In addition, anticipating what competitors will do increases the uncertainty of demand forecasts. Demand during any period of time may not be evenly distributed; peaks and valleys of demand may (and often do) occur within the time period.

Reference:  Tools for Capacity Planning

Difficulty:  Moderate

Keywords:  forecasting

AACSB:  Application of Knowledge

12) What is a waiting line model, and what information can it provide?

Answer:  Waiting line models use probability distributions to estimate delay times, line length, and utilization.

Reference:  Tools for Capacity Planning

Difficulty:  Moderate

Keywords:  waiting line model, capacity planning

Learning Outcome:  Apply waiting-line theories and models

AACSB:  Application of Knowledge

 

 

----------------------------------

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Introduction to Operations and Supply Chain Management, 4th Edition, Cecil B. Bozarth, Robert B. Handfield, 2016
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