Operations Management 13th Edition by William J Stevenson - Test Bank

Operations Management 13th Edition by William J Stevenson – Test Bank

Instant Download – Complete Test Bank With Answers

Sample Questions Are Posted Below

Chapter 05 Test Bank – Static

1.	The term capacity refers to the maximum quantity an operating unit can process over a given period of time. TRUE An operation’s capacity is defined as the maximum rate of output possible.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 05-03 Describe ways of defining and measuring capacity.
Topic: Defining and Measuring Capacity

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

FALSE

A number of factors can either increase or reduce a unit’s capacity over time. While capacity decisions often involve long-term commitments, we need to monitor both our performance and demand to identify needs to adjust capacity.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 05-02 Explain the importance of capacity planning.
Topic: Capacity Decisions are Strategic

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

FALSE

The dollar value of a unit’s output can change even though that unit’s capacity hasn’t.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 05-03 Describe ways of defining and measuring capacity.
Topic: Defining and Measuring Capacity

4.	Design capacity refers to the maximum output rate that can be achieved under ideal conditions. TRUE Design capacity is the maximum output rate or service rate an operation, process, or facility is designed for.

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

FALSE

Cost is not the only consideration that enters into the make-or-buy decision. Other factors such as available capacity, expertise, quality, and risks must also be considered.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 05-05 Discuss factors to consider when deciding whether to operate in-house or outsource.
Topic: Do It In-House or Outsource It?

Increasing productivity and also quality will result in increased effective capacity.

TRUE

Effective capacity can be increased over time by these and similar factors.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 05-04 Name several determinants of effective capacity.
Topic: Determinants of Effective Capacity

7.	Utilization is defined as the ratio of effective capacity to design capacity. FALSE Utilization is the ratio of actual output to design capacity.

8.	Increasing capacity just before a bottleneck operation will improve the output of the process. FALSE If the bottleneck isn’t increased, the capacity of the process remains unchanged.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 05-06 Discuss the major considerations related to developing capacity alternatives.
Topic: Developing Capacity Strategies

9.	An example of an external factor that influences effective capacity is government safety regulations. TRUE Stricter safety regulations can reduce effective capacity.

10.	Having excess capacity tends to keep operating costs low. FALSE Operating costs tend to be minimized when capacity and demand requirements are matched.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 05-02 Explain the importance of capacity planning.
Topic: Capacity Decisions are Strategic

11.

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

TRUE

Hotels and hospitals are among many examples of circumstances in which capacity cannot be added in very small increments.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 05-06 Discuss the major considerations related to developing capacity alternatives.
Topic: Developing Capacity Strategies

12.

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

FALSE

Costs that vary directly with volume of output are variable costs.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives.
Topic: Evaluating Alternatives

13.

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

TRUE

The difference between the revenue per unit and the variable cost per unit goes toward covering fixed costs.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives.
Topic: Evaluating Alternatives

14.

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

FALSE

A wide range of restaurants use outsourced foods.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 05-05 Discuss factors to consider when deciding whether to operate in-house or outsource.
Topic: Additional Challenges of Planning Service Capacity
Topic: Do It In-House or Outsource It?

15.	The more current capacity exceeds desired capacity, the greater the opportunity for profit. FALSE A substantial capacity overage increases operating costs and reduces the opportunity for profit; but it may serve as a deterrent to entry by competitors.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 05-02 Explain the importance of capacity planning.
Topic: Capacity Decisions are Strategic

16.

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

FALSE

Global operations increase the complexity of decision making with regard to capacity.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-02 Explain the importance of capacity planning. Topic: Capacity Decisions are Strategic
17.	Capacity planning requires an analysis of needs: what kind, how much, and when. TRUE Type, quantity, and timing are essential to capacity decisions.
AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-01 Name the three key questions in capacity planning. Topic: Introduction
18.	Waiting line analysis can be useful for capacity design, especially for service systems. TRUE In service systems, waiting lines are symptoms of bottleneck operations.
AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Topic: Evaluating Alternatives

19.	Capacity decisions often involve a long-term commitment of resources which, when implemented, are difficult or impossible to modify without major added costs. TRUE The cost to modify capacity decisions, once they’ve been made, is what makes capacity decisions so consequential.

20.

Outsourcing some production is a means of supporting a constraint.

FALSE

Reducing the burden placed on a constraint is an example of overcoming the constraint.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 05-07 Describe the steps that are used to resolve constraint issues.
Topic: Constraint Management

21.

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

A.	identifying
B.	modifying
C.	supporting
D.	overcoming
E.	repeating

Outsourcing some production reduces the burden placed on the constraint.

22.

Which of the following is a key question in capacity planning?

A.	Should we make the product in-house or outsource it?
B.	Where do we need the capacity?
C.	When do we need the capacity?
D.	Who will pay for the capacity change?
E.	Should we change capacity all at once, or through several small changes?

What kind, how much, and when is it needed are the three key questions in capacity planning.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 05-01 Name the three key questions in capacity planning.
Topic: Introduction

23.

Allowances for which of these factors would be subtracted from design capacity when calculating effective capacity?

A.	personal time
B.	equipment maintenance
C.	scheduling problems
D.	changing the mix of products
E.	all of the other choices

Effective capacity reflects all of the above issues, including required personal time, periodic maintenance of equipment, delays due to scheduling problems, and changes to the product mix.

24.

Which of the following is not a reason why capacity decisions are so important?

A.	Capacity limits the rate of output possible.
B.	Capacity affects operating costs.
C.	Capacity is a major determinant of initial costs.
D.	Capacity is a long-term commitment of resources.
E.	Capacity chunks can be added or deleted quickly and inexpensively.

Capacity is a strategic decision that influences costs and the firm’s ability to satisfy customers. Capacity increases frequently come in large chunks which can require significant time and money to complete.

25.

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

A. tons of steel per day that can be produced by a steel mill

B. kilowatt hours per day that can be generated by an electrical power plant

C. number of meals per day that can be served by a restaurant

D. gallons of gasoline that can be produced per day by a petroleum refinery

E. number of passenger seats that can be filled per day on an airline route

Airlines measure capacity in terms of passenger seats available, which are inputs to their service processes. The other capacity measures above are all based on outputs.

26.

Unbalanced systems are evidenced by:

A.	top-heavy operations.
B.	labor unrest.
C.	bottleneck operations.
D.	increasing capacities.
E.	assembly lines.

Bottleneck operations have capacities that restrict the overall output of the system to something less than could be achieved by the non-bottleneck operations.

27.

Maximum capacity commonly refers to the upper limit on:

A.	utilization.
B.	the rate of demand.
C.	efficiency.
D.	the rate of output.
E.	finances.

Capacity often refers to the maximum rate of output that is possible; although in some industries it may refer to a limit on inputs.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 05-03 Describe ways of defining and measuring capacity.
Topic: Defining and Measuring Capacity

28.

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

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

Vendors and their performance can be critical factors with respect to effective capacity.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 05-04 Name several determinants of effective capacity.
Topic: Determinants of Effective Capacity

29.

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

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

Effective capacity reflects the realities of the production environment.

30.

Efficiency is defined as the ratio of:

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

Efficiency measures the usage of effective capacity.

31.

Utilization is defined as the ratio of:

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

Utilization measures the usage of design capacity.

32.

Which of the following would tend to reduce effective capacity?

A.	suppliers that provide more reliable delivery performance
B.	reduced changeover times
C.	employees that are fully trained
D.	improved production quality
E.	greater variety in the product line

All things being equal, product line variety reduces effective capacity.

33.

The decision to outsource opens the firm up to certain risks, among them _________ and ________.

A.	lower costs; fewer task-specific investments
B.	loss of direct control over operations; need to disclose proprietary information
C.	access to greater expertise; greater demand variability
D.	greater capacity rigidity; tight knowledge control
E.	higher marketing costs; small orders

Loss of direct control over operations, knowledge sharing, and the possible need to disclose proprietary information are three risks that accompany outsourcing.

34.

The ratio of actual output to effective capacity is:

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

Efficiency measures the usage of effective capacity.

35.

The ratio of actual output to design capacity is:

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

Utilization measures the usage of design capacity.

36.

Given the following information, what would efficiency be?

Effective capacity = 80 units per day
Design capacity = 100 units per day
Utilization = 48 percent

A.	20 percent
B.	35 percent
C.	48 percent
D.	60 percent
E.	80 percent

Efficiency = (actual output / effective capacity) x 100% = (48 / 80) × 100% = 60%

AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 05-03 Describe ways of defining and measuring capacity.
Topic: Defining and Measuring Capacity

37.

Given the following information, what would efficiency be?

Effective capacity = 50 units per day
Design capacity = 100 units per day
Actual output = 30 units per day

A.	40 percent
B.	50 percent
C.	60 percent
D.	80 percent
E.	90 percent

Efficiency is actual output divided by effective capacity. (30 / 50) × 100% = 60%

AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 05-03 Describe ways of defining and measuring capacity.
Topic: Defining and Measuring Capacity

38.

Given the following information, what would utilization be?

Effective capacity = 20 units per day
Design capacity = 60 units per day
Actual output = 15 units per day

A.	25%
B.	33%
C.	50%
D.	75%
E.	none of these

Utilization is actual output divided by design capacity. (15 / 60) × 100% = 25%

39.

Which of the following is not a strategy to manage service capacity or cope with service capacity limitations?

A.	hiring extra workers
B.	storing inventories of the service
C.	pricing and promotion
D.	part-time workers
E.	subcontracting

Backordering for services is simply shifting demand to a later period.

40.

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

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

Actual output can be limited by effective capacity.

41.

Everything else being equal, a firm considering outsourcing would find all of the following desirable except:

A.	total costs will be lower for outsources goods or services.
B.	its supplier has more expertise in whatever is being outsourced.
C.	it can maintain tight control over knowledge.
D.	proprietary information will be disclosed to the supplier.
E.	control over operations will be maintained by the firm.

Disclosure of proprietary information to a supplier is an undesirable risk of outsourcing.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 05-05 Discuss factors to consider when deciding whether to operate in-house or outsource.
Topic: Do It In-House or Outsource It?

42.

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

A.	margin protect.
B.	line balance.
C.	capacity cushion.
D.	timing bubble.
E.	positioning hedge.

A capacity cushion provides flexibility to meet uncertain fluctuations in demand

43.

Short-term considerations in determining capacity requirements include:

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

Trends, cycles, and fundamental strategic changes are long-term considerations.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 3 Hard
Learning Objective: 05-06 Discuss the major considerations related to developing capacity alternatives.
Topic: Forecasting Capacity Requirements

44.

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

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

The long-term nature of capacity decisions calls for flexibility, not rigidity.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 05-06 Discuss the major considerations related to developing capacity alternatives.
Topic: Developing Capacity Strategies

45.

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

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

When variation is predictable, it can be managed.

46.

Production units have an optimal rate of output where:

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

Average unit costs reflect both fixed and variable costs.

47.

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

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

At too low a volume, fixed costs are too burdensome.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 05-06 Discuss the major considerations related to developing capacity alternatives.
Topic: Developing Capacity Strategies

48.

When buying component parts, risk does not include:

A.	loss of control.
B.	vendor viability.
C.	interest rate fluctuations.
D.	need to disclose proprietary information.
E.	product liability.

Buying component parts creates a dependency on a supplier and increases risks based on that dependency. Interest rate fluctuations are a financing risk regardless of whether we make or buy components.

49.

At the break-even point:

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

At the break-even point, total profit (total revenue minus total cost) is zero.

50.

What is the break-even quantity for the following situation?

FC = $1,200 per week
VC = $2 per unit
Rev = $6 per unit

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

Break-even quantity = FC / (Rev – VC) = $1200 / ($6 – $2) = 300. A volume of 300 units leads to $1,200 in margin to offset fixed costs.

AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives.
Topic: Evaluating Alternatives

51.

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

A.	100.
B.	2,000.
C.	500.
D.	1,000.
E.	800.

Break-even quantity = FC / (Rev – VC) = $10000 / ($70 – $50) = 500. A volume of 500 units leads to $10,000 in margin to offset fixed costs.

52.

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

A.	1,000.
B.	1,250.
C.	2,250.
D.	5,000.
E.	3,000.

Break-even quantity = FC / (Rev – VC) = $2000 / ($2 – $1.60) = 5000. Dividing the fixed costs of $2,000 by the per-unit contribution margin of $0.40 leads to a break-even quantity of 5,000 units.

53.

Which of the following would not be a potential upside in a decision to outsource?

A.	increased total production capacity
B.	potential to lower fixed costs
C.	supplier may have greater expertise to do the outsourced work
D.	disclosure of proprietary information to supplier
E.	supplier cost may be lower

Loss of direct control over operations, knowledge sharing, and the possible need to disclose proprietary information are three risks of outsourcing.

54.

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

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

Diseconomies of scale involve producing above the optimal production rate.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 05-06 Discuss the major considerations related to developing capacity alternatives.
Topic: Developing Capacity Strategies

55.

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

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

The payback period does not take into account the time value of money.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives.
Topic: Evaluating Alternatives

56.

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

A.	lead time flexibility strategy.
B.	expand-early strategy.
C.	go-with-the-flow strategy.
D.	backordering.
E.	delayed differentiation.

The expand-early strategy adds capacity before demand materializes and may be used to achieve economies of scale, to expand market share, or to preempt competitors from expanding.

57.

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

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

The internal rate of return is the discount rate that would make a cash flow stream’s net present value be equal to zero.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives.
Topic: Evaluating Alternatives

58.

The first, and perhaps most important, step in constraint management is to ____________ the most pressing constraint.

A.	improve
B.	support
C.	identify
D.	elevate
E.	modify

The most pressing constraint must first be identified before any steps to resolve it can be undertaken.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 05-07 Describe the steps that are used to resolve constraint issues.
Topic: Constraint Management

59.

A market constraint can be overcome by:

A.	lobbying.
B.	cash flow management.
C.	outsourcing.
D.	advertising or price changes.
E.	supplier development.

A market constraint involves demand being too low; advertising or price changes are means of stimulating demand.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 05-07 Describe the steps that are used to resolve constraint issues.
Topic: Constraint Management

60.

Improving cash flow would be a reasonable thing to focus on when trying to overcome a _________ constraint.

A.	financial
B.	market
C.	demand
D.	supplier
E.	material

If additional funds are needed, working to improve cash flow, borrowing, and issuing stocks or bonds may be options to overcome such a financial constraint.

61.

The owner of Firewood To Go is considering buying a hydraulic wood splitter which sells for $50,000. He figures it will cost an additional $100 per cord to purchase and split wood with this machine, while he can sell each cord of split wood for $125. What would the potential profit be if he were to split 4,000 cords of wood with this machine?

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

Total revenue for 4,000 cords would be 4000 × $125 = $500,000. Total variable cost would be 4000 × $100 = $400,000. Total fixed cost would be $50,000. Therefore, profit would be $500,000 – ($50,000 + $400,000) = $50,000.

62.

The owner of Firewood To Go is considering buying a hydraulic wood splitter which sells for $50,000. He figures it will cost an additional $100 per cord to purchase and split wood with this machine, while he can sell each cord of split wood for $125. How many cords of wood would he have to split with this machine to break even?

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

Divide the fixed cost of $50,000 by the per-cord contribution margin of $125 – $100 = $25. Break-even quantity = $50000/$25 = 2000.

63.

The owner of Firewood To Go is considering buying a hydraulic wood splitter which sells for $50,000. He figures it will cost an additional $100 per cord to purchase and split wood with this machine, while he can sell each cord of split wood for $125. How many cords of wood would he have to split with this machine to make a profit of $30,000?

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

Add the desired profit to the fixed cost: $50,000 + $30,000 = $80,000. Then divide that total by the per-cord contribution margin of $125 – $100 = $25. Quantity = $80000/$25 = 3200.

AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 2 Medium
Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives.
Topic: Evaluating Alternatives

64.

The owner of Firewood To Go is considering buying a hydraulic wood splitter which sells for $50,000. He figures it will cost an additional $100 per cord to purchase and split wood with this machine, while he can sell each cord of split wood for $125. If, for this machine, design capacity is 50 cords per day, effective capacity is 40 cords per day, and actual output is anticipated to be 35 cords per day, what would be its utilization?

A.	100 percent
B.	80 percent
C.	75 percent
D.	70 percent
E.	0 percent

Divide actual output by design capacity. Utilization = (35/50) x 100% = 70%.

65.

The owner of Firewood To Go is considering buying a hydraulic wood splitter which sells for $50,000. He figures it will cost an additional $100 per cord to purchase and split wood with this machine, while he can sell each cord of split wood for $125. If, for this machine, design capacity is 50 cords per day, effective capacity is 40 cords per day, and actual output is expected to be 32 cords per day, what would be its efficiency?

A.	100 percent
B.	80 percent
C.	75 percent
D.	70 percent
E.	0 percent

Divide actual output by effective capacity. Efficiency = (32/40) x 100% = 80%.

66.

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

Total revenue would be 5000 × $6 = $30,000. Total cost (fixed = $6,000, variable = 5000 × $3 = $15,000) would be $21,000. Profit = $30,000 – $21,000 = $9,000.

67.

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

Divide the fixed cost of $6,000 by the per-unit contribution margin of $6 &ndash $3 = $3. Break-even quantity = $6000/$3 = 2000.

68.

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

Add the desired profit of $6,000 to the fixed cost; $6,000 + $6,000 = $12,000. Then divide the sum by the per-unit contribution margin; $12000/($6 – $3) = 4000.

69.

The owner of a greenhouse and nursery is considering whether to spend $6,000 to acquire the licensing rights to grow a new variety of rosebush, which she could then sell for $6 each. Per-unit variable cost would be $3. If her available land has design and effective capacities of 3,000 and 2,000 rosebushes per year respectively, and she plans to grow 1,200 rosebushes each year on this land, what will be the utilization of this land?

A.	0 percent
B.	40 percent
C.	60 percent
D.	67 percent
E.	100 percent

Divide actual output by the design capacity. Utilization = (1200/3000) × 100% = 40%.

70.

The owner of a greenhouse and nursery is considering whether to spend $6,000 to acquire the licensing rights to grow a new variety of rosebush, which she could then sell for $6 each. Per-unit variable cost would be $3. If her available land has design and effective capacities of 3,000 and 2,000 rosebushes per year, respectively, and she expects to be 80 percent efficient in her use of this land, how many rosebushes does Rose plan to grow each year on this land?

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

Multiply the effective capacity of 2,000 rosebushes by 0.8. Actual output = 2000 × 0.80 = 1600.

AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 2 Medium
Learning Objective: 05-03 Describe ways of defining and measuring capacity.
Topic: Defining and Measuring Capacity

71.

A Virginia county is considering whether to pay $50,000 per year to lease a prisoner transfer facility in a prime location near Washington, D.C. They estimate it will cost $50 per prisoner to process the paperwork at this new location. The county is paid a $75 commission for each new prisoner they process. What would be the county’s annual profit if they were to process 4,000 prisoners per year at this new location?

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

Total revenue would be 4000 × $75 = $300,000. Total cost would be $250,000 (fixed = $50,000; variable = 4000 × $50 = $200,000). Profit = $300,000 – ($50,000 + $200,000) = $50,000.

72.

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

Divide the fixed cost of $50,000 by the per-unit contribution margin of $75 – $50 = $25. Break-even quantity = $50000/$25 = 2000.

73.

A Virginia county is considering whether to pay $50,000 per year to lease a prisoner transfer facility in a prime location near Washington, D.C. They estimate it will cost $50 per prisoner to process the paperwork at this new location. The county is paid a $75 commission for each new prisoner they process. How many prisoners would they have to process annually to make a profit of $100,000 at this new location?

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

Add the desired profit of $100,000 to the fixed costs; $50,000 + $100,000 = $150,000. Then divide the sum by the per-unit contribution margin; $150,000/($75–$50) = 6000.

74.

A Virginia county is considering whether to pay $50,000 per year to lease a prisoner transfer facility in a prime location near Washington, D.C. They estimate it will cost $50 per prisoner to process the paperwork at this new location. The county is paid a $75 commission for each new prisoner they process. If the holding area at this new location has design and effective capacities of 10,000 and 7,500 prisoners processed annually, respectively, and 5,000 prisoners will be processed per year, what will be the utilization of the holding area?

A.	0 percent
B.	30 percent
C.	50 percent
D.	60 percent
E.	100 percent

Divide the actual output by the design capacity. Utilization = (5000/10000) × 100% = 50%.

75.

A Virginia county is considering whether to pay $50,000 per year to lease a prisoner transfer facility in a prime location near Washington, D.C. They estimate it will cost $50 per prisoner to process the paperwork at this new location. The county is paid a $75 commission for each new prisoner they process. If their holding area at this new location has design and effective capacities of 10,000 and 7,500 prisoners processed annually, respectively, and they plan to be 80 percent efficient in their use of this space, how many prisoners does the county plan to process per year?

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

Multiply the effective capacity by 0.8. Actual output = 7500 × 0.80 = 6000.

76.

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

Total revenue would be 5000 × $25 = $125,000. Total cost would be $85,000 (fixed = $60,000; variable = 5000 × $5 = $25,000). Profit = $125,000 – $85,000 = $40,000.

77.

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

Divide the fixed cost of $60,000 by the per-unit contribution margin of $25 – $5 = $20. Break-even quantity = $60,000/$20 = 3000.

78.

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

Add the desired profit to the fixed cost; $60,000 + $15,000 = $75,000. Then divide the sum by the per-unit contribution margin; $75,000/($25 – $5) = 3750.

79.

Doctor J. is considering purchasing a new blood analysis machine to test for HIV; it will cost $60,000. He estimates that he could charge $25.00 for an office visit to have a patient’s blood analyzed, while the actual cost of a blood analysis would be $5.00. If this new blood analysis machine has design and effective capacities of 6,000 and 5,000 blood analyses per year, respectively, and Dr. J. expects to perform 4,500 HIV blood analyses each year, what will be the utilization of this machine?

A.	0 percent
B.	75 percent
C.	83 percent
D.	90 percent
E.	100 percent

Divide the actual output by the design capacity. Utilization = (4500/6000) × 100% = 75%.

80.

Doctor J. is considering purchasing a new blood analysis machine to test for HIV; it will cost $60,000. He estimates that he could charge $25.00 for an office visit to have a patient’s blood analyzed, while the actual cost of a blood analysis would be $5.00. If this new blood analysis machine has design and effective capacities of 6,000 and 5,000 blood analyses per year, respectively, and Dr. J. expects to be 80 percent efficient in his use of this machine, how many HIV blood analyses does he plan to perform each year?

A.	3,200
B.	4,800
C.	4,000
D.	1,000
E.	5,000

Multiply the effective capacity by 0.8. Actual output = 5000 – 0.80 = 4000.

81.

Operation X feeds into operation Y. Operation X has an effective capacity of 55 units per hour. Operation Y has an effective capacity of 50 units per hour. Increasing X’s effective capacity to ensure that Y’s utilization is maximized would be an example of ________ a(n) constraint.

A.	overcoming
B.	outsourcing
C.	insourcing
D.	cushioning
E.	supporting

Increasing the effective capacity of an operation that precedes a constraint is an example of supporting the constraint.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 05-07 Describe the steps that are used to resolve constraint issues.
Topic: Constraint Management

82.

Operation X feeds into operation Y. Operation X has an effective capacity of 55 units per hour. Operation Y has an effective capacity of 50 units per hour. Finding a way to increase Y’s effective capacity would be an example of ________ a constraint.

A.	overcoming
B.	cushioning
C.	insourcing
D.	cycling
E.	repositioning

Increasing the effective capacity of a constraint is an example of overcoming the constraint.

83.

Which of the following makes using present value approaches in capacity decisions difficult?

A.	The discount rate must be adjusted to account for inflation.
B.	Some cash flows are positive and other cash flows are negative.
C.	The payback period might not be long enough to justify a capacity decision.
D.	Capacity decisions are made amidst much uncertainty, so cash flows cannot be estimated with great accuracy.
E.	There is a cash outflow at the outset followed by, possibly, net cash inflows.

PV approaches require accurate estimates of cash flows. These are difficult to formulate when circumstances are as uncertain as they are in capacity decisions.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives.
Topic: Evaluating Alternatives

84.

Suppose operation X feeds directly into operation Y. All of X’s output goes to Y, and Y has no other operations feeding into it. X has a design capacity of 80 units per hour and an effective capacity of 72 units per hour. Y has a design capacity of 100 units per hour. What is Y’s maximum possible utilization?

A.	80 percent
B.	72 percent
C.	90 percent
D.	70 percent
E.	60 percent

If the maximum rate of output from X is 72 units per hour, then the maximum rate of input into Y (and therefore output from Y) is 72 units per hour. Therefore, the maximum utilization of Y = output / design capacity = (72/100) × 100% = 72%.

85.

Students at a major university must go through several registration steps. Officials have observed that it is typically the case that the waiting line at the fee-payment station is the longest. This would seem to suggest that the fee-payment station is the ___________ in the student registration process.

A.	capacity cushion
B.	first station
C.	bottleneck
D.	economy of scale
E.	diseconomy of scale

The longest waiting line is generally indicative of a bottleneck operation.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 05-06 Discuss the major considerations related to developing capacity alternatives.
Topic: Developing Capacity Strategies

Chapter 05 Test Bank – Static Summary

Category	# of Questions
AACSB: Analytic	27
AACSB: Reflective Thinking	58
Accessibility: Keyboard Navigation	85
Blooms: Analyze	9
Blooms: Apply	20
Blooms: Remember	23
Blooms: Understand	33
Difficulty: 1 Easy	20
Difficulty: 2 Medium	58
Difficulty: 3 Hard	7
Learning Objective: 05-01 Name the three key questions in capacity planning.	2
Learning Objective: 05-02 Explain the importance of capacity planning.	6
Learning Objective: 05-03 Describe ways of defining and measuring capacity.	24
Learning Objective: 05-04 Name several determinants of effective capacity.	5
Learning Objective: 05-05 Discuss factors to consider when deciding whether to operate in-house or outsource.	5
Learning Objective: 05-06 Discuss the major considerations related to developing capacity alternatives.	14
Learning Objective: 05-07 Describe the steps that are used to resolve constraint issues.	7
Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives.	22
Topic: Additional Challenges of Planning Service Capacity	2
Topic: Capacity Decisions are Strategic	6
Topic: Constraint Management	7
Topic: Defining and Measuring Capacity	23
Topic: Determinants of Effective Capacity	6
Topic: Developing Capacity Strategies	8
Topic: Do It In-House or Outsource It?	6
Topic: Evaluating Alternatives	22
Topic: Forecasting Capacity Requirements	2
Topic: Introduction	2
Topic: Operations Strategy	1
Topic: Strategy Formulation	1

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Operations Management 13th Edition by William J Stevenson - Test Bank

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