Operations Management, Global Edition 12Th Edition By William Stevenson - Test Bank Instant Download - Complete Test Bank With Answers Sample Questions Are Posted Below Chapter 05 Strategic Capacity Planning for Products and Services True / False Questions 1. The term capacity refers to the maximum quantity an operating unit …
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Operations Management, Global Edition 12Th Edition By William Stevenson – Test Bank
Instant Download – Complete Test Bank With Answers
Sample Questions Are Posted Below
Chapter 05
Strategic Capacity Planning for Products and Services
True / False Questions
| 1. | The term capacity refers to the maximum quantity an operating unit can process over a given period of time.
True False |
| 2. | Capacity decisions are usually one-time decisions; once they have been made, we know the limits of our operations.
True False |
| 3. | Stating capacity in dollar amounts generally results in a consistent measure of capacity regardless of the actual units of measure.
True False |
| 4. | Design capacity refers to the maximum output that can possibly be attained.
True False |
| 5. | 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.
True False |
| 6. | Increasing productivity and also quality will result in increased capacity.
True False |
| 7. | Utilization is defined as the ratio of effective capacity to design capacity.
True False |
| 8. | Increasing capacity just before a bottleneck operation will improve the output of the process.
True False |
| 9. | An example of an external factor that influences effective capacity is government safety regulations.
True False |
| 10. | Cost and competitive priorities reduce effective capacities.
True False |
| 11. | Capacity increases are usually acquired in fairly large “chunks” rather than in smooth increments.
True False |
| 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.
True False |
| 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 False |
| 14. | According to the reading on restaurant sourcing practices, only fast-food restaurants are able to bring in outsourced foods.
True False |
| 15. | The more current capacity exceeds desired capacity, the greater the opportunity for profit.
True False |
| 16. | The current trend toward global operations has made capacity decisions much easier since we have the whole world in which to consider operations.
True False |
| 17. | Capacity planning requires an analysis of needs: what kind, how much, and when.
True False |
| 18. | Waiting line analysis can be useful for capacity design, especially for service systems.
True False |
| 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 False |
| 20. | Outsourcing some production is a means of supporting a constraint.
True False |
Multiple Choice Questions
| 21. | Outsourcing some production is a means of _________ a capacity constraint.
|
| 22. | Which of the following is not a basic question in capacity planning?
|
| 23. | Which of these factors would not be subtracted from design capacity when calculating effective capacity?
|
| 24. | Which of the following is not a reason why capacity decisions are so important?
|
| 25. | Which of the following is the case where capacity is measured in terms of inputs?
|
| 26. | Unbalanced systems are evidenced by:
|
| 27. | Maximum capacity refers to the upper limit of:
|
| 28. | The impact that a significant change in capacity will have on a key vendor is a:
|
| 29. | The maximum possible output given a product mix, scheduling difficulties, quality factors, and so on is:
|
| 30. | Efficiency is defined as the ratio of:
|
| 31. | Utilization is defined as the ratio of:
|
| 32. | Which of the following would tend to reduce effective capacity?
|
| 33. | The decision to outsource opens the firm up to certain risks, among them _________ and ________.
|
| 34. | The ratio of actual output to effective capacity is:
|
| 35. | The ratio of actual output to design capacity is:
|
| 36. | Given the following information, what would efficiency be?
Effective capacity = 80 units per day
|
| 37. | Given the following information, what would efficiency be?
Effective capacity = 50 units per day
|
| 38. | Given the following information, what would utilization be?
Effective capacity = 20 units per day
|
| 39. | Which of the following is not a strategy to manage service capacity?
|
| 40. | Which of the following is not a determinant of effective capacity?
|
| 41. | Everything else being equal, a firm considering outsourcing can be reasonably certain that:
|
| 42. | Capacity in excess of expected demand that is intended to offset uncertainty is a:
|
| 43. | Short-term considerations in determining capacity requirements include:
|
| 44. | Which of the following is not a criterion for developing capacity alternatives?
|
| 45. | Seasonal variations are often easier to deal with in capacity planning than random variations because seasonal variations tend to be:
|
| 46. | Production units have an optimal rate of output where:
|
| 47. | When the output is less than the optimal rate of output, the average unit cost will be:
|
| 48. | When buying component parts, risk does not include:
|
| 49. | At the break-even point:
|
| 50. | What is the break-even quantity for the following situation?
FC = $1,200 per week
|
| 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:
|
| 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:
|
| 53. | Which of the following would not be a potential upside in a decision to outsource?
|
| 54. | If the output rate is increased but the average unit costs also increase, we are experiencing:
|
| 55. | The method of financial analysis which focuses on the length of time it takes to recover the initial cost of an investment is:
|
| 56. | When determining the timing and degree of capacity change, one can use the approach of:
|
| 57. | The method of financial analysis which results in an equivalent interest rate is:
|
| 58. | The first, and perhaps most important, step in constraint management is to ____________ the most pressing constraint.
|
| 59. | A market constraint can be overcome by:
|
| 60. | Improving cash flow would be a reasonable thing to focus on when trying to overcome a _________ 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?
|
| 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?
|
| 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?
|
| 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?
|
| 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?
|
| 66. | 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. What would the profit be if she were to produce and sell 5,000 rosebushes?
|
| 67. | 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. How many rosebushes would she have to produce and sell in order to break even?
|
| 68. | 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. How many rosebushes would she have to produce and sell in order to make a profit of $6,000?
|
| 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?
|
| 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?
|
| 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?
|
| 72. | 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 break even at this new location?
|
| 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?
|
| 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?
|
| 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?
|
| 76. | 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. What would be his profit if he were to perform 5,000 HIV blood analyses?
|
| 77. | 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. How many HIV blood analyses would he have to perform in order to break even?
|
| 78. | 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. How many HIV blood analyses would he have to perform in order to make a profit of $15,000?
|
| 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?
|
| 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?
|
| 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.
|
| 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.
|
| 83. | Which of the following makes using present value approaches in capacity decisions difficult?
|
| 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?
|
| 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.
|
Essay Questions
| 86. | An investment proposal will have annual fixed costs of $60,000, variable costs of $35 per unit of output, and revenue of $55 per unit of output.
(A) Determine the break-even quantity.
|
| 87. | A firm is considering three capacity alternatives: A, B, and C. Alternative A would have an annual fixed cost of $100,000 and variable costs of $22 per unit. Alternative B would have annual fixed costs of $120,000 and variable costs of $20 per unit. Alternative C would have fixed costs of $80,000 and variable costs of $30 per unit. Revenue is expected to be $50 per unit.
(A) Which alternative has the lowest break-even quantity?
|
| 88. | A small business owner is contemplating the addition of another product line. Capacity increases and equipment will result in an increase in annual fixed costs of $50,000. Variable costs will be $25 per unit.
(A) What unit selling price must the owner obtain to break even on a volume of 2,500 units a year?
|
| 89. | The efficiency of a productive unit is 60 percent. The unit produces an average of 20 forklift trucks per day. Determine the effective capacity of the unit.
|
| 90. | The utilization of a machine is 50 percent. The machine has a design capacity of 70 units per hour and an effective capacity of 60 units per hour. Find the efficiency of the machine.
|
| 91. | Given the following data for a make-or-buy decision:
What are total costs to buy a quantity of 15,000 units per year?
|
| 92. | Given the following data for a make-or-buy decision:
What are total costs to make a quantity of 15,000 units per year?
|
| 93. | Given the following data for a make-or-buy decision:
For what quantity would you be indifferent between buying and making?
|
| 94. | Given the following data for a make-or-buy decision:
For what range of output would you prefer to buy?
|
| 95. | Given the following data for a make-or-buy decision:
For what range of output would you prefer to make?
|
| 96. | Given the following data for a make-or-buy decision:
Which alternative would you select for a quantity of 24,000 units per year?
|
| 97. | Given the following data for a make-or-buy decision:
What would be your total costs for the preferred alternative, for 32,000 units per year?
|
| 98. | Given the following data for a make-or-buy decision:
What would be your cost savings for the preferred alternative, for 32,000 units per year, compared to the other alternative?
|
| 99. | Consider the following information:
What is the break-even quantity (produced and sold)?
|
| 100. | Consider the following information:
What are total revenues for the break-even quantity?
|
| 101. | Consider the following information:
What are total costs for the break-even quantity?
|
| 102. | Consider the following information:
What quantity would be required for a profit of $2,000?
|
| 103. | Consider the following information:
What profit (loss) would there be for a quantity of 27,000?
|
| 104. | Consider the following information:
What profit (loss) would there be for a quantity of 10,000?
|
| 105. | Consider the following information:
What is the anticipated utilization?
|
| 106. | Consider the following information:
What is the anticipated efficiency?
|
Chapter 05 Strategic Capacity Planning for Products and Services Answer Key
True / False Questions
| 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 Learning Objective: 05-03 Describe ways of defining and measuring capacity. Level of Difficulty: 1 Easy Topic: Defining and Measuring Capacity |
| 2. | 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. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 05-02 Explain the importance of capacity planning. Level of Difficulty: 1 Easy Topic: Capacity Decisions are Strategic |
| 3. | 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 Learning Objective: 05-03 Describe ways of defining and measuring capacity. Level of Difficulty: 2 Medium Topic: Defining and Measuring Capacity |
| 4. | Design capacity refers to the maximum output that can possibly be attained.
TRUE Design capacity is only reachable under ideal conditions. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 05-03 Describe ways of defining and measuring capacity. Level of Difficulty: 1 Easy Topic: Defining and Measuring Capacity |
| 5. | 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. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 05-06 Discuss the major considerations related to developing capacity alternatives. Level of Difficulty: 2 Medium Topic: Do It In-House or Outsource It? |
| 6. | Increasing productivity and also quality will result in increased capacity.
TRUE Effective capacity can be increased over time by these and similar factors. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 05-04 Name several determinants of effective capacity. Level of Difficulty: 1 Easy Topic: Determinants of Effective Capacity |
| 7. | Utilization is defined as the ratio of effective capacity to design capacity.
FALSE Utilization is the ratio of output to design capacity. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 05-03 Describe ways of defining and measuring capacity. Level of Difficulty: 2 Medium Topic: Defining and Measuring 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 Learning Objective: 05-04 Name several determinants of effective capacity. Level of Difficulty: 2 Medium Topic: Constraint Management |
| 9. | An example of an external factor that influences effective capacity is government safety regulations.
TRUE Stricter safety regulations can reduce effective capacity. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 05-04 Name several determinants of effective capacity. Level of Difficulty: 1 Easy Topic: Determinants of Effective Capacity |
| 10. | Cost and competitive priorities reduce effective capacities.
FALSE Changes in competitive priorities can actually increase effective capacity. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 05-04 Name several determinants of effective capacity. Level of Difficulty: 3 Hard 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 Learning Objective: 05-06 Discuss the major considerations related to developing capacity alternatives. Level of Difficulty: 2 Medium 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 Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 3 Hard 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 Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium 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 Learning Objective: 05-04 Name several determinants of effective capacity. Level of Difficulty: 1 Easy Topic: Additional Challenges of Planning Service Capacity |
| 15. | The more current capacity exceeds desired capacity, the greater the opportunity for profit.
FALSE A substantial capacity overage reduces the opportunity for profit. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 05-02 Explain the importance of capacity planning. Level of Difficulty: 2 Medium Topic: Forecasting Capacity Requirements |
| 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 Learning Objective: 05-02 Explain the importance of capacity planning. Level of Difficulty: 2 Medium 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 Learning Objective: 05-01 Name the three key questions in capacity planning. Level of Difficulty: 2 Medium Topic: Forecasting Capacity Requirements |
| 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 Learning Objective: 05-03 Describe ways of defining and measuring capacity. Level of Difficulty: 1 Easy 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. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 05-02 Explain the importance of capacity planning. Level of Difficulty: 2 Medium Topic: Capacity Decisions are Strategic |
| 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 Learning Objective: 05-06 Discuss the major considerations related to developing capacity alternatives. Level of Difficulty: 2 Medium Topic: Constraint Management |
Multiple Choice Questions
| 21. | Outsourcing some production is a means of _________ a capacity constraint.
Outsourcing some production reduces the burden placed on the constraint. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 05-06 Discuss the major considerations related to developing capacity alternatives. Level of Difficulty: 2 Medium Topic: Constraint Management |
| 22. | Which of the following is not a basic question in capacity planning?
Type, quantity, and timing are the essential elements of the capacity decision. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 05-01 Name the three key questions in capacity planning. Level of Difficulty: 1 Easy Topic: Forecasting Capacity Requirements |
| 23. | Which of these factors would not be subtracted from design capacity when calculating effective capacity?
Effective capacity reflects all of the above issues, including required personal time, maintenance issues, scrap, and the length of a given workday. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 05-03 Describe ways of defining and measuring capacity. Level of Difficulty: 2 Medium Topic: Determinants of Effective Capacity |
| 24. | Which of the following is not a reason why capacity decisions are so important?
Capacity is a strategic decision that influences costs and the firm’s ability to satisfy customers. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 05-02 Explain the importance of capacity planning. Level of Difficulty: 1 Easy Topic: Capacity Decisions are Strategic |
| 25. | Which of the following is the case where capacity is measured in terms of inputs?
Restaurants measure capacity in terms of customers, which are inputs to service processes. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 05-03 Describe ways of defining and measuring capacity. Level of Difficulty: 2 Medium Topic: Defining and Measuring Capacity |
| 26. | Unbalanced systems are evidenced by:
Bottleneck operations have capacities that are substantially smaller than non-bottleneck operations. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 05-07 Describe the steps that are used to resolve constraint issues. Level of Difficulty: 2 Medium Topic: Constraint Management |
| 27. | Maximum capacity refers to the upper limit of:
Capacity has to do with the rate of output that is possible. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 05-03 Describe ways of defining and measuring capacity. Level of Difficulty: 2 Medium Topic: Defining and Measuring Capacity |
| 28. | The impact that a significant change in capacity will have on a key vendor is a:
Vendors and their performance can be critical factors with respect to effective capacity. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 05-06 Discuss the major considerations related to developing capacity alternatives. Level of Difficulty: 2 Medium Topic: Determinants of Effective Capacity |
| 29. | The maximum possible output given a product mix, scheduling difficulties, quality factors, and so on is:
Effective capacity reflects the realities of the production environment. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 05-03 Describe ways of defining and measuring capacity. Level of Difficulty: 1 Easy Topic: Defining and Measuring Capacity |
| 30. | Efficiency is defined as the ratio of:
Efficiency measures the usage of effective capacity. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 05-03 Describe ways of defining and measuring capacity. Level of Difficulty: 2 Medium Topic: Determinants of Effective Capacity |
| 31. | Utilization is defined as the ratio of:
Utilization measures the usage of design capacity. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 05-03 Describe ways of defining and measuring capacity. Level of Difficulty: 2 Medium Topic: Determinants of Effective Capacity |
| 32. | Which of the following would tend to reduce effective capacity?
All things being equal, product line variety reduces effective capacity. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 05-04 Name several determinants of effective capacity. Level of Difficulty: 2 Medium Topic: Determinants of Effective Capacity |
| 33. | The decision to outsource opens the firm up to certain risks, among them _________ and ________.
Loss of direct control over operations, knowledge sharing, and the possible need to disclose proprietary information are three risks that accompany outsourcing. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 05-05 Discuss factors to consider when deciding whether to operate in-house or outsource. Level of Difficulty: 2 Medium Topic: Do It In-House or Outsource It? |
| 34. | The ratio of actual output to effective capacity is:
Efficiency measures the usage of effective capacity. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 05-03 Describe ways of defining and measuring capacity. Level of Difficulty: 2 Medium Topic: Defining and Measuring Capacity |
| 35. | The ratio of actual output to design capacity is:
Utilization measures the usage of design capacity. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 05-03 Describe ways of defining and measuring capacity. Level of Difficulty: 2 Medium Topic: Defining and Measuring Capacity |
| 36. | Given the following information, what would efficiency be?
Effective capacity = 80 units per day
If utilization is 48 percent, then actual output must have been 48 units. |
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Learning Objective: 05-03 Describe ways of defining and measuring capacity. Level of Difficulty: 3 Hard Topic: Defining and Measuring Capacity |
| 37. | Given the following information, what would efficiency be?
Effective capacity = 50 units per day
Efficiency is actual output divided by effective capacity. |
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Learning Objective: 05-03 Describe ways of defining and measuring capacity. Level of Difficulty: 2 Medium Topic: Defining and Measuring Capacity |
| 38. | Given the following information, what would utilization be?
Effective capacity = 20 units per day
Utilization is actual output divided by design capacity. |
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Learning Objective: 05-03 Describe ways of defining and measuring capacity. Level of Difficulty: 2 Medium Topic: Defining and Measuring Capacity |
| 39. | Which of the following is not a strategy to manage service capacity?
Backordering for services is simply shifting demand to a later period. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 05-06 Discuss the major considerations related to developing capacity alternatives. Level of Difficulty: 2 Medium Topic: Additional Challenges of Planning Service Capacity |
| 40. | Which of the following is not a determinant of effective capacity?
Actual output can be limited by effective capacity. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 05-04 Name several determinants of effective capacity. Level of Difficulty: 3 Hard Topic: Determinants of Effective Capacity |
| 41. | Everything else being equal, a firm considering outsourcing can be reasonably certain that:
Firms that specialize can usually offer higher quality than an organization can attain itself. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 05-05 Discuss factors to consider when deciding whether to operate in-house or outsource. Level of Difficulty: 3 Hard Topic: Do It In-House or Outsource It? |
| 42. | Capacity in excess of expected demand that is intended to offset uncertainty is a:
A capacity cushion reduces short-term imbalances. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 05-06 Discuss the major considerations related to developing capacity alternatives. Level of Difficulty: 2 Medium Topic: Operations Strategy |
| 43. | Short-term considerations in determining capacity requirements include:
Trends, cycles, and fundamental strategic changes are long-term considerations. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 05-06 Discuss the major considerations related to developing capacity alternatives. Level of Difficulty: 3 Hard Topic: Forecasting Capacity Requirements |
| 44. | Which of the following is not a criterion for developing capacity alternatives?
The long-term nature of capacity decisions calls for flexibility, not rigidity. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 05-06 Discuss the major considerations related to developing capacity alternatives. Level of Difficulty: 1 Easy 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:
When variation is predictable, it can be managed. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 05-06 Discuss the major considerations related to developing capacity alternatives. Level of Difficulty: 1 Easy Topic: Forecasting Capacity Requirements |
| 46. | Production units have an optimal rate of output where:
Average unit costs reflect both fixed and variable costs. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium Topic: Developing Capacity Strategies |
| 47. | When the output is less than the optimal rate of output, the average unit cost will be:
At too low a volume, fixed costs are too burdensome. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Analyze Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 3 Hard Topic: Developing Capacity Strategies |
| 48. | When buying component parts, risk does not include:
Buying component parts is a short-term activity. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 05-06 Discuss the major considerations related to developing capacity alternatives. Level of Difficulty: 3 Hard Topic: Do It In-House or Outsource It? |
| 49. | At the break-even point:
At the break-even point, total profit (total revenue minus total cost) is zero. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 1 Easy Topic: Evaluating Alternatives |
| 50. | What is the break-even quantity for the following situation?
FC = $1,200 per week
A volume of 300 units leads to $1,200 in margin to offset fixed costs. |
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium 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 volume of 500 units leads to $10,000 in margin to offset fixed costs. |
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium Topic: Evaluating Alternatives |
| 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:
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. |
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium Topic: Evaluating Alternatives |
| 53. | Which of the following would not be a potential upside in a decision to outsource?
Loss of direct control over operations, knowledge sharing, and the possible need to disclose proprietary information are three risks of outsourcing. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 05-05 Discuss factors to consider when deciding whether to operate in-house or outsource. Level of Difficulty: 2 Medium Topic: Do It In-House or Outsource It? |
| 54. | If the output rate is increased but the average unit costs also increase, we are experiencing:
Diseconomies of scale involve producing above the optimal production rate. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 3 Hard 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:
The payback period does not take into account the time value of money. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium Topic: Evaluating Alternatives |
| 56. | When determining the timing and degree of capacity change, one can use the approach of:
The wait-and-see strategy is simply a decision to delay making a decision. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 05-06 Discuss the major considerations related to developing capacity alternatives. Level of Difficulty: 2 Medium Topic: Developing Capacity Strategies |
| 57. | The method of financial analysis which results in an equivalent interest rate is:
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 Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 1 Easy Topic: Evaluating Alternatives |
| 58. | The first, and perhaps most important, step in constraint management is to ____________ the most pressing constraint.
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 Learning Objective: 05-07 Describe the steps that are used to resolve constraint issues. Level of Difficulty: 1 Easy Topic: Constraint Management |
| 59. | A market constraint can be overcome by:
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 Learning Objective: 05-07 Describe the steps that are used to resolve constraint issues. Level of Difficulty: 1 Easy Topic: Constraint Management |
| 60. | Improving cash flow would be a reasonable thing to focus on when trying to overcome a _________ constraint.
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. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 05-07 Describe the steps that are used to resolve constraint issues. Level of Difficulty: 1 Easy Topic: Constraint Management |
| 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?
Total revenue for 4,000 cords would be $500,000. Total variance cost would be $400,000. Total fixed cost would be $50,000. |
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium Topic: Evaluating Alternatives |
| 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?
Divide the fixed cost of $50,000 by the per-cord contribution margin of $25. |
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium Topic: Evaluating Alternatives |
| 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?
Add the desired profit to the fixed cost, then divide that total by the per-cord contribution margin of $25. |
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Analyze Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium 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?
Divide actual output by design capacity. |
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Learning Objective: 05-03 Describe ways of defining and measuring capacity. Level of Difficulty: 2 Medium Topic: Defining and Measuring Capacity |
| 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?
Divide actual output by effective capacity. |
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Learning Objective: 05-03 Describe ways of defining and measuring capacity. Level of Difficulty: 2 Medium Topic: Defining and Measuring Capacity |
| 66. | 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. What would the profit be if she were to produce and sell 5,000 rosebushes?
Total revenue would be $30,000. Total cost (fixed = $6,000, variable = $15,000) would be $21,000. |
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium Topic: Evaluating Alternatives |
| 67. | 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. How many rosebushes would she have to produce and sell in order to break even?
Divide the fixed cost of $6,000 by the per-unit contribution margin of $3. |
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium Topic: Evaluating Alternatives |
| 68. | 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. How many rosebushes would she have to produce and sell in order to make a profit of $6,000?
Add the desired profit of $6,000 to the fixed cost, then divide the sum by the per-unit contribution margin. |
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Analyze Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium Topic: Evaluating Alternatives |
| 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?
Divide actual output by the design capacity. |
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Learning Objective: 05-03 Describe ways of defining and measuring capacity. Level of Difficulty: 2 Medium Topic: Defining and Measuring Capacity |
| 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?
Multiply the effective capacity of 2,000 rosebushes by 0.8. |
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Analyze Learning Objective: 05-03 Describe ways of defining and measuring capacity. Level of Difficulty: 2 Medium 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?
Total revenue would be $300,000. Total cost would be $250,000 (fixed = $50,000; variable = $200,000). |
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium Topic: Evaluating Alternatives |
| 72. | 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 break even at this new location?
Divide the fixed cost of $50,000 by the per-unit contribution margin of $25. |
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium Topic: Evaluating Alternatives |
| 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?
Add the desired profit of $100,000 to the fixed costs, then divide the sum by the per-unit contribution margin. |
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Analyze Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium Topic: Evaluating Alternatives |
| 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?
Divide the actual output by the design capacity. |
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Learning Objective: 05-03 Describe ways of defining and measuring capacity. Level of Difficulty: 2 Medium Topic: Defining and Measuring Capacity |
| 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?
Multiply the effective capacity by 0.8. |
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Analyze Learning Objective: 05-03 Describe ways of defining and measuring capacity. Level of Difficulty: 2 Medium Topic: Defining and Measuring Capacity |
| 76. | 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. What would be his profit if he were to perform 5,000 HIV blood analyses?
Total revenue would be $125,000. Total cost would be $85,000 (fixed = $60,000; variable = $25,000). |
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium Topic: Evaluating Alternatives |
| 77. | 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. How many HIV blood analyses would he have to perform in order to break even?
Divide the fixed cost of $60,000 by the per-unit contribution margin of $5. |
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium Topic: Evaluating Alternatives |
| 78. | 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. How many HIV blood analyses would he have to perform in order to make a profit of $15,000?
Add the desired profit to the fixed cost and then divide the sum by the per-unit contribution margin. |
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Analyze Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium Topic: Evaluating Alternatives |
| 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?
Divide the actual output by the design capacity. |
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Learning Objective: 05-03 Describe ways of defining and measuring capacity. Level of Difficulty: 2 Medium Topic: Defining and Measuring Capacity |
| 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?
Multiply the effective capacity by 0.8. |
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Analyze Learning Objective: 05-03 Describe ways of defining and measuring capacity. Level of Difficulty: 2 Medium Topic: Defining and Measuring Capacity |
| 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.
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 Learning Objective: 05-04 Name several determinants of effective capacity. Level of Difficulty: 2 Medium 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.
Increasing the effective capacity of a constraint is an example of overcoming the constraint. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 05-04 Name several determinants of effective capacity. Level of Difficulty: 2 Medium Topic: Constraint Management |
| 83. | Which of the following makes using present value approaches in capacity decisions difficult?
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 Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium 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?
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. |
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Analyze Learning Objective: 05-03 Describe ways of defining and measuring capacity. Level of Difficulty: 2 Medium Topic: Defining and Measuring Capacity |
| 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.
The longest waiting line is generally indicative of a bottleneck operation. |
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 05-03 Describe ways of defining and measuring capacity. Level of Difficulty: 1 Easy Topic: Evaluating Alternatives |
Essay Questions
| 86. | An investment proposal will have annual fixed costs of $60,000, variable costs of $35 per unit of output, and revenue of $55 per unit of output.
(A) Determine the break-even quantity. Feedback: At the break-even point, the output volume generates enough margin to cover fixed costs only. Beyond the break-even point, all margin becomes profit. |
| AACSB: Analytic Blooms: Apply Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium Topic: Evaluating Alternatives |
| 87. | A firm is considering three capacity alternatives: A, B, and C. Alternative A would have an annual fixed cost of $100,000 and variable costs of $22 per unit. Alternative B would have annual fixed costs of $120,000 and variable costs of $20 per unit. Alternative C would have fixed costs of $80,000 and variable costs of $30 per unit. Revenue is expected to be $50 per unit.
(A) Which alternative has the lowest break-even quantity? Feedback: B and C have the same break-even quantity, but beyond that break-even quantity B, by virtue of its lower variable cost, is going to be more profitable. Further, to earn a specified profit (in excess of 0), B has to produce fewer units. |
| AACSB: Analytic Blooms: Apply Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium Topic: Evaluating Alternatives |
| 88. | A small business owner is contemplating the addition of another product line. Capacity increases and equipment will result in an increase in annual fixed costs of $50,000. Variable costs will be $25 per unit.
(A) What unit selling price must the owner obtain to break even on a volume of 2,500 units a year? Feedback: Solving for revenue (given a break-even profit of $0), we find that the per-unit revenue must be $45. Given a per-unit revenue of $47 and a desired total profit of $16,000, we solve for volume to find the required output to be 3,000 units per year. |
| AACSB: Analytic Blooms: Analyze Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium Topic: Evaluating Alternatives |
| 89. | The efficiency of a productive unit is 60 percent. The unit produces an average of 20 forklift trucks per day. Determine the effective capacity of the unit.
Feedback: Divide the output by 0.60 to find the effective capacity. |
| AACSB: Analytic Blooms: Apply Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium Topic: Defining and Measuring Capacity |
| 90. | The utilization of a machine is 50 percent. The machine has a design capacity of 70 units per hour and an effective capacity of 60 units per hour. Find the efficiency of the machine.
Feedback: First solve for actual output by multiplying the design capacity (70 per hour) by 0.5. Then, divide the actual output (35 per hour) by effective capacity (60 per hour) to find efficiency. |
| AACSB: Analytic Blooms: Apply Learning Objective: 05-03 Describe ways of defining and measuring capacity. Level of Difficulty: 2 Medium Topic: Defining and Measuring Capacity |
| 91. | Given the following data for a make-or-buy decision:
What are total costs to buy a quantity of 15,000 units per year? $120,000 Feedback: Multiply 15,000 by the per-unit purchase cost of $8. |
| AACSB: Analytic Blooms: Apply Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium Topic: Evaluating Alternatives |
| 92. | Given the following data for a make-or-buy decision:
What are total costs to make a quantity of 15,000 units per year? $160,000 Feedback: Multiply the per-unit make cost of $4 per unit, and add the fixed cost of $100,000. |
| AACSB: Analytic Blooms: Apply Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium Topic: Evaluating Alternatives |
| 93. | Given the following data for a make-or-buy decision:
For what quantity would you be indifferent between buying and making? 25,000 units per year Feedback: Divide the difference in fixed cost ($100,000) by the difference in per-unit cost ($8 – $4). |
| AACSB: Analytic Blooms: Apply Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium Topic: Evaluating Alternatives |
| 94. | Given the following data for a make-or-buy decision:
For what range of output would you prefer to buy? 1 to 24,999 Feedback: In low quantities (<25,000), it is more economical to buy due to the fixed costs of making. |
| AACSB: Analytic Blooms: Apply Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium Topic: Evaluating Alternatives |
| 95. | Given the following data for a make-or-buy decision:
For what range of output would you prefer to make? 25,000 and above Feedback: In large quantities (>25,000), it is more economical to make because the difference in fixed cost is more than made up by the more attractive per-unit cost of make. |
| AACSB: Analytic Blooms: Apply Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium Topic: Evaluating Alternatives |
| 96. | Given the following data for a make-or-buy decision:
Which alternative would you select for a quantity of 24,000 units per year? Buy Feedback: This quantity is less than that at which we are indifferent between making or buying. For lower volumes, buying is more economical. |
| AACSB: Analytic Blooms: Apply Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium Topic: Evaluating Alternatives |
| 97. | Given the following data for a make-or-buy decision:
What would be your total costs for the preferred alternative, for 32,000 units per year? Make! $228,000 Feedback: This quantity is in excess of that at which we are indifferent between making or buying. For higher volumes, making is more economical. |
| AACSB: Analytic Blooms: Apply Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium Topic: Evaluating Alternatives |
| 98. | Given the following data for a make-or-buy decision:
What would be your cost savings for the preferred alternative, for 32,000 units per year, compared to the other alternative? Make! $228,000 Feedback: Making would have a total cost of $228,000, while buying would have a total cost of $256,000. |
| AACSB: Analytic Blooms: Apply Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium Topic: Evaluating Alternatives |
| 99. | Consider the following information:
What is the break-even quantity (produced and sold)? 25,000 units Feedback: Divide the fixed cost ($15,000) by the per-unit margin ($0.60). |
| AACSB: Analytic Blooms: Apply Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium Topic: Evaluating Alternatives |
| 100. | Consider the following information:
What are total revenues for the break-even quantity? $40,000 Feedback: Multiple the break-even quantity (25,000) by the per-unit price ($1.60). |
| AACSB: Analytic Blooms: Apply Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium Topic: Evaluating Alternatives |
| 101. | Consider the following information:
What are total costs for the break-even quantity? $40,000 Feedback: Fixed cost would be $15,000. Variable cost would be $25,000. |
| AACSB: Analytic Blooms: Apply Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium Topic: Evaluating Alternatives |
| 102. | Consider the following information:
What quantity would be required for a profit of $2,000? 28,334 units Feedback: Add the desired profit to the fixed cost, then divide the sum by the per-unit contribution margin of $0.60. |
| AACSB: Analytic Blooms: Apply Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium Topic: Evaluating Alternatives |
| 103. | Consider the following information:
What profit (loss) would there be for a quantity of 27,000? $1,200 Feedback: Total revenue would be $43,200. Total cost would be $42,000 (fixed = $15,000; variable = $27,000). |
| AACSB: Analytic Blooms: Apply Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium Topic: Evaluating Alternatives |
| 104. | Consider the following information:
What profit (loss) would there be for a quantity of 10,000? $9,000 loss Feedback: Total revenue would be $16,000. Total cost would be $42,000 (fixed = $15,000; variable = $10,000). |
| AACSB: Analytic Blooms: Apply Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Level of Difficulty: 2 Medium Topic: Evaluating Alternatives |
| 105. | Consider the following information:
What is the anticipated utilization? 80 percent Feedback: Divide actual output by design capacity. |
| AACSB: Analytic Blooms: Apply Learning Objective: 05-03 Describe ways of defining and measuring capacity. Level of Difficulty: 2 Medium Topic: Defining and Measuring Capacity |
| 106. | Consider the following information:
What is the anticipated efficiency? 90 percent Feedback: Divide actual output by effective capacity. |
| AACSB: Analytic Blooms: Apply Learning Objective: 05-03 Describe ways of defining and measuring capacity. Level of Difficulty: 2 Medium Topic: Defining and Measuring Capacity |
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
