Foundations of Operations Management Canadian 4th Edition By Ritzman – Test Bank

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Foundations of Operations Management, 4e Cdn. (Ritzman)

Chapter 5:  Capacity

 

5.1  End-of-Chapter Problems

 

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

Answer:  TRUE

Diff: 1      Type: TF

Reference:  Introduction

 

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

Answer:  TRUE

Diff: 1      Type: TF

Reference:  Capacity & Process Choice

 

3) Input measures are generally used as a capacity measure for high-volume processes.

Answer:  FALSE

Diff: 1      Type: TF

Reference:  Capacity & Process Choice

 

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

Answer:  TRUE

Diff: 1      Type: TF

Reference:  Capacity & Process Choice

 

5) Utilization is calculated as the ratio of Capacity / Actual output.

Answer:  FALSE

Diff: 1      Type: TF

Reference:  Capacity & Process Choice

 

6) A blocked operation is an operation that runs out of work to process.

Answer:  FALSE

Diff: 1      Type: TF

Reference:  Variability

 

7) Effective capacity is the maximum output that a process or facility can achieve under ideal conditions.

Answer:  FALSE

Diff: 1      Type: TF

Reference:  Measuring Capacity

 

8) A bottleneck is an operation that has the lowest effective capacity of any operation in the process.

Answer:  TRUE

Diff: 1      Type: TF

Reference:  Measuring Capacity

 

9) The theory of constraints is an approach to management that focuses on whatever impedes progress toward the goal of maximizing the flow of total value-added funds or sales less discounts and variable costs.

Answer:  TRUE

Diff: 1      Type: TF

Reference:  Strategically Managing Capacity

 

10) The first step in the application of the Theory of Constraints (TOC) is to identify the bottlenecks.

Answer:  TRUE

Diff: 1      Type: TF

Reference:  Strategically Managing Capacity

 

11) Economies of scale is a concept that states that the average unit cost of a good or service will increase with increasing output rate.

Answer:  FALSE

Diff: 1      Type: TF

Reference:  Strategically Managing Capacity

 

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

Answer:  TRUE

Diff: 1      Type: TF

Reference:  Strategically Managing Capacity

 

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

Answer:  FALSE

Diff: 2      Type: TF

Reference:  Planning for Long-Term Capacity

 

14) The difference of 100 % – Utilization (%) provides a measure of the capacity cushion.

Answer:  TRUE

Diff: 1      Type: TF

Reference:  Measuring Capacity

 

15) Generally, work-in-process inventory will be greater in project and job processes than in continuous processes.

Answer:  TRUE

Diff: 1      Type: TF

Reference:  Measuring Capacity

 

16) Diseconomies of scale refers to situations where the average cost per unit decreases as the facility’s size increases.

Answer:  FALSE

Diff: 1      Type: TF

Reference:  Strategically Managing Capacity

 

17) Capacity decisions should be made separate from strategic decisions.

Answer:  FALSE

Diff: 1      Type: TF

Reference:  Capacity & Process Choice

 

18) Setup time is the time required to change a machine from making one product or service to making another.

Answer:  TRUE

Diff: 1      Type: TF

Reference:  Capacity & Process Choice

 

19) A bottleneck is an operation that has the highest effective capacity of any operation in the process and, thus, boosts the system’s output.

Answer:  FALSE

Diff: 1      Type: TF

Reference:  Measuring Capacity

 

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

Answer:  TRUE

Diff: 1      Type: TF

Reference:  Tools for Capacity Planning

 

21) Decision trees can be useful for evaluation capacity expansion alternatives.

Answer:  FALSE

Diff: 1      Type: TF

Reference:  Tools for Capacity Planning

 

22) In a manufacturing company, measuring capacity based on the number of machine-hours required to process a specific batch of production is an example of an output measure of capacity.

Answer:  FALSE

Diff: 1      Type: TF

Reference:  Measuring Capacity

 

23) In a dental office, measuring capacity based on the number of patients that receive service over a typical day is an example of an output measure of capacity.

Answer:  TRUE

Diff: 1      Type: TF

Reference:  Measuring Capacity

 

24) In an automobile service business (e.g. a muffler shop), measuring capacity based on the number of hours that the service bays will be required to satisfy expected demand is an example of an input measure of capacity.

Answer:  TRUE

Diff: 1      Type: TF

Reference:  Measuring Capacity

 

25) In a tire manufacturing plant, measuring capacity based on the number of tires produced per day is an example of an input measure of capacity.

Answer:  FALSE

Diff: 1      Type: TF

Reference:  Measuring Capacity

 

26) The maximum output that can reasonably be sustained under normal conditions is the capacity cushion for a process.

Answer:  FALSE

Diff: 1      Type: TF

Reference:  Capacity Cushion

 

27) If customer demand exceeds process capacity, every operation with capacity utilization greater than 100 percent is an external bottleneck.

Answer:  TRUE

Diff: 1      Type: TF

Reference:  Strategically Managing Capacity

 

28) Effective management of capacity includes only consideration of short-term challenges.

Answer:  FALSE

Diff: 1      Type: TF

Reference:  Strategically Managing Capacity

 

29) Increasing the overall process capacity can only occur when the capacity of the bottleneck of the process can be increased.

Answer:  TRUE

Diff: 2      Type: TF

Reference:  Measuring Capacity

 

30) The total time that a typical item spends in any process, termed the throughput time, decreases as the average level of work-in-process inventory in the process increases.

Answer:  FALSE

Diff: 2      Type: TF

Reference:  Inventory Concepts

 

31) Provided each measure is expressed in the appropriate units, Little’s Law provides a mathematical expression that states capacity utilization equals the ratio of work-in-process inventory divided by the output rate of a process.

Answer:  FALSE

Diff: 2      Type: TF

Reference:  Inventory Concepts

 

32) Equipment breakdowns are an example of an internal, random form of variability.

Answer:  TRUE

Diff: 1      Type: TF

Reference:  Variability

 

33) The setup time required to switch from one product type to another within a manufacturing process is an example of an external, predictable form of variability.

Answer:  FALSE

Diff: 2      Type: TF

Reference:  Variability

 

 

34) As the total output increases, economies of scale lower costs because the total fixed costs required to produce the higher volume of output are lowered.

Answer:  FALSE

Diff: 1      Type: TF

Reference:  Strategically Managing Capacity

35) Typically, a larger capacity cushion is required in project processes with high variability than in line or continuous flow processes with relatively low variability.

Answer:  TRUE

Diff: 2      Type: TF

Reference:  Measuring Capacity

 

36) Wait time is not part of the throughput time for a specific item as it moves through a process.

Answer:  FALSE

Diff: 1      Type: TF

Reference:  Inventory Concepts

 

37) Increasing the amount of work-in-process inventory reduces the likelihood that operations in the process will be starved.

Answer:  TRUE

Diff: 2      Type: TF

Reference:  Inventory Concepts

 

38) According to the theory of constraints (TOC), the drum in the drum-buffer-rope method refers to the bottleneck of the process.

Answer:  TRUE

Diff: 2      Type: TF

Reference:  Measuring Capacity

 

39) According to the theory of constraints (TOC), the role of work-in-process inventory is to dictate the pace that specific items are pulled through the process.

Answer:  FALSE

Diff: 2      Type: TF

Reference:  Measuring Capacity

 

40) A decision tree is a schematic model of alternatives available to the decision maker, along with their possible consequences.

Answer:  TRUE

Diff: 2      Type: TF

Reference:  Tools for Capacity Planning

 

41) More complex waiting-line problems must be analyzed with simulation.

Answer:  TRUE

Diff: 2      Type: TF

Reference:  Tools for Capacity Planning

 

42) Capacity gap is an addition to projected demand and current capacity.

Answer:  FALSE

Diff: 2      Type: TF

Reference:  Planning for Long-Term Capacity

 

43) Short-term capacity plans focus on workforce size, overtime budgets, and inventories.

Answer:  TRUE

Diff: 2      Type: TF

Reference:  Introduction

44) Process Management Triangle is made up of capacity utilization, quality and variability.

Answer:  FALSE

Diff: 2      Type: TF

Reference:  Capacity & Process Choice

 

45) Output measures are the usual choice for high-volume processes that produce only a limited range of similar products or services, usually expressed in terms of output over a period of time.

Answer:  TRUE

Diff: 2      Type: TF

Reference:  Measuring Capacity

 

46) Fixing time is the additional time needed to change over from one service or product to the next, which in turn increases the overload at the workstation being changed over.

Answer:  FALSE

Diff: 2      Type: TF

Reference:  Capacity & Process Choice

 

47) Aggregate stock is any stock of items used to support the production of goods and services or satisfy customer demand.

Answer:  FALSE

Diff: 2      Type: TF

Reference:  Inventory Concepts

 

48) The higher that process variability is, the more expensive and difficult the process is to manage.

Answer:  TRUE

Diff: 2      Type: TF

Reference:  Variability

 

49) Random variation is introduced by chance and results from small changes or differences in equipment operations, people’s behaviour, or environmental conditions.

Answer:  TRUE

Diff: 2      Type: TF

Reference:  Variability

 

50) A diseconomy of scale is a concept that refers to a condition when the average cost per unit increases as the facility’s size increases.

Answer:  TRUE

Diff: 2      Type: TF

Reference:  Measuring Capacity

 

51) The expansionist strategy refers to a condition which involves large, frequent jumps in capacity.

Answer:  FALSE

Diff: 2      Type: TF

Reference:  Measuring Capacity

 

 

52) The wait-and-see strategy refers to a condition which involves smaller, more frequent jumps.

Answer:  TRUE

Diff: 2      Type: TF

Reference:  Strategically Managing Capacity

53) The base case concept is to do nothing and simply lose orders from any demand that exceeds current capacity.

Answer:  TRUE

Diff: 2      Type: TF

Reference:  Planning for Long-Term Capacity

 

54) Which one of the following statements about capacity is best?

  1. A) Capacity is the average rate of output for a facility.
  2. B) Short-term capacity plans deal with investments in new facilities and equipment.
  3. C) A line flow process usually measures its capacity in terms of output rates.
  4. D) The utilization rate is expressed as the ratio of maximum output rate to capacity.

Answer:  C

Diff: 1      Type: MC

Reference:  Capacity & Process Choice

 

55) Managers of line flow process facilities with high-volume production capability tend to express capacity in terms of

  1. A) output measures.
  2. B) maximum input rate.
  3. C) number of input units.
  4. D) maximum utilization rate.

Answer:  A

Diff: 1      Type: MC

Reference:  Capacity & Process Choice

 

56) Which one of the following statements about measuring capacity is best?

  1. A) The utilization rate is expressed as the ratio of maximum output rate to capacity.
  2. B) The minimum output rate for a restaurant would be the number of seats.
  3. C) Peak capacity is the output that a facility can sustain under normal conditions.
  4. D) A line flow process usually measures its capacity in terms of output rates.

Answer:  D

Diff: 1      Type: MC

Reference:  Capacity & Process Choice

 

57) Which one of the following statements about measuring capacity is best?

  1. A) The utilization rate is expressed as the ratio of average output rate to either peak capacity or effective capacity.
  2. B) Output measures are the usual choice for flexible flow processes.
  3. C) Input measures are the usual choice of firms like Nissan Motor Company at its Tennessee plant.
  4. D) The maximum output rate for a restaurant would be the number of seats.

Answer:  A

Diff: 1      Type: MC

Reference:  Capacity & Process Choice

 

58) Which of the following statements about bottlenecks is best?

  1. A) Floating bottlenecks are created by stability in the workload.
  2. B) When capacities are perfectly balanced, it can be said that every operation is a bottleneck.
  3. C) Increasing bottleneck capacity does not increase plant capacity.
  4. D) Floating bottlenecks are most likely to occur with line flow processes.

Answer:  B

Diff: 1      Type: MC

Reference:  Capacity & Process Choice

 

59) The throughput time for a specific item as it moves through a process includes

  1. A) operations time.
  2. B) movement time.
  3. C) wait time.
  4. D) all of the above

Answer:  D

Diff: 1      Type: MC

Reference:  Capacity & Process Choice

 

60) Little’s Law is a mathematical expression for relating

  1. A) the average throughput time for a process to actual output and capacity.
  2. B) the average throughput time to work-in-process (WIP) inventory and the actual output rate.
  3. C) the utilization of a process to actual output and capacity.
  4. D) the utilization of a process to work-in-process (WIP) inventory and the actual output rate.

Answer:  B

Diff: 2      Type: MC

Reference:  Capacity & Process Choice

 

61) The maximum output that a process or facility can achieve under ideal conditions is referred to as the

  1. A) utilization.
  2. B) effective capacity.
  3. C) throughput time.
  4. D) peak capacity.

Answer:  D

Diff: 2      Type: MC

Reference:  Capacity & Process Choice

 

62) Which one of the following is NOT a reason why there are economies of scale?

  1. A) Spreading fixed costs, such as depreciation and debt service, over more units
  2. B) Finding process advantage by dedicating resources to individual products
  3. C) Reduced construction costs by building smaller facilities
  4. D) Better bargaining position and quantity discounts on purchased materials

Answer:  C

Diff: 2      Type: MC

Reference:  Strategically Managing Capacity

 

63) Which one of the following statements explaining some aspect of economies of scale is best?

  1. A) A larger facility usually has a smaller total fixed cost.
  2. B) A 100-bed hospital costs more to build than twice the cost of a 50-bed hospital.
  3. C) With higher volumes, the process shifts toward flexible flows, with resources dedicated to individual products.
  4. D) Dedicating resources to individual products reduces changeovers and setups.

Answer:  D

Diff: 2      Type: MC

Reference:  Strategically Managing Capacity

 

64) Which one of the following factors usually motivates a SMALLER capacity cushion?

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

Answer:  B

Diff: 2      Type: MC

Reference:  Planning for Long-Term Capacity

 

65) Which one of the following factors usually calls for a LARGER capacity cushion?

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

Answer:  A

Diff: 2      Type: MC

Reference:  Planning for Long-Term Capacity

 

66) Which one of the following statements about capacity cushion is best?

  1. A) A larger cushion is required when a firm uses low cost as a competitive priority.
  2. B) A larger cushion increases equipment utilization when capital intensity is high.
  3. C) Businesses find large cushions appropriate when demand varies.
  4. D) A larger cushion increases manufacturing lead time.

Answer:  C

Diff: 2      Type: MC

Reference:  Planning for Long-Term Capacity

 

67) Which one of the following statements about capacity cushion is best?

  1. A) Large capacity cushions are more likely to be utilized when future demand is known.
  2. B) Small cushions are used when the product mix often changes.
  3. C) Return of investment is about the same for capital-intensive firms, regardless of their capacity cushions.
  4. D) The best-sized cushion varies by industry and firm.

Answer:  D

Diff: 1      Type: MC

Reference:  Planning for Long-Term Capacity

 

68) Which one of the following statements about capacity is best?

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

Answer:  C

Diff: 2      Type: MC

Reference:  Capacity & Process Choice

 

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

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

Answer:  B

Diff: 1      Type: MC

Reference:  Planning for Long-Term Capacity

 

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

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

Answer:  D

Diff: 1      Type: MC

Reference:  Planning for Long-Term Capacity

 

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

  1. A) higher customization
  2. B) more of a flexible flow strategy
  3. C) higher yield losses
  4. D) higher capital intensity

Answer:  D

Diff: 1      Type: MC

Reference:  Planning for Long-Term Capacity

 

72) A wait-and-see strategy in regard to capacity is best characterized by

  1. A) reducing the risks of over optimistic demand forecasts.
  2. B) using capacity as a competitive weapon in order to compete on cost.
  3. C) reducing the risks of lost sales due to capacity constraints.
  4. D) making large, infrequent jumps in capacity expansions.

Answer:  A

Diff: 1      Type: MC

Reference:  Strategically Managing Capacity

 

73) Which one of the following statements about capacity expansion is best?

  1. A) The timing and sizing of expansion are related.
  2. B) Lost sales are more likely if the expansionist strategy is used.
  3. C) The expansionist strategy minimizes risk.
  4. D) The expansionist strategy lags behind demand and relies on short-term capacity expansion options.

Answer:  A

Diff: 2      Type: MC

Reference:  Strategically Managing Capacity

 

74) Many alternative strategies are available for the timing and sizing decision in capacity expansion. Which one of the following statements regarding these strategies is best?

  1. A) The expansionist strategy makes large, frequent jumps.
  2. B) Lost sales are more likely when the expansionist strategy is adopted.
  3. C) The wait-and-see strategy makes large, infrequent jumps.
  4. D) The expansionist strategy involves large, infrequent jumps in capacity.

Answer:  D

Diff: 2      Type: MC

Reference:  Strategically Managing Capacity

 

75) An expansionist strategy in regard to capacity is best characterized by

  1. A) reducing the risks of overly optimistic demand forecasts.
  2. B) expanding only when others do.
  3. C) emphasizing flexibility and quality while foregoing the larger market share of the lowest-cost producers.
  4. D) using capacity to increase a firm’s market share or to act as a form of preemptive market.

Answer:  D

Diff: 1      Type: MC

Reference:  Strategically Managing Capacity

 

76) Which of the following is NOT a disadvantage of the wait-and-see strategy?

  1. A) increased risk of over expansion
  2. B) being unable to respond if demand is unexpectedly high
  3. C) can be preempted by a competitor
  4. D) can erode market share over the long run

Answer:  A

Diff: 1      Type: MC

Reference:  Strategically Managing Capacity

 

77) Which one of the following statements about capacity expansion is best?

  1. A) The wait-and-see strategy involves small jumps in capacity compared to the expansionist strategy.
  2. B) The expansionist strategy involves frequent jumps in capacity compared to the wait-and-see strategy.
  3. C) The expansionist strategy minimizes risk.
  4. D) The follow-the-leader strategy can help a firm gain a competitive advantage.

Answer:  A

Diff: 1      Type: MC

Reference:  Strategically Managing Capacity

 

78) Capacity decisions are usually linked with other decision areas. If a system is well balanced, which one of the following changes requires a larger-capacity cushion?

  1. A) Yield losses in the production process are reduced.
  2. B) Schedules for production are more stable.
  3. C) The capital intensity of the process is increased.
  4. D) The company promises faster delivery times to customers.

Answer:  D

Diff: 1      Type: MC

Reference:  Planning for Long-Term Capacity

 

79) Which of the following descriptions about waiting line models is best?

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

Answer:  B

Diff: 1      Type: MC

Reference:  Tools for Capacity Planning

 

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

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

Answer:  D

Diff: 1      Type: MC

Reference:  Tools for Capacity Planning

 

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

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

Answer:  C

Diff: 1      Type: MC

Reference:  Capacity & Process Choice

 

Table 5.1

The Union Manufacturing Company is producing two types of products: A and B.

The demand forecasts, batch size, and time standards follow:

 

 

Both products are produced at the same operation called Mark I.

 

82) Using Table 5.1, what is the total number of hours required of Mark I equipment for the next year?

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

Answer:  B

Diff: 2      Type: MC

Reference:  Capacity & Process Choice

 

83) Use the information in Table 5.1. The company works 250 days per year and operates two shifts, each covering 8 hours. If a 15 percent capacity cushion is maintained, how many hours of capacity can the company expect from each of its Mark I machines?

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

Answer:  B

Diff: 1      Type: MC

Reference:  Capacity & Process Choice

 

84) The Northern Manufacturing Company is producing two types of products: A and B. Demand forecasts for next year and other production-related information are provided in the following table:

 

 

Both of these products are produced at the same workstation, called the Automatic Lathe. Currently, the company has 12 automatic lathes, and financial constraints prevent any expansion for the next year. It works 250 days per year with two 8-hour shifts and desires a 25 percent capacity cushion. Which one of the following alternatives will allow next year’s demand to be fully covered?

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

Answer:  C

Diff: 1      Type: MC

Reference:  Capacity & Process Choice

 

85) Up, Up & Away is a producer of kites and windsocks. Relevant data concerning their production for the upcoming fiscal year are as follows:

 

Product Demand

(Units/yr)

Batch Size Standard

Setup time

(hr/batch)

Standard

Processing Time

(hr/unit)

Kites

Windsocks

20,000

9,000

25

75

2

3

.25

.75

 

Assume: 1 shift/day, 8 hours/shift, 5 days/week, and 50 weeks/year.

 

There currently are four machines, and management wants a capacity cushion of 20 percent.

 

Which of the following alternatives will enable Up, Up & Away to meet all of the upcoming year’s demand using the minimum number of machines?

  1. A) add six additional machines
  2. B) add five additional machines
  3. C) add four additional machines
  4. D) add three additional machines

Answer:  B

Diff: 1      Type: MC

Reference:  Capacity & Process Choice

 

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

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

Answer:  C

Diff: 1      Type: MC

Reference:  Capacity & Process Choice

 

Table 5.2

High Tech, Inc. is producing two types of products: A and B. Both are produced at the same sawing operation. Because of demand uncertainties, the operations manager obtained three demand forecasts (pessimistic, expected, and optimistic). The demand forecasts, batch sizes (units/batch), processing times (hr/unit), and setup times (hr/batch) follow.

 

 

The sawing machines operate on two 8-hour shifts, 5 days per week, and 50 weeks per year. The manager wants to maintain a 10 percent capacity cushion.

 

87) Using the information from Table 5.2, what is the minimum total number of hours required of sawing equipment for the next year?

  1. A) less than 85,000 hours
  2. B) more than 85,000 but less than 95,000
  3. C) more than 95,000 but less than 105,000
  4. D) more than 105,000 hours

Answer:  A

Diff: 2      Type: MC

Reference:  Capacity & Process Choice

 

 

88) Using the information from Table 5.2, how many hours of capacity can the company expect from each of its sawing machines?

  1. A) less than 3500 hours
  2. B) more than 3500 hours but less than 3700 hours
  3. C) more than 3700 hours but less than 3900 hours
  4. D) more than 3900 hours

Answer:  B

Diff: 2      Type: MC

Reference:  Capacity & Process Choice

89) Using the information from Table 5.2, what is the minimum number of machines needed (assuming no reliance on short-term options)?

  1. A) less than or equal to 22
  2. B) more than 22 but less than or equal to 25
  3. C) more than 25 but less than or equal to 28
  4. D) more than 28

Answer:  B

Diff: 3      Type: MC

Reference:  Capacity & Process Choice

 

90) Using the information from Table 5.2, what is the maximum number of machines needed (assuming no reliance on short-term option)?

  1. A) less than or equal to 25
  2. B) more than 25 but less than or equal to 28
  3. C) more than 28 but less than or equal to 31
  4. D) more than 31

Answer:  D

Diff: 3      Type: MC

Reference:  Capacity & Process Choice

 

91) Using the information from Table 5.2, if the operation currently has 18 machines and the manager is willing to expand capacity by 20 percent through short-term options, what is the capacity gap (in terms of number of machines) if you assume the optimistic demand forecasts?

  1. A) less than or equal to 10
  2. B) more than 10 but less than or equal to 12
  3. C) more than 12 but less than or equal to 14
  4. D) more than 14

Answer:  B

Diff: 3      Type: MC

Reference:  Capacity & Process Choice

 

 

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

 

Product Processing Time per Unit (in hours) Setup Time

per Batch

(in hours)

Batch Size

(units)

A

B

2.0

2.8

8

16

100

200

 

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

Answer:  C

Diff: 2      Type: MC

Reference:  Capacity & Process Choice

93) The Northern Manufacturing Company is producing products A and B, using the same machine called MASAC27A. Demand forecasts for next year and other production-related information are provided in the following table.

 

 

The company works 250 days per year and operates 2 shifts each day, each shift covering 8 hours. If 25 percent of capacity cushion is maintained throughout the year, how many machines (MASAC27A) does the company need next year to meet the demand? Round your answer up to the next whole machine.

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

Answer:  C

Diff: 2      Type: MC

Reference:  Capacity & Process Choice

 

 

Table 5.3

The North Bend Manufacturing Company is producing two types of products, A and B. Demand forecasts for next year and other production-related information are provided in the following table:

 

 

Both products A and B are produced at the same operation called MASAC27A.

 

94) Using the information in Table 5.3, what is the total number of hours required for MASAC27A equipment for the next year?

  1. A) 34,000 hours
  2. B) 34,285 hours
  3. C) 36,820 hours
  4. D) 312,000 hours

Answer:  C

Diff: 2      Type: MC

Reference:  Capacity & Process Choice

95) Use the information in Table 5.3 to help answer this question. Additionally, the company works 250 days every year and operates 2 shifts, each of which covers 8 hours. If a 25 percent capacity cushion is maintained, how many machines does the company need next year to fully cover the demand?

  1. A) less than 13 machines
  2. B) 13 machines
  3. C) 14 machines
  4. D) more than 14 machines

Answer:  B

Diff: 2      Type: MC

Reference:  Capacity & Process Choice

 

96) Use the information in Table 5.3 to help answer this question. Currently, the company has 12 MASAC27A machines, and financial constraints prevent any expansion for the next year. Which one of the following alternatives will allow next year’s demand to be fully covered?

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

Answer:  C

Diff: 2      Type: MC

Reference:  Capacity & Process Choice

 

 

97) Musk L. Flexor owns a hot tub store that is experiencing significant growth. Flexor is trying to decide whether to expand its capacity, which currently is at $750,000 in sales per quarter. He is thinking about expanding to the $850,000 level. The before-tax profit from additional sales is 20 percent. Sales are seasonal, with peaks in the spring and summer quarters. Forecasts of capacity requirements, expressed in sales per quarter, for next year (year 2) are:

 

Quarter ($000)
1

2

3

4

720

800

890

690

 

Demand in year 3 and beyond is expected to exceed $850,000 per quarter. Flexor is considering expansion at the end of the fourth quarter of this year (year 1). How much would before-tax profits in year 2 increase because of this expansion?

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

Answer:  B

Diff: 2      Type: MC

Reference:  Capacity & Process Choice

 

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

 

Year Capacity Requirement (Annual Sales)
1

2

3

4

5

6

7

8

9

10

$515,000

$517,000

$520,000

$525,000

$540,000

$560,000

$565,000

$575,000

$600,000

$620,000

 

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

Answer:  A

Diff: 2      Type: MC

Reference:  Capacity & Process Choice

 

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

 

Year Annual Sales

(in $million)

1

2

3

4

5

100

140

170

200

250

 

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

Answer:  C

Diff: 2      Type: MC

Reference:  Capacity & Process Choice

 

100) John Owen owns a drugstore that is experiencing significant growth. Owen is trying to decide whether to expand its capacity, which currently is $200,000 in sales per quarter. Sales are seasonal. Forecasts of capacity requirements, expressed in sales per quarter for the next year, follow.

 

Quarter ($000)
1

2

3

4

240

180

220

260

 

Owen is considering expanding capacity to the $250,000 level in sales per quarter. The before-tax profit margin from additional sales is 15 percent. How much would before-tax profits increase next year because of this expansion?

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

Answer:  C

Diff: 2      Type: MC

Reference:  Capacity & Process Choice

 

Table 5.4

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

 

Year Annual Sales

($000)

1

2

3

4

5

310

320

340

370

400

 

101) Using the information in Table 5.4, if Lee expands the capacity to an equivalent of $360,000 sales now (year 0), how much would pretax cash flow in year 1 increase because of this expansion?

  1. A) less than $3000
  2. B) more than $3000 but less than $5000
  3. C) more than $5000 but less than $7000
  4. D) more than $7000

Answer:  A

Diff: 2      Type: MC

Reference:  Capacity & Process Choice

 

102) Using the information in Table 5.4, if Lee expands the capacity to an equivalent of $360,000 sales now (year 0), how much would pretax cash flow in year 5 increase because of this expansion?

  1. A) less than $7000
  2. B) more than $7000 but less than $10,000
  3. C) more than $10,000 but less than $13,000
  4. D) more than $13,000

Answer:  C

Diff: 2      Type: MC

Reference:  Measuring Capacity

 

103) Using the information in Table 5.4, if Lee expands the capacity to an equivalent of $360,000 sales now (year 0), and then expands the capacity to an equivalent of $400,000 sales at the beginning of year 4, how much would pretax cash flow increase in total for all years (years 1 through 5)?

  1. A) less than $30,000
  2. B) more than $30,000 but less than $40,000
  3. C) more than $40,000 but less than $50,000
  4. D) more than $50,000

Answer:  C

Diff: 2      Type: MC

Reference:  Measuring Capacity

 

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

Answer:  Capacity

Diff: 1      Type: SA

Reference:  Introduction

 

105) ________ is the degree to which equipment, space, or labour is currently being used.

Answer:  Utilization

Diff: 1      Type: SA

Reference:  Capacity & Process Choice

 

106) ________ capacity is the maximum output that a process or facility can achieve under ideal conditions.

Answer:  Peak

Diff: 2      Type: SA

Reference:  Capacity & Process Choice

 

107) The ________ time for a specific item as it moves through a process can be found by adding the operations, movement and wait times.

Answer:  throughput

Diff: 2      Type: SA

Reference:  Capacity & Process Choice

 

108) ________ capacity is the maximum output that a process or firm can economically sustain under normal conditions.

Answer:  Effective

Diff: 2      Type: SA

Reference:  Capacity & Process Choice

 

109) A(n) ________ is an operation that has the lowest effective capacity of any operation in the process, and thus limits the system’s output.

Answer:  bottleneck

Diff: 2      Type: SA

Reference:  Capacity & Process Choice

 

110) The total time that a typical item spends in any process, termed ________ time, increases as the average level of inventor in that process increases.

Answer:  throughput

Diff: 2      Type: SA

Reference:  Capacity & Process Choice

 

111) Little’s Law is the mathematical relationship than computes the average throughput time for items based on ________ inventory and the actual output rate.

Answer:  work-in-process (WIP)

Diff: 2      Type: SA

Reference:  Capacity & Process Choice

 

112) The ________ time is the time required to change an operation from making one type of product or service to making another.

Answer:  setup

Diff: 2      Type: SA

Reference:  Sizing Process Capacity

 

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

Answer:  Economies of scale

Diff: 2      Type: SA

Reference:  Strategically Managing Capacity

 

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

Answer:  Capacity cushion

Diff: 2      Type: SA

Reference:  Planning for Long-Term Capacity

 

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

Answer:  increase

Diff: 2      Type: SA

Reference:  Strategically Managing Capacity

 

116) Two factors favour an expansionist strategy in capacity decisions: expansion may help achieve ________ of scale, and it may also ________ the learning rate.

Answer:  economies, improve

Diff: 2      Type: SA

Reference:  Strategically Managing Capacity

 

117) The ________ is to do nothing and simply lose orders from any demand that exceeds current capacity.

Answer:  base case

Diff: 2      Type: SA

Reference:  Strategically Managing Capacity

 

118) The ________ strategy refers to a condition which involves large, infrequent jumps in capacity.

Answer:  expansionist

Diff: 2      Type: SA

Reference:  Strategically Managing Capacity

 

119) The ________ strategy refers to a condition which involves smaller, more frequent jumps in capacity.

Answer:  wait-and-see

Diff: 2      Type: SA

Reference:  Strategically Managing Capacity

 

120) ________ is introduced by chance and results from small changes or differences in equipment operations, people’s behaviour, or environmental conditions.

Answer:  Random variation

Diff: 2      Type: SA

Reference:  Variability

 

121) Process Management Triangle is made up of capacity utilization, ________ and ________ .

Answer:  inventory, variability

Diff: 2      Type: SA

Reference:  Introduction

 

122) ________ is any stock of items used to support the production of goods and services or satisfy customer demand.

Answer:  Inventory

Diff: 2      Type: SA

Reference:  Inventory Concepts

 

123) ________ capacity plans focus on workforce size, overtime budgets, and inventories.

Answer:  Short-term

Diff: 2      Type: SA

Reference:  Strategically Managing Capacity

 

124) More complex waiting-line problems must be analyzed with ________.

Answer:  simulation

Diff: 2      Type: SA

Reference:  Tools for Capacity Planning

 

125) Define the following two terms: peak capacity and effective capacity.

Answer:  Peak capacity is the maximum output achievable under ideal conditions. Effective capacity is the maximum output sustainable under normal conditions.

Diff: 2      Type: SA

Reference:  Capacity & Process Choice

 

126) Give four principal reasons why economies of scale can occur when output increases.

Answer:  The four reasons are spreading fixed costs, reducing construction costs, cutting costs of purchased materials, and finding process advantages.

Diff: 2      Type: SA

Reference:  Strategically Managing Capacity

 

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

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

Diff: 2      Type: SA

Reference:  Planning for Long-Term Capacity

 

128) What is the meaning of diseconomies of scale, and what are two ways for a firm to avoid them?

Answer:  Diseconomies of scale is when average unit cost increases as the facility’s size increases. Two methods to avoid diseconomies of scale are focused factories and PWPs.

Diff: 2      Type: SA

Reference:  Capacity & Process Choice

 

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

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

Diff: 2      Type: SA

Reference:  Planning for Long-Term Capacity

 

130) What is a decision tree?

Answer:  A decision tree is a diagram of analyzing decisions when there is uncertainty and sequential decisions.

Diff: 2      Type: SA

Reference:  Tools for Capacity Planning

 

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

Answer:  Expansionist means large, infrequent jumps in capacity. Wait-and-see means smaller and more frequent jumps.

Diff: 2      Type: SA

Reference:  Planning for Long-Term Capacity

 

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

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

Diff: 3      Type: ES

Reference:  Strategically Managing Capacity

 

133) Identify the three interrelated factors that implicitly determine process choice. The text refers to these factors as the “Process Management Triangle.”

Answer:  capacity utilization, inventory, and variability

Diff: 2      Type: ES

Reference:  Capacity & Process Choice

 

134) Explain the distinction between input and output measures of capacity.

Answer:  Input measures are the usual choice for low-volume, flexible processes.

Output measures are the usual choice for high-volume processes that produce only a limited range of similar products or services, usually expressed in terms of output over a period of time.

Diff: 2      Type: ES

Reference:  Measuring Capacity

 

135) How is capacity utilization calculated?

Answer:  Capacity utilization = Output/Effective Capacity ∗ 100%

Diff: 1      Type: ES

Reference:  Measuring Capacity

 

136) Explain the distinction between effective capacity and peak capacity.

Answer:  Effective Capacity is the maximum output that a process or firm can reasonably sustain under normal conditions is its effective capacity.

Peak Capacity is the maximum output that a process or facility can achieve under ideal conditions is called peak capacity.

Diff: 2      Type: ES

Reference:  Measuring Capacity

 

137) Within a process, what is a bottleneck?

Answer:  A bottleneck is an operation that has the lowest effective capacity of any operation in the process and, thus, limits the system’s output.

Diff: 2      Type: ES

Reference:  Measuring Capacity

 

138) Explain the cost and time implications that inventory has for the purposes of process choice.

Answer:  Inventory has two critical implications: cost and time. 1) Increasing the amount of inventory adds to the cost of producing goods and services. 2) The amount of inventory is related to the time that customers or products take to move through a process.

Diff: 2      Type: ES

Reference:  Inventory Concepts

 

139) Explain the relationship between throughput time and the level of work-in-process (WIP) inventory in a production process.

Answer:  The average throughput time for items in a process is related to both average work-in-process (WIP) inventory and actual output rate. Throughput time = WIP inventory/ Output rate

Diff: 2      Type: ES

Reference:  Inventory Concepts

 

140) Explain the distinction between blocked and starved operations in a process that consists of sequential dependent operations.

Answer:  Blocked operation is an operation that cannot pass work along to the next operation downstream and must stop while starved operation is an operation that runs out of work to process.

Diff: 2      Type: ES

Reference:  Variability

 

141) Explain the meaning and significance of the different between random and predictable variation in a process.

Answer:  Random variation refers to uncertainty that results from chance related to small changes or differences in equipment operations, people’s behaviour, or environmental conditions. Predictable variation refers to changes determined by specific, usually larger scale causes, often driven by natural cycles such as time of day. Many management decisions, such as preventive maintenance, also create predictable variation.

Diff: 2      Type: ES

Reference:  Variability

 

142) Describe the fundamental logic of the theory of constraints (TOC).

Answer:  The theory of constraints (TOC) is an approach to management that focuses on whatever impedes progress toward the goal of maximizing the flow of total value-added funds or sales less discounts and variable costs. It is also referred to as the drum rope-buffer method.

Diff: 2      Type: ES

Reference:  Strategically Managing Capacity

 

143) What is the capacity cushion and how is it significant for managing processes?

Answer:  Capacity cushion is the amount of reserve capacity a firm maintains to handle variability in the process or demand. It measures the amount by which the average utilization falls below 100 percent.

Diff: 2      Type: ES

Reference:  Strategically Managing Capacity

144) The single milling machine at Fred’s Manufacturing was severely overloaded last year. The plant operates 8 hours per day, 5 days per week, and 50 weeks per year. Management prefers a capacity cushion of 20 percent. Two major types of products are routed through the milling machine. The annual demand for product A is 4000 units and 3000 units for product B. The batch size for A is 20 units and 30 units for B. The standard processing time for A is 0.5 hours/unit and 0.8 for B. The standard setup time for product A is 2 hours and 8 hours for product B. How many new milling machines are required if Fred’s does not resort to any short-term capacity options?

Answer:

M =

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

 

M =  = 3.5 → 4 machines

Diff: 2      Type: ES

Reference:  Planning for Long-Term Capacity

 

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

 

 

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

Answer:

M =

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

 

M =  = 9.28 → 10 machines

Diff: 2      Type: ES

Reference:  Planning for Long-Term Capacity

 

146) Larry’s Wickets, Inc. is producing two types of products: A and B. Both are produced at the same machining operation. Because of demand uncertainties, the operations manager obtained three demand forecasts (pessimistic, expected, and optimistic). The demand forecasts, batch sizes (units/batch), processing times (hr/unit), and setup times (hr/batch) follow.

 

Time Standard                                           Demand Forecasts (000 units/yr)

Product Processing Setup Batch Size Pessimistic Expected Optimistic
A

B

.30

.25

1.0

2.0

200

100

100

190

120

210

150

230

 

The machines operate on two 8-hour shifts, 5 days per week, and 50 weeks per year. The manager wants to maintain a 20 percent capacity cushion.

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

Answer:

 

Scenarios that can be met with current systems/capacity:

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

Diff: 3      Type: ES

Reference:  Planning for Long-Term Capacity

 

147) Mr. Grant is considering a capacity expansion for his store. The annual sales projected for the next five years follow. The current capacity is equivalent to $200,000 sales. Assume a 20 percent pretax profit margin.

 

Year Annual Sales

($000)

1

2

3

4

5

180

210

220

230

260

 

If Grant expands his capacity to $225,000 now, what would be the increase in his pretax cash flows for each of the next five years?

Answer:

Year Annual Sales

($000)

Pretax

Cash-Flow

($000)

1

2

3

4

5

180

210

220

230

260

0

2

4

5

5

 

Diff: 2      Type: ES

Reference:  Planning for Long-Term Capacity

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