Chapter 7s

Break-even analysis can be used by a firm that produces more than one product, but: A. the results are estimates, not exact values. B. the firm must allocate some fixed cost to each of the products. C. each product has its own break-even point. D. the break-even point depends upon the proportion of sales generated by each of the products. E. None of these statements is true

D

Consider a production line with five stations. Station 1 can produce a unit in 9 minutes. Station 2 can produce a unit in 10 minutes. Station 3 has two identical machines, each of which can process a unit in 12 minutes (each unit only needs to be processed on one of the two machines). Station 4 can produce a unit in 11 minutes. Station 5 can produce a unit in 8 minutes. Which station is the bottleneck station? A. Station 1 B. Station 2 C. Station 3 D. Station 4 E. Station 5

D

Effective capacity × Efficiency equals: A. efficient capacity. B. utilization. C. actual capacity. D. expected output. E. design capacity

D

Christopher's Cranks uses a machine that can produce 100 cranks per hour. The firm operates 12 hours per day, five days per week. Due to regularly scheduled preventive maintenance, the firm expects the machine to run for approximately 95% of the available time. Based on experience with other products, the firm expects to achieve an efficiency level for the cranks of 75%. What is the expected weekly output of cranks for this company? A. 5100 B. 5700 C. 4845 D. 8421 E. 4275

E

Fabricators, Inc. wants to increase capacity by adding a new machine. The fixed costs for machineA are $150,000, and its variable cost is $50 per unit. The revenue is $100 per unit. What is the break-even point for machine A? A. $150,000 B. 5000 units C. $4,000 D. 15,000 units E. 3,000 units

E

Which of the following techniques is NOT a technique for dealing with a bottleneck? A. Schedule throughput to match the capacity of the bottleneck. B. Increase the capacity of the constraint. C. Have cross-trained employees available to keep the constraint at full operation. D. Develop alternate routings. E. All are techniques for dealing with bottlenecks

E

The staff training center at a large regional hospital provides training sessions in CPR to all employees. Assume that the capacity of this training system was designed to be 1200 employees per year. Since the training center was first put into use, the program has become more complex, so that 950 now represents the most employees that can be trained per year. In the past year, 850employees were trained. The efficiency of this system is approximately ________ and its utilization is approximately ________. A. 79.2 percent; 90.5 percent B. 90.5 percent; 79.2 percent C. 87.5 percent; 950 employees D. 950 employees; 850 employees E. 89.5 percent; 70.8 percent

EC

effective capacity

the capacity a firm can expect to achieve, given its product mix, methods of scheduling, maintenance, and standards of quality

bottleneck

the limiting factor or constraint in a system

An assembly line has 10 stations with times of 1, 2, 3, 4, ..., 10, respectively. What is the bottleneck time? A. 18.18% of the throughput time B. 100% of the throughput time C. 550% of the throughput time D. 50% of the throughput time E. 1.82% of the throughput time

the sum of all process times = 1+2+3+4+5+6+7+8+9+10 = 55 10 / 55 = 0.181818 Therefore, 18.18% of the throughput time

Design capacity is the: A. theoretical maximum output of a system in a given period under ideal conditions. B. capacity a firm expects to achieve given the current operating constraints. C. average output that can be achieved under ideal conditions. D. minimum usable capacity of a particular facility. E. sum of all of the organization's inputs

A

A firm that increases capacity at the beginning of each period to stay ahead of demand uses the________ approach. A. lead with an incremental expansion B. lead with a one-step expansion C. lag with an incremental expansion D. lag with a one-step expansion E. straddle

AA

Basic break-even analysis typically assumes that: A. revenues increase in direct proportion to the volume of production, while costs increase at a decreasing rate as production volume increases. B. variable costs and revenues increase in direct proportion to the volume of production. C. both costs and revenues are made up of fixed and variable portions. D. costs increase in direct proportion to the volume of production, while revenues increase at a decreasing rate as production volume increases because of the need to give quantity discounts. E. All of these are assumptions in the basic break-even model

B

Which of the following statements is (are) true? I. A firm's capacity cannot be limited by members of its supply chain. II. Capacity is the capability of a worker, machine, work center, plant, or organization to produce output per time period. III. For a given fixed cost and revenue, as the variable cost rises, the break-even point drops. IV. When evaluating capacity, managers need to consider both resource inputs and product outputs A. I only B. I and IV only C. II and III only D. II and IV only. E. III only

B

Which of the following statements regarding fixed costs is TRUE? A. Fixed costs rise by a constant amount for every added unit of volume. B. While fixed costs are ordinarily constant with respect to volume, they can "step" upward if volume increases result in additional fixed costs. C. Fixed costs are those costs associated with direct labor and materials. D. Fixed costs equal variable costs at the break-even point. E. Fixed cost is the difference between selling price and variable cos

B

Adding a complementary product to what is currently being produced is a demand management strategy used when: A. demand exceeds capacity. B. capacity exceeds demand for a product that has stable demand. C. the existing product has seasonal or cyclical demand. D. price increases have failed to bring about demand management. E. efficiency exceeds 100 percent

C

Lag and straddle strategies for increasing capacity have what main advantage over a leading strategy? A. They are cheaper. B. They are more accurate. C. They delay capital expenditure. D. They increase demand. E. All of these are advantages

C

Which of the following represents a common way to manage capacity in the service sector? A. appointments B. reservations C. changes in staffing levels D. first-come, first-served service rule E. "early bird" specials in restaurants

C

A work system has six stations that have process times of 10, 8, 5, 12, 10, and 15 minutes. What is the bottleneck time (measured in minutes)? A. 60 B. 10 C. 15 D. 50 E. 12

C

The Academic Computing Center has five trainers available in its computer labs to provide training sessions to students. Assume that the design capacity of the system is 2500 students per semester and that effective capacity equals 88% of design capacity. If the number of students who actually got their orientation session is 2150, what is the utilization of the system? A. 1350 students B. 2150 students C. 88% D. 86% E. 90%

D

Which of the following costs would be incurred even if no units were produced? A. raw material costs B. direct labor costs C. transportation costs D. building rental costs E. purchasing costs

D

Which of the following is FALSE regarding capacity expansion? A. "Average" capacity sometimes leads demand, sometimes lags it. B. If "lagging" capacity is chosen, excess demand can be met with overtime or subcontracting C. Total cost comparisons are a rather direct method of comparing capacity alternatives. D. Capacity may only be added in large chunks. E. In manufacturing, excess capacity can be used to do more setups, shorten production runs, and drive down inventory costs

D

A work system has six stations that have process times of 10, 8, 5, 12, 10, and 15 minutes. What is the throughput time of the system in minutes? A. 15 B. 30 C. 120 D. 50 E. 60

E

Net present value: A. is gross domestic product less depreciation. B. is sales volume less sales and excise taxes. C. is profit after taxes. D. ignores the time value of money. E. is the discounted value of a series of future cash receipts

E

Capacity

The throughput, or the number of units a facility can hold, receive, store, or produce in a period of time

process time

The time to produce a unit (or specified batch of units) at a workstation.

theory of costraints

a body of knowledge that deals with anything that limits an organizations ability to achieve its goals

capacity analysis

a means of determining throughput capacity of workstations or an entire production system

break even analysis

a means of finding the point, in dollars and units, at which costs equal revenues

utilization

actual output as a percentage of design capacity. actual output/ design capacity

efficiency

actual output as a percentage of effective capacity actual output/ effective capacity

expected output

effective capacity * efficiency

design capacity

the theoretical maximum output of a system in a given period under ideal conditions

throughput time

the time it takes for a product to go through the production process with no waiting. longest path

A retailer is considering building a large store. If the local economy experiences expansion, the firm expects the store to earn a $1,500,000 profit next year. If the local economy experiences a contraction, the firm expects the store to lose $500,000 next year. Analysts estimate a 40% chance for the local economy to experience an expansion next year (hence a 60% chance for contraction). What is the expected monetary value (EMV) of building a large store? A. $880,000 B. $320,000 C. $1,000,000 D. $300,000 E. $1,520,000

D