Ch.5 Smartbook

A ___ operation is a step whose capacity is lower than that of other steps in the sequence of operations.

Bottleneck

The biggest risk in not taking a systems approach to capacity is that the system will be unbalanced due to a ______.

Bottleneck operation

The volume at which total cost and total revenue are equal is referred to as the ______.

Break-even point

______ usually refers to an upper limit on the rate of output.

Capacity

The amount of capacity in excess of expected demand, given uncertainty about expected demand, is an organization's ______.

Capacity cushion

With _____, increasing the output rate results in decreasing the average unit cost, if the output rate is less than the optimal rate.

Economies of scale

Increasing ___ allows the firm to be more responsive to changing market conditions.

Flexibility

Which of the following are not the key questions to be answered when making capacity planning decisions?

From whom should we purchase the capacity? Why is the capacity needed?

With _____, increasing the output rate results in increasing the average unit cost, if the output rate is more than the optimal rate.

Diseconomies of scale

Identify the situations in which an organization is most likely to decide to outsource.

If the organization lacks the expertise. If the nature of work requires flexible capacity.

Which of the following improvements will typically increase capacity?

Increasing productivity Standardizing output Reducing changeover times

When two competing alternatives are equivalent in a cost-volume analysis, a decision-maker has reached a(n) ______.

Indifference point

Which of the following factors are probable reasons for actual output being less than the effective capacity?

Inventory shortages Employee absenteeism Machine breakdowns

Which of the following describes a leading capacity strategy?

It builds capacity in anticipation of future demand increases.

Which of the following describes a following capacity strategy?

It builds capacity when demand exceeds current capacity.

With cost-volume analysis, what is the assumption regarding variable cost per unit?

It is the same regardless of volume

Which of the following statements are true of demand volatility in services?

It tends to be higher for services than for goods in terms of timing. It tends to be higher for services than for goods, in the amount of time required to service individual customers.

Effective capacity is always ______ design capacity.

Less than

Which of the following situations causes a misjudgment of a firm's capacity requirements?

Marketing personnel are overly optimistic in their predictions, Predictions focus mainly on the potential revenue that will be earned.

Design capacity is the ___ output rate a process is ___ for.

Maximum; designed

It is an assumption of cost-volume analysis that a comparison of capacity alternatives is made on _______.

One product

Which of the following are long-term capacity alternatives?

Opening of branch facilities Closing of branch facilities Contraction of an existing facility Expansion of an existing facility Relocation of existing operations

Which of the following statements are true of capacity cushion?

Organizations that have standard products or services generally have a smaller capacity cushion. Capacity cushion is directly proportional to the degree of demand uncertainty.

Long-term capacity planning decisions relate to ______ of capacity.

Overall level

Which of the following are assumptions for cost-volume analysis?

Per unit revenue exceeds per unit variable cost. The variable cost per unit does not change.

Process improvements, batch production, and time to change equipment settings are ______ factors that influence effective capacity.

Process

Uniformity of output is a ___ factor in determining effective capacity.

Product and service

Which of the following is not a reason that makes service capacity more difficult to plan than manufacturing capacity?

Proximity to raw materials

Identify the points to be considered when deciding whether to outsource or produce in-house.

The level of expertise available in-house/ The fixed costs Demand patterns

Which of the following are additional questions that should be asked in making capacity planning decisions, beyond the initial key questions?

What are the potential risks? How much will it cost? Should capacity be changed all at once?

Which of the following are the key questions to be answered when making capacity planning decisions?

When is the capacity needed? How much capacity is needed? What kind of capacity is needed?

In which of the following cases can the emphasis on efficiency, over utilization, be misleading?

When the effective capacity is low compared to design capacity.

Place the following steps in the capacity planning process in the correct order.

1. Estimate future capacity requirements. 2. Evaluate existing capacity and facilities and identify gaps. 3. Identify alternatives for meeting requirements. 4. Conduct financial analyses of each alternative. 5. Assess key qualitative issues for each alternative. 6. Select the alternative to pursue that will be best in the long term. 7. Implement the selected alternative. 8. Monitor results.

Place the following steps for resolving constraint issues in order.

1. Identify the most pressing constraint. If it can be easily overcome, do so. Otherwise proceed to step 2. 2. Change the operation to achieve the maximum benefit, given the constraint. 3. Make sure the other portions of the process are supportive. 4. Explore and evaluate alternatives for overcoming the constraint. 5. Repeat until the level of constraints is acceptable.

A hotel room illustrates several of the challenges associated with planning service capacity. Which of the following illustrate these?

A hotel room must be in a location a customer would like to stay. An empty hotel room cannot be stored for future use. There is high demand during certain times of the year.

_____ is the quantity at which two competing alternatives are equivalent.

An indifference point

When an organization faces seasonal variations in demand, which approach is most appropriate in making decisions about changing capacity?

Attempt to smooth out capacity requirements.

Which of the following statements accurately reflect the (strategic) importance of capacity decisions?

Capacity decisions can affect competitiveness. Capacity decisions impact how well a firm can meet its demand. Capacity decisions affect operating costs.

The difference between the cash received from sales and other sources and the cash outflow for labor, materials, overhead, and taxes is known as _____.

Cash flow

Two important terms in financial analysis are ___ flow and ___ value.

Cash; present

Which of the following are ways to enhance the development of capacity strategies? (2)

Consider the overall impact on the system and environment. Decide whether to use a following or leading strategy.

A ___ is something that limits the performance of a process or system in achieving its goals.

Constraint

Design capacity minus allowances such as personal time and maintenance is known as _____.

Effective capacity

Improving which of the following aspects of a firm's operations can increase its capacity?

Efficiency Bottleneck management Utilization

Which of the following is the correct formula for the break-even point?

FC Q = --- R - v

Globalization simplifies capacity decisions because there are more, cheaper options.

False

The more uniform production output is, the less effective capacity the operation has.

False

Which of the following are not correct assumptions for cost-volume analysis?

Revenue per unit changes with a change in volume. Multiple products are involved.

In the context of forecasting capacity requirements, identify some of the basic demand patterns.

Stable & cyclical

Before increasing capacity, it is important to make sure an organization's ___ ___ can handle the ramp up.

Supply chain

Which of the following are ways to enhance the development of capacity strategies?

Take into account the acquisition of capacity chunks. Consider which life cycle stage the product is in. Make provisions for possible future expansion.

Which of the following are assumptions of cost-volume analysis?

The revenue per unit is the same regardless of volume. The variable cost per unit is the same regardless of the volume. Revenue per unit exceeds variable cost per unit. Everything produced can be sold.

Capacity requirements are often closely linked to the stage of the life cycle that a product or service is in.

True

In evaluating capacity alternatives, both financial and qualitative analyses must be performed.

True