Operations Management: EXAM 2 - Chapter 5

What are ways to enhance the development of capacity strategies?

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

Which of the following is not a reason for economies of scale?

Decision making becomes easier as output rates increase.

What are key questions to be answered when making capacity planning decisions?

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

What factors are probable reasons for actual output being less than the effective capacity?

Inventory shortages Employee absenteeism Machine breakdowns

correct formulas for profit?

P = (R-v)Q - FC P = RQ - (FC + vQ)

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

A bottleneck operation is the step whose ____________ is ____________ than that of other steps in the sequence of operations.

capacity; less

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

Effective capacity is the ___________ capacity __________ allowances such as maintenance.

design; minus

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

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

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

effective capacity

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

indifference point

Design capacity is the ________ output rate a process is _______ for

largest; designed

Effective capacity is always ______ design capacity.

less than

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

one product

Capacity often refers to an upper limit on the ______.

rate of output

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

supply chain

The big-picture approach to capacity changes is also called the ______ approach.

systems

A common approach by managers in determining how to allocate scarce funds is to rank investment proposals by taking into account ______.

time value of money

Which of the following is the correct formula for utilization?

Actual output / Design capacity x 100%

Which of the following is the correct formula for efficiency?

Actual output / Effective capacity x 100%

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.

What are ways to enhance the development of capacity strategies?

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

Which of the following is not a reason for diseconomies of scale?

Construction costs increase more quickly as the facility size increases.

What are assumptions of cost-volume analysis?

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

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

FC / R - v

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

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

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

TRUE

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