Supply Chain Ch. 7s

A capacity alternative has an initial cost of $50,000 and cash flow of $20,000 for each of the next four years. If the cost of capital is 5 percent, what is the approximate net present value of this investment?

A) $20,920

A tortilla chip workstation produces 1,000 chips in 20 seconds. What is its bottleneck time?

A) .02 seconds per chip

A product sells for $5, and has unit variable costs of $3. This product accounts for $20,000 in annual sales, out of the firm's total of $60,000. When performing multiproduct break-even analysis, what is the weighted contribution of this product?

A) 0.133

Consider the simple 3-station assembly line illustrated below, where the 2 machines at Station 1 are parallel, i.e., the product only needs to go through one of the 2 machines before proceeding to Station 2.

A) 12 min.

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

The Theory of Constraints (TOC) was popularized by:

A) Goldratt and Cox.

In "drum, buffer, rope," what provides the schedule, i.e. the pace of production?

A) drum

Utilization will always be lower than efficiency because:

A) effective capacity is less than design capacity.

An organization whose capacity is on that portion of the average unit cost curve that falls as output rises:

A) has a facility that is below optimum operating level and should build a larger facility.

Which of the following represents an aggressive approach to demand management in the service sector when demand and capacity are not particularly well matched?

A) lower resort hotel room prices on Wednesdays

Consider the assembly line below. The three fabrication operations run in parallel, such that each batch of 20 units only needs to go through one of the three fabrication operations. After that, each batch needs to go through both assembly operations, which occur simultaneously (specifically, 10 components are made for each unit in the fabrication stage—some components are then assembled in the Assembly 1 area while others are assembled in the Assembly 2 area). The units are packaged and made ready for shipment in the final stage.

B) 8 min.

A work system has five stations that have process times of 5, 9, 4, 9, and 8. What is the bottleneck time?

B) 9

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 1050 now represents the most employees that can be trained per year. In the past year, 950 employees were trained. The efficiency of this system is approximately ________ and its utilization is approximately ________.

B) 90.5 percent; 79.2 percent

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 5 minutes. Station 5 can produce a unit in 8 minutes. Which station is the bottleneck station?

B) Station 2

Which of the following statements regarding fixed costs is TRUE?

B) While fixed costs are ordinarily constant with respect to volume, they can "step" upward if volume increases result in additional fixed costs.

Effective capacity is the:

B) capacity a firm expects to achieve given the current operating constraints.

The basic break-even model can be modified to handle more than one product. This extension of the basic model requires:

B) price and variable cost for each product, and the percent of sales that each product represents.

Basic break-even analysis typically assumes that:

B) variable costs and revenues increase in direct proportion to the volume of production.

Consider the simple 3-station assembly line illustrated below, where the 2 machines at Station 1 are parallel, i.e., the product only needs to go through one of the 2 machines before proceeding to Station 2.

C) 38 min.

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 be running during approximately 95% of the available time. Based on experience with other products, the firm expects to achieve an efficiency level for the cranks of 85%. What is the expected weekly output of cranks for this company?

C) 4845

Lag and straddle strategies for increasing capacity have what main advantage over a leading strategy?

C) They delay capital expenditure.

Which of the following represents a common way to manage capacity in the service sector?

C) changes in staffing levels

A capacity alternative has an initial cost of $50,000 and cash flow of $20,000 for each of the next four years. If the cost of capital is 5 percent, the net present value of this investment is:

C) less than $30,000.

Adding a complementary product to what is currently being produced is a demand management strategy used when:

C) the existing product has seasonal or cyclical demand.

A retailer is considering building a large store. If the local economy experiences expansion, the firm expects the store to earn a $2,000,000 profit next year. If the local economy experiences a contraction, the firm expects the store to lose $400,000 next year. Analysts estimate a 20% chance for the local economy to experience an expansion next year (hence an 80% chance for contraction). What is the expected monetary value (EMV) of building the large store?

D) $80,000

Fabricators, Inc. wants to increase capacity by adding a new machine. The fixed costs for machine A are $90,000, and its variable cost is $15 per unit. The revenue is $21 per unit. What is the break-even point for machine A?

D) 15,000 units

Consider the assembly line below. The three fabrication operations run in parallel, such that each batch of 20 units only needs to go through one of the three fabrication operations. After that, each batch needs to go through both assembly operations, which occur simultaneously (specifically, 10 components are made for each unit in the fabrication stage—some components are then assembled in the Assembly 1 area while others are assembled in the Assembly 2 area). The units are packaged and made ready for shipment in the final stage.

D) 34 min.

A work system has five stations that have process times of 5, 9, 4, 9, and 8. What is the throughput time of the system?

D) 35

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 1900 students per semester and that effective capacity equals 90% of design capacity. If the number of students who actually got their orientation session is 1500, what is the efficiency of the system?

D) 87.7%

The Theory of Constraints (TOC) strives to reduce the effect of constraints by

D) A and B

Which of the following is FALSE regarding capacity expansion?

D) Capacity may only be added in large chunks.

Which of the following costs would be incurred even if no units were produced?

D) building rental costs

Effective capacity × Efficiency equals:

D) expected output.

Net present value will be greater:

D) for a 4% discount rate than for a 6% discount rate.

Break-even analysis can be used by a firm that produces more than one product, but:

D) the break-even point depends upon the proportion of sales generated by each of the products.

What is a common method used to increase capacity with a lag strategy?

E) A and B

Which of the following techniques is NOT a technique for dealing with a bottleneck?

E) All are techniques for dealing with bottlenecks.

Which of the following is not one of the four principles of bottleneck management?

E) Bottlenecks should be moved to the end of the system process.

Of the four approaches to capacity expansion, the approach that "straddles" demand:

E) Choices A and C are both correct.

The theory of constraints has its origins in:

E) Goldratt and Cox's book, The Goal: A Process of Ongoing Improvement.

Net present value:

E) is the discounted value of a series of future cash receipts.

Break-even is the number of units at which:

E) total revenue equals total cost.

Break-even analysis identifies the volume at which fixed costs and revenue are equal

FALSE

Break-even analysis is a powerful analytical tool, but is useful only when the organization produces a single product.

FALSE

Capacity decisions are based on technological concerns, not demand forecasts.

FALSE

Effective capacity is typically larger than design capacity.

FALSE

Possible decision alternatives found in capacity EMV problems are future demands or market favorability.

FALSE

Substantial research has proved that the only successful method of dealing with bottlenecks is to increase the bottleneck's capacity.

FALSE

The bottleneck time is always at least as long as the throughput time.

FALSE

The net present value of $10,000 to be received in exactly three years is considerably greater than $10,000.

FALSE

To find the throughput time with simultaneous processes, compute the time over all paths and choose the shortest path through the system.

FALSE

Utilization is the number of units a facility can hold, receive, store, or produce in a period of time.

FALSE

A useful tactic for increasing capacity is to redesign a product in order to facilitate more throughput.

TRUE

Changes in capacity may lead, lag, or straddle the demand.

TRUE

Design capacity is the theoretical maximum output of a system in a given period under ideal conditions.

TRUE

Fixed costs are those costs that continue even if no units are produced.

TRUE

One limitation of the net present value approach to investments is that investments with identical net present values may have very different cash flows.

TRUE

Price changes are useful for matching the level of demand to the capacity of a facility.

TRUE

The theory of constraints is a body of knowledge that deals with anything that limits an organization's ability to achieve its goals.

TRUE