Chapter 4

If the best operating level of a piece of equipment is at a rate of 400 units per hour and the actual output during an hour is 300 units, which of the following is the capacity utilization rate? A. 0.75 B. 1.00 C. 1.33 D. 2.33 E. 300

A. 0.75

Capacity planning that involves hiring, layoffs, some new tooling, minor equipment purchases, and subcontracting is considered as which one of the following planning horizons? A. Intermediate range B. Long range C. Short range D. Current E. Upcoming

A. Intermediate range

If the best operating level of a piece of equipment is at a rate of 400 units per hour and the actual output during an hour is 300 units, which of the following is the capacity cushion? A. 25 percent B. 100 units per hour C. 75 percent D. 125 percent E. 133 percent

B. 100 units per hour

Which of the following is not a step used in determining production capacity requirements? A. Forecasting to predict product sales B. Forecasting raw material usage C. Projecting availability of labor D. Calculating equipment and labor needs E. Projecting equipment availability

B. Forecasting raw material usage

Capacity planning involving acquisition or disposal of fixed assets such as buildings, equipment or facilities is considered as which one of the following planning horizons? A. Intermediate-range B. Long-range C. Short-range D. Current E. Upcoming

B. Long-range

The capacity focus concept can be put into practice through a mechanism called which of the following? A. Best operating level (BOL) B. Plant within a plant (PWP) C. Total quality management (TQM) D. Capacity utilization rate (CUR) E. Zero-changeover-time (ZXT)

B. Plant within a plant (PWP)

The way to build in greater flexibility in your workers is to do which of the following? A. Pay higher wages to motivate a willingness to do a variety to tasks B. Provide a broader range of training C. Provide a wide variety of technology to augment workers skills D. Institute a "pay for skills" program E. Use part-time employees with specialized skills as needed

B. Provide a broader range of training

If the actual output of a piece of equipment during an hour is 500 units and it's best operating level is at a rate of 400 units per hour, which of the following is the capacity utilization rate? A. 0.75 B. 1.00 C. 1.25 D. 1.33 E. 100

C. 1.25

Which of the following models uses a schematic model of the sequence of steps in a problem and the conditions and consequences of each step? A. Probability indexing B. Johnson's sequencing rule C. Decision trees D. Activity System Maps E. Decision mapping

C. Decision trees

At a decision point in a decision tree, which machine would you select when trying to maximize payoff when the anticipated benefit of selecting machine A is $45,000 with a probability of 90%; the expected benefit of selecting machine B is $80,000 with a probability of 50% and the expected benefit of selecting machine C is $60,000 with a probability of 75%? A. Machine A B. Machine B C. Machine C D. You would be indifferent between machines A and C E. You would be indifferent between machines A and B

C. Machine C

Capacity planning involving consideration of production scheduling and inventory position is characterized by which one of the following time durations? A. Intermediate-range B. Long-range C. Short-range D. Current E. Upcoming

C. Short-range

Compared with a service operation, a manufacturing operation's capacity is which of the following? A. More dependent on time and location B. Subject to more volatile demand fluctuations C. Utilization more directly impacts quality D. Demand can be smoothed by inventory policies E. More capable of reacting to demand fluctuations

D. Demand can be smoothed by inventory policies

The ability to rapidly and inexpensively switch production from one product to another enables what are sometimes referred to as: A. Economies of scale B. Economies of size C. Economies of shape D. Economies of scope E. Economies of shipping

D. Economies of scope

When deciding to add capacity to a factory which of the following need not be considered? A. Maintaining system balance B. The frequency of capacity additions C. Use of external capacity D. Immediate product demand E. Availability of raw materials

D. Immediate product demand

What is an important difference between capacity planning in services as contrasted to capacity planning in manufacturing operations? A. Time B. Location C. Demand volatility D. Utilization impacts service E. All of the above

E. All of the above

A capacity cushion is the amount of capacity less than expected demand.

FALSE

A decision tree problem does not need probabilities or payoffs to generate a solution.

FALSE

A production facility develops virtuosity and works best when it focused on a widely varied set of production objectives.

FALSE

Best operating level is usually a multiple of the level of capacity for which a process was designed.

FALSE

Capacity planning is generally viewed in three time durations: Immediate, Intermediate and Indeterminate.

FALSE

In a decision tree, the only time probabilities are applied to a decision node is when the decision is being made by someone else such as you customer or your competitor.

FALSE

In decision tree analysis the time value of money is ignored because you are only concerned with cash costs.

FALSE

In practice, achieving a perfectly balanced plant is usually desirable but impossible.

FALSE

Low rates of capacity utilization in service organizations are never appropriate

FALSE

Making adjustments to eliminate the variance between planned and actual output is tied into intermediate range capacity planning.

FALSE

Overtime and personnel transfers are solutions to capacity problems in the intermediate term.

FALSE

The capacity cushion is the ratio of capacity used to the best capacity level.

FALSE

The capacity utilization rate is found by dividing best operating level by capacity used.

FALSE

The larger the capacity cushion the better.

FALSE

The objective of strategic capacity planning is to determine the overall capacity level of capital intensive resources (including facilities, equipment, and overall labor force size) that best supports the company's short-range competitive strategy.

FALSE

The objective of strategic capacity planning is to provide an approach for determining the overall capacity level of labor-intensive resources.

FALSE

The probability of each occurrence at a decision tree chance node is the reciprocal of the number of possibilities at the chance node.

FALSE

The problem of keeping demand sufficiently high to keep a large factory busy is a sales issue and not a diseconomy of scale.

FALSE

The smaller the capacity cushion the better.

FALSE

The ultimate in plant flexibility is a one-hour-changeover time plant.

FALSE

A piece of equipment with twice the capacity of another piece typically costs twice as much to purchase and to operate.

TRUE

A production facility works best when it focuses on a fairly limited set of production objectives.

TRUE

At some point, the size of a growing plant can become too large and diseconomies of scale become a capacity planning problem.

TRUE

Because services cannot be stored for later use, service managers consider time as one of their supplies or resources.

TRUE

Best operating level is the volume of output at which average unit cost is minimized.

TRUE

Capacity can be defined as the ability to hold, receive, store, or accommodate

TRUE

Capacity can be defined as the amount of available resource inputs relative to requirements for output over a particular period of time.

TRUE

Capacity flexibility means having the ability to rapidly increase or decrease production levels, or to shift production capacity quickly from one product or service to another.

TRUE

Economies of scope exist when multiple products can be produced at a lower cost in combination than they can separately.

TRUE

In practice achieving a perfectly balanced plant is usually both impossible and undesirable.

TRUE

In solving a decision tree problem, calculations start at the ends of the "branches" of the tree and work backwards to the base of the tree.

TRUE

Long-range capacity planning requires top management participation.

TRUE

Outsourcing is a common source of external capacity

TRUE

Sharing capacity is a common source of external capacity.

TRUE

The basic notion of economies of scale is that as a plant gets larger and volume increases, the average cost per unit of output drops.

TRUE

The frequency of adding to productive capacity should balance the costs of upgrading too frequently and the costs of upgrading too infrequently.

TRUE

The objective of strategic capacity planning is to determine the overall capacity level of capital intensive resources (including facilities, equipment, and overall labor force size) that best supports the company's long-range competitive strategy.

TRUE

When a firm's design capacity is less than the capacity required to meet its demand, it is said to have a negative capacity cushion.

TRUE

When evaluating capacity, managers need to consider both resource inputs and product outputs.

TRUE