Chapter 5 Reading - SmartBook

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 - maturity - bottleneck

systems

When two competing alternatives are equivalent in a cost-volume analysis, a decision-maker has reached a(n) ______. - break-even point - bottleneck - capacity cap - indifference point

indifference point

True or false: The more uniform production output is, the less effective capacity the operation has.

false

Effective capacity is always ______ design capacity. - more than - less than - the same as

less than

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 _______. - zero products - one product - two products - three or more products

one product

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

cash; present

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

flexibility

A common approach by managers in determining how to allocate scarce funds is to rank investment proposals by taking into account ______. - cash flow - time value of money - variable costs

time value of money

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

constraint

Improving which of the following aspects of a firm's operations can increase its capacity? - Flexibility - Bottleneck management - Utilization - Efficiency

- Bottleneck management - Utilization - Efficiency

Which of the following statements accurately reflect the (strategic) importance of capacity decisions? - A productive unit with greater capacity tends to cost proportionately more than smaller units. - Capacity decisions impact how well a firm can meet its demand. - Capacity decisions can affect competitiveness. - Capacity decisions affect operating costs.

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

Which of the following are long-term capacity alternatives? - Closing of branch facilities - Reduction in inventory levels - Relocation of existing operations - Opening of branch facilities - Increase in inventory levels - Expansion of an existing facility - Contraction of an existing facility

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

Which of the following 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. - Continuously increase capacity to exploit economies of scale. - Make sure the system is capable of meeting all demand during peak periods.

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

Identify the points to be considered when deciding whether to outsource or produce in-house. - Customer preference - Demand patterns - The level of expertise available in-house - The fixed costs

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

Which of the following factors are probable reasons for actual output being less than the effective capacity? - Ideal machines - Employee absenteeism - Inventory shortages - Machine breakdowns

- Employee absenteeism - Inventory shortages - Machine breakdowns

Which of the following factors are probable reasons for actual output being less than the effective capacity? - Ideal machines - Employee absenteeism - Machine breakdowns - Inventory shortages

- Employee absenteeism - Machine breakdowns - Inventory shortages

Which of the following are the key questions to be answered when making capacity planning decisions? - How much capacity is needed? - When is the capacity needed? - From whom should we purchase the capacity? - Why is the capacity needed? - What kind of capacity is needed?

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

Which of the following are additional questions that should be asked in making capacity planning decisions, beyond the initial key questions? - Who will operate the capacity? - How much will it cost? - Should capacity be changed all at once? - What are the potential risks?

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

Identify the situations in which an organization is most likely to decide to outsource. - If the nature of the demand is high and steady - If the organization lacks the expertise - If the organization wants to closely monitor quality - If the nature of work requires flexible capacity

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

Which of the following statements are true of demand volatility in services? - It tends to be higher for services than for goods, in the amount of time required to service individual customer - Services can use inventory to smooth demand requirements. - Services are usually unable to cope with demand volatility and cyclical demand. - 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 customer - It tends to be higher for services than for goods in terms of timing.

Which of the following statements are true of capacity cushion? - Capacity cushion is inversely proportional to the degree of demand uncertainty. - Organizations that have standard products or services generally have a smaller capacity cushion. - Organizations that have standard products or services generally have a larger capacity cushion. - Capacity cushion is directly proportional to the degree of demand uncertainty.

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

Which of the following are correct formulas for profit? - P = RQ - (FC - vQ) - P = (R+v)Q - FC - P = RQ - (FC + vQ) - P = (R-v)Q - FC

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

Which of the following are assumptions for cost-volume analysis? - There are multiple competing products. - Per unit revenue exceeds per unit variable cost. - It is possible to inventory unsold items. - The variable cost per unit does not change.

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

Which of the following situations causes a misjudgment of a firm's capacity requirements? - Predictions focus mainly on the potential revenue that will be earned - Marketing personnel are overly optimistic in their predictions - Marketing and operations personnel jointly determine the optimal product mix

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

Which of the following improvements will typically increase capacity? - Reducing supplier lead times - Reducing changeover times - Increasing productivity - Standardizing output

- Reducing changeover times - Increasing productivity - Standardizing output

Which of the following are assumptions of cost-volume analysis? - Revenue per unit exceeds variable cost per unit. - Everything produced can be sold. - The variable cost per unit is the same regardless of the volume. - The revenue per unit is the same regardless of volume. - Multiple products are involved - Fixed costs are not included in the analysis

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

Which of the following are ways to enhance the development of capacity strategies? - Avoid the "big picture" approach to capacity changes - Take into account the acquisition of capacity chunks. - Consider which life cycle stage the product is in. - Make provisions for possible future expansion.

- 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 not the key questions to be answered when making capacity planning decisions? - Why is the capacity needed? - What kind of capacity is needed? - When is the capacity needed? - From whom should we purchase the capacity? - How much capacity is needed?

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

In the context of forecasting capacity requirements, identify some of the basic demand patterns. - random - cyclical - unstable - stable

- cyclical - stable

Which of the following is the correct formula for efficiency? - efficiency = (effective capacity/design capacity)*100% - efficiency = (actual output/effective capacity)*100% - efficiency = (actual output/design capacity)*100% - efficiency = (effective capacity/actual output)*100%

- efficiency = (actual output/effective capacity)*100%

What are the three primary capacity strategies? - Leading - Tracking - Sustaining - Following - Competing

- leading - tracking - following

Which of the following is the correct formula for utilization? - utilization = (effective capacity / design capacity)*100 - utilization = (actual output / effective capacity)*100 - utilization = (design capacity / actual output)*100 - utilization = (actual output / design capacity)*100

- utilization = (actual output / design capacity)*100

Place the following steps in the capacity planning process in the correct order. (Place the first step at the top.) - Assess key qualitative issues for each alternative - Select, implement, and monitor the best alternative to pursue - Identify alternative for meeting requirements and conduct financial analyses of each alternative - Estimate future capacity requirements - Evaluate existing capacity and identify gaps

1. Estimate future capacity requirements 2. Evaluate existing capacity and identify gaps 3. Identify alternatives for meeting requirements and conduct financial analyses of each alternative 4. Assess key qualitative issues for each alternative 5. Select, implement, and monitor the best alternative to pursue

Place the following steps for resolving constraint issues in order. (Place the first step at the top.) - Identify the most pressing constraint. If it cannot be easily overcome, go to the next step - Repeat until the level of constraints is acceptable - Change the operation to achieve maximum benefit, given the constraint - Explore and evaluate alternatives for overcoming the constraint - Make sure all other parts of the process support the constraint

1. Identify the most pressing constraint. If it cannot be easily overcome, go to the next step 2. Change the operation to achieve maximum benefit, given the constraint 3. Make sure all other parts of the process support the constraint 4. Explore and evaluate alternatives for overcoming the constraint 5. Repeat until the level of constraints is acceptable

_____ is the quantity at which two competing alternatives are equivalent. - The break-even point - The output quantity - The total variable quantity - An indifference point

An indifference point

With _____, increasing the output rate results in INCREASING the average unit cost, if the output rate is more than the optimal rate. - customization - mass production - economies of scale - diseconomies of scale

diseconomies of scale

When an organization faces seasonal variations in demand, which approach is most appropriate in making decisions about changing capacity? - Take a big-picture approach to capacity changes. - Prepare to deal with capacity chunks. - Attempt to smooth out capacity requirements.

Attempt to smooth out capacity requirements.

______ usually refers to an upper limit on the rate of output. - Capacity - Productivity - Efficiency - Profitability

Capacity

Which of the following is not a reason for diseconomies of scale? -Decision making can slow due to increased bureaucracy. - Construction costs increase more quickly as the facility size increases. - Traffic congestion increases distribution costs. - Inflexibility can lead to problems.

Construction costs increase more quickly as the facility size increases.

True or false: Globalization simplifies capacity decisions because there are more, cheaper options.

False

Which of the following describes a tracking capacity strategy? - It builds capacity in anticipation of future demand increases. - It builds capacity when demand exceeds current capacity. - It adds capacity incrementally to keep pace with increasing demand.

It adds capacity incrementally to keep pace with increasing demand.

Which of the following describes a leading capacity strategy? - It adds capacity incrementally to keep pace with increasing demand. - It builds capacity when demand exceeds current capacity. - It builds capacity in anticipation of future demand increases.

It builds capacity in anticipation of future demand increases.

Which of the following describes a following capacity strategy? - It adds capacity incrementally to keep pace with increasing demand. - It builds capacity when demand exceeds current capacity. - It builds capacity in anticipation of future demand increases.

It builds capacity when demand exceeds current capacity.

With cost-volume analysis, what is the assumption regarding variable cost per unit? - Variable cost declines as volume increases - It is the same regardless of volume - Variable cost increases as volume increases

It is the same regardless of volume

Which of the following is not a reason that makes service capacity more difficult to plan than manufacturing capacity? - Inability to store services - Proximity to raw materials - Need to be close to customers - Demand volatility

Proximity to raw materials

Which of the following is the correct formula for the break-even point? - Q = (FC/(R+v)) - Q = (FC/(v-R)) - Q = (FC/(R-v))

Q = (FC/(R-v))

With _____, increasing the output rate results in DECREASING the average unit cost, if the output rate is less than the optimal rate. - mass production - economies of scale - customization - diseconomies of scale

economies of scale

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

True

True or false: In evaluating capacity alternatives, both financial and qualitative analyses must be performed.

True

Design capacity minus allowances such as personal time and maintenance is known as _____. - planned capacity - utilization - effective capacity - actual output

effective capacity

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

bottleneck

The volume at which total cost and total revenue are equal is referred to as the ______. - system equilibrium - indifferent point - break-even point

break-even point

The amount of capacity in excess of expected demand, given uncertainty about expected demand, is an organization's ______. - capacity cushion - capacity plan - design capacity - effective capacity

capacity cushion

Long-term capacity planning decisions relate to Which of the following are ways to enhance the development of capacity strategies? Multiple select question. Decide whether to use a following or leading strategy. Consider the overall impact on the system and environment. Continuously increase capacity to exploit economies of scale. Make sure the system is capable of meeting all demand during peak periods.______ of capacity. - overall level - probable variations - seasonal fluctuations

overall level

Process improvements, batch production, and time to change equipment settings are ______ factors that influence effective capacity. - process - facilities - product and service

process

Uniformity of output is a ______ factor in determining effective capacity. - process - product and service - facilities

product and service