ISDS Chapter 7

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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?

capacity a firm expects to achieve given the current operating constraints

Effective capacity is the:

15,000 units

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. The break-even point for machine A is:

4,000 units, with B more profitable at low volumes

Fred's Fabrication, Inc. wants to increase capacity by adding a new machine. The firm is considering proposals from vendor A and vendor B. The fixed costs for machine A are $90,000 and for machine B, $70,000. The variable cost for A is $9.00 per unit and for B, $14.00. The revenue generated by the units processed on these machines is $20 per unit. The crossover between machine A and machine B is:

aggressive marketing

If demand exceeds capacity at a new facility, an organization can use which of the following to move demand to an existing facility?

for a 4% discount rate than for a 6% discount rate

Net present value will be greater:

is the discounted value of a series of future cash receipts

Net present value:

a. uses incremental expansion c. at some times leads demand, and at other times lags e. Choices a and c are both correct.

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

87.7%

The Academic Computing Center has five trainers available in its computer labs to provide training sessions to students. Assume that the capacity of the system is 1900 students per semester and the utilization is 90%. If the number of students who actually got their orientation session is 1500, what is the efficiency of the system?

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

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

90.5 percent; 79.2 percent

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 in 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 _____.

expected output

What is sometimes referred to as rated capacity?

states of nature are often demand-based, as in "market favorability"

When decision trees are used to analyze capacity decisions,

building rental costs

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

Capacity may only be added in large chunks

Which of the following is false regarding capacity expansion?

lag demand with one-step expansion

Which of the following is not one of the four approaches to capacity expansion?

changes in staffing levels

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

inexpensive rates for weekend phone calls

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

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

Which of the following statements regarding fixed costs is true?

$20,920

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 approximately:

less than $30,000

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:

no purchase because neither machine yields a profit at that volume

A fabrication company wants to increase capacity by adding a new machine. The firm is considering proposals from vendor A and vendor B. The fixed costs for machine A are $90,000 and for machine B, $75,000. The variable cost for A is $15.00 per unit and for B, $18.00. The revenue generated by the units processed on these machines is $21 per unit. If the estimated output is 5000 units, which machine should be purchased?

0.133

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. The weighted contribution of this product is approximately:

no purchase because neither machine yields a profit at that volume

A shop wants to increase capacity by adding a new machine. The firm is considering proposals from vendor A and vendor B. The fixed costs for machine A are $90,000 and for machine B, $75,000. The variable cost for A is $15.00 per unit and for B, $18.00. The revenue generated by the units processed on these machines is $22 per unit. If the estimated output is 9,000 units, which machine should be purchased?

the existing product has seasonal or cyclical demand

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

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

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

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

Basic break-even analysis typically assumes that:

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

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

total revenue equals total cost

Break-even is the number of units at which: