ITOM Test 1 (Ch. 5)

______ usually refers to an upper limit on the rate of output.

Capacity

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

Effective Capacity

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

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

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

Increasing productivity Standardizing output Reducing changeover times

_____ is the quantity at which two competing alternatives are equivalent.

Indifference point

Which of the following describes a leading capacity strategy? It builds capacity in anticipation of future demand increases. 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.

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

It builds capacity when demand exceeds current capacity.

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

It is the same regardless of volume

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

Machine breakdowns Employee absenteeism Inventory shortages

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

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

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

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

Which of the following are not correct assumptions for cost-volume analysis? Multiple products are involved. Variable cost per unit is the same irrespective of volume. Revenue per unit changes with a change in volume. Everything which is produced can be sold.

Multiple products are involved. Revenue per unit changes with a change in 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

Proximity to raw materials Reason: Services are unlikely to require raw materials. Demand volatility

Which of the following are 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?

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

In which case can the emphasis on efficiency, over utilization, be misleading?

When the effective capacity is low compared to design capacity. Reason: High efficiency would seem to indicate effective use of resources

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

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

cash; present

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

constraint

Effective capacity is the _____ capacity ______ allowances such as maintenance.

design; minus

Utilization is the ratio of actual output to ______ capacity. It is expressed as a _______.

design; percent

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

flexibility/agility

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

indifference point

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

one product

Long-term capacity planning decisions relate to ______ of capacity.

overall level

Process improvements, batch production, and time to change equipment settings are ______ factors that influence effective capacity.

process

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

product and service

In the context of forecasting capacity requirements, identify some of the basic demand patterns.

stable; cyclical

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 hotel room illustrates several of the challenges associated with planning service capacity. Which of the following illustrate these? An empty hotel room cannot be stored for future use. A hotel room must be in a location a customer would like to stay. Room service has fixed hours, no matter how many guests are staying at the hotel. There is high demand during certain times of the year.

An empty hotel room cannot be stored for future use. A hotel room must be in a location a customer would like to stay. There is high demand during certain times of the year.

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.

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

Which of the following statements accurately reflect the (strategic) importance of capacity decisions?

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

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

Closing of branch facilities Opening of branch facilities Contraction of an existing facility Relocation of existing operations Expansion of an existing facility Why not the others? Reason: Changes in inventory levels do not affect a firm's ability to produce unless capacity is too low due to a shortage of raw materials. Reason: Changes in inventory levels do not affect a firm's ability to produce unless capacity is too low due to a shortage of raw materials. Decreasing inventory could lead to reduced production due to running out of raw materials.

Which of the following are ways to enhance the development of capacity strategies? Make sure the system is capable of meeting all demand during peak periods. Continuously increase capacity to exploit economies of scale. Consider the overall impact on the system and environment. Decide whether to use a following or leading strategy.

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

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

False

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

False Reason: Globalization can make capacity decisions more challenging because supply chains and markets may be spread out.

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

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

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

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

Points to be considered when deciding whether to outsource or produce in-house:

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

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

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

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

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

Capacity Changes Approach

This approach is most appropriate when an organization has one or more bottleneck operations, where limited capacity at a bottleneck limits the entire system.

Capacity Chunks Approach

This approach is used when an organization has to acquire a "chunk" of capacity, such as buying a machine that doubles capacity, rather than being able to incrementally increase capacity, such as adding one more worker to a team of twenty workers.

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

True Reason: The stage of the product life cycle is often closely linked to capacity requirements. Consider a product in the introductory phase, when capacity needs may be low.

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

True Reason: While it may be more difficult to perform qualitative analysis, it is nonetheless still important.

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

Utilization Bottleneck management Efficiency

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

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

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 ______. indifferent point break-even point system equilibrium

break-even point

The amount of capacity in excess of expected demand, given uncertainty about expected demand, is an organization's ______.

capacity cushion