Chapter 7
Break-even analysis identifies the volume at which fixed costs and revenue are equal.
False
Professional services typically require low levels of labor intensity.
False
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
One use of camera-and-computer-based vision systems is to replace humans doing tedious and error-prone visual inspection activities.
True
Optical checkout scanners and ATMs are examples of technology's impact on services.
True
Service blueprinting is a process analysis technique that focuses on the customer and the provider's interaction with the customer.
True
2) Intermittent processes are organized around processes.
True
6) The assembly line is a classic example of a repetitive process.
True
Which of the following costs would be incurred even if no units were produced? A) raw material costs B) direct labor costs C) transportation costs D) building rental costs E) purchasing costs
D
Which of the following is FALSE regarding capacity expansion? A) "Average" capacity sometimes leads demand, sometimes lags it. B) If "lagging" capacity is chosen, excess demand can be met with overtime or subcontracting. C) Total cost comparisons are a rather direct method of comparing capacity alternatives. D) Capacity may only be added in large chunks. E) In manufacturing, excess capacity can be used to do more setups, shorten production runs, and drive down inventory costs.
D
Which of the following is TRUE regarding vision systems? A) They are consistently accurate. B) They are modest in cost. C) They do not become bored. D) All of the above are true. E) None of the above is true.
D
Which of the following is true regarding the concept of flexibility? A) It is the ability to respond with little penalty in time, cost, or customer value. B) It may be accomplished with digitally controlled equipment. C) It may involve modular or movable equipment. D) All of the above are true. E) None of the above is true.
D
Which of the following provides automatic placement and withdrawal of parts and products into and from designated places in a warehouse? A) AGV B) CAD/CAM C) CIM D) ASRS E) FMS
D
22) Which of the following companies use a mass customization approach? A) Dell B) Align Technology C) Frito-Lay D) Arnold Palmer hospital E) A and B
E
A quasi-custom product: A) gets its apparent customization from the combinations available from a small number of modules. B) is often the output of repetitive focus facilities. C) is a valid description of a fast food sandwich. D) only applies in services. E) All but D are true.
E
Break-even is the number of units at which: A) total revenue equals price times quantity. B) total revenue equals total variable cost. C) total revenue equals total fixed cost. D) total profit equals total cost. E) total revenue equals total cost.
E
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
The net present value of $10,000 to be received in exactly three years is considerably greater than $10,000.
False
Utilization is the number of units a facility can hold, receive, store, or produce in a period of time.
False
Net present value: A) is gross domestic product less depreciation. B) is sales volume less sales and excise taxes. C) is profit after taxes. D) ignores the time value of money. E) is the discounted value of a series of future cash receipts.
E
Of the four approaches to capacity expansion, the approach that "straddles" demand: A) uses incremental expansion. B) uses one-step expansion. C) at sometimes leads demand, and at other times lags. D) works best when demand is not growing but is stable. E) Choices A and C are both correct.
E
Process redesign: A) is the fundamental rethinking of business processes. B) is sometimes called process reengineering. C) tries to bring about dramatic improvements in performance. D) often focuses on activities that cross functional lines. E) all of the above
E
The advantage of additive manufacturing includes supporting: A) innovative product design. B) minimal custom tooling. C) low inventory. D) speed to market. E) all of the above
E
The theory of constraints has its origins in: A) linear programming theory. B) the theory of economies of scale. C) material requirements planning. D) the theory of finite capacity planning. E) Goldratt and Cox's book, The Goal: A Process of Ongoing Improvement.
E
What is a common method used to increase capacity with a lag strategy? A) overtime B) subcontracting C) new facilities D) new machinery E) A and B
E
The use of information technology to monitor and control a physical process is known as: A) process control. B) computer-aided design. C) information numeric control. D) numeric control. E) IT oversight.
A
A flowchart with the addition of a time axis becomes a process chart.
False
14) Which of the following products is likely to be assembled on a repetitive process line? A) automobiles B) custom personal computers C) custom cakes D) steel E) beer
A
16) Arnold Palmer Hospital uses which focus? A) process B) repetitive C) product D) mass customization E) A and D
A
20) Goods made to order are typical of ________ and ________ approaches while goods made to forecast are typical of ________ and ________ approaches. A) process, mass customization; repetitive, product B) product, mass customization; repetitive, process C) product, process; repetitive, mass customization D) repetitive, product; mass customization, process E) repetitive, process; mass customization, product
A
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 B) $26,160 C) $49,840 D) $70,920 E) $106,990
A
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 B) 0.200 C) 0.40 D) 0.667 E) $1.667
A
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 B) 100% of the throughput time C) 550% of the throughput time D) 50% of the throughput time E) 1.82% of the throughput time
A
In "drum, buffer, rope," what provides the schedule, i.e. the pace of production? A) drum B) buffer C) rope D) all three of the above in combination E) none of the above
A
Activity times should not be included in a service blueprint.
False
13) Which one of the following products is most likely made in a job shop environment? A) rolls of newsprint B) custom furniture C) television sets D) cigarettes E) canned vegetables
B
18) Frito-Lay is to ________ focus as Harley Davidson is to ________ focus. A) process, repetitive B) product, repetitive C) repetitive, product D) process, product E) product, mass customization
B
A work system has five stations that have process times of 5, 9, 4, 9, and 8. What is the bottleneck time? A) 4 B) 9 C) 18 D) 35 E) 7
B
Basic break-even analysis typically assumes that: A) revenues increase in direct proportion to the volume of production, while costs increase at a decreasing rate as production volume increases. B) variable costs and revenues increase in direct proportion to the volume of production. C) both costs and revenues are made up of fixed and variable portions. D) costs increase in direct proportion to the volume of production, while revenues increase at a decreasing rate as production volume increases because of the need to give quantity discounts. E) All of the above are assumptions in the basic break-even model.
B
The basic break-even model can be modified to handle more than one product. This extension of the basic model requires: A) price and sales volume for each product. B) price and variable cost for each product, and the percent of sales that each product represents. C) that the firm have very low fixed costs. D) that the ratio of variable cost to price be the same for all products. E) sales volume for each product.
B
An example of the postponement strategy for improving service productivity is having the customer wait until you have sufficient time to serve the customer.
False
Which of the following is FALSE regarding repetitive processes? A) They use modules. B) They allow easy switching from one product to the other. C) They are the classic assembly lines. D) They have more structure and less flexibility than a job shop layout. E) They include the assembly of basically all automobiles.
B
Which of the following statements regarding fixed costs is TRUE? A) Fixed costs rise by a constant amount for every added unit of volume. B) While fixed costs are ordinarily constant with respect to volume, they can "step" upward if volume increases result in additional fixed costs. C) Fixed costs are those costs associated with direct labor and materials. D) Fixed costs equal variable costs at the break-even point. E) Fixed cost is the difference between selling price and variable cost.
B
Changes in capacity may lead, lag, or straddle the demand.
True
"Operators simply load new programs, as necessary, to produce different products" describes: A) CAD. B) automated guided vehicles. C) flexible manufacturing systems. D) vision systems. E) process control.
C
10) Three of the four types of processes are: A) goods, services, and hybrids. B) manual, automated, and service. C) process focus, repetitive focus, and product focus. D) modular, continuous, and technological. E) input, transformation, and output.
C
12) A product-focused process is commonly used to produce: A) high-volume, high-variety products. B) low-volume, high-variety products. C) high-volume, low-variety products. D) low-variety products at either high- or low-volume. E) high-volume products of either high- or low-variety.
C
15) An assembly line is an example of a: A) product-focused process. B) process-focused process. C) repetitive process. D) line process. E) specialized process.
C
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: A) greater than $80,000 but less than $130,000. B) greater than $130,000. C) less than $30,000. D) impossible to calculate, because no interest rate is given. E) impossible to calculate, because variable costs are not known.
C
A system using an automated work cell controlled by electronic signals from a common centralized computer facility is called: A) an adaptive control system. B) robotics. C) a flexible manufacturing system. D) an automatic guided vehicle (AGV) system. E) a manufacturing cell.
C
Lag and straddle strategies for increasing capacity have what main advantage over a leading strategy? A) They are cheaper. B) They are more accurate. C) They delay capital expenditure. D) They increase demand. E) All of the above are advantages.
C
Design capacity is the theoretical maximum output of a system in a given period under ideal conditions.
True
Which of the following represents a common way to manage capacity in the service sector? A) appointments B) reservations C) changes in staffing levels D) first-come, first-served service rule E) "early bird" specials in restaurants
C
Fixed costs are those costs that continue even if no units are produced.
True
17) One of the similarities between process focus and mass-customization is: A) the volume of outputs. B) the use of modules. C) many departments and many routings. D) the variety of outputs. E) All of the above are similarities.
D
9) A job shop is an example of a(n): A) repetitive process. B) continuous process. C) line process. D) intermittent process. E) specialized process.
D
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
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? A) 4 B) 9 C) 18 D) 35 E) 7
D
Advances in technology: A) have impacted the manufacturing sector only. B) have had only a limited impact on services. C) have failed to change the level of customer interaction with an organization. D) have had a dramatic impact on customer interaction with services and with products. E) have dramatically changed health care, but have not changed retailing.
D
Break-even analysis can be used by a firm that produces more than one product, but: A) the results are estimates, not exact values. B) the firm must allocate some fixed cost to each of the products. C) each product has its own break-even point. D) the break-even point depends upon the proportion of sales generated by each of the products. E) None of these statements is true.
D
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? A) $90,000 dollars B) 90,000 units C) $15,000 dollars D) 15,000 units E) 4,286 units
D
Net present value will be greater: A) as a fixed set of cash receipts occurs later rather than earlier. B) if the future value of a cash flow is smaller. C) for one end-of-year receipt of $1200 than for twelve monthly receipts of $100 each. D) for a 4% discount rate than for a 6% discount rate. E) All of the above are true.
D
The Theory of Constraints (TOC) strives to reduce the effect of constraints by: A) offloading work from constrained workstations. B) increasing constrained workstation capability. C) changing workstation order to reduce throughput time. D) A and B E) A, B, and C
D
Which of the following technologies could enable a cashier to scan the entire contents of a shopping cart in seconds? A) ASRS B) AGV C) CAD/CAM D) RFID E) FMS
D
Which one of the following technologies is used ONLY for material handling, NOT actual production or assembly? A) robots B) CNC C) CAD D) AGVs E) FMS
D
11) Which of the following industries is most likely to have low equipment utilization? A) auto manufacturing B) commercial baking C) television manufacturing D) steel manufacturing E) restaurants
E
19) High fixed costs and low variable costs are typical of which approach? A) product B) process C) mass customization D) repetitive E) A and C
E
Which of the following is not one of the strategies for improving service productivity?
E
Which of the following techniques is NOT a technique for dealing with a bottleneck? A) Schedule throughput to match the capacity of the bottleneck. B) Increase the capacity of the constraint. C) Have cross-trained employees available to keep the constraint at full operation. D) Develop alternate routings. E) All are techniques for dealing with bottlenecks.
E
1) A firm's process strategy is its approach to transforming resources into goods and services.
True
3) In process-focused facilities, utilization of facilities is low.
True
7) The tool that calculates which process has the lowest cost at any specified production volume is a crossover chart.
True
8) The term focused processes refers to the quest for increased efficiency, whether in goods or services, that results from specialization.
True
A useful tactic for increasing capacity is to redesign a product in order to facilitate more throughput.
True
A value-stream map includes both (1) inventory quantities, and (2) symbols for customers and suppliers.
True
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? A) Station 1 B) Station 2 C) Station 3 D) Station 4 E) Station 5
B
Effective capacity is the: A) maximum output of a system in a given period. B) capacity a firm expects to achieve given the current operating constraints. C) average output that can be achieved under ideal conditions. D) minimum usable capacity of a particular facility. E) sum of all of the organization's inputs.
B
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 ________. A) 79.2 percent; 90.5 percent B) 90.5 percent; 79.2 percent C) 87.5 percent; 950 employees D) 950 employees; 1050 employees E) 110.5 percent; 114.3 percent
B
Which of the following characteristics best describes repetitive focus? A) It uses sophisticated scheduling to accommodate custom orders. B) Its output is a standardized product produced from modules. C) Operators are broadly skilled. D) It is widely used for the manufacture of steel. E) low volume, high variety
B
Adding a complementary product to what is currently being produced is a demand management strategy used when: A) demand exceeds capacity. B) capacity exceeds demand for a product that has stable demand. C) the existing product has seasonal or cyclical demand. D) price increases have failed to bring about demand management. E) efficiency exceeds 100 percent.
C
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? A) 5100 B) 5700 C) 4845 D) 969 E) 6783
C
One fundamental difference between a process chart and a flowchart is that: A) the process chart adds a time dimension to the horizontal axis, while a flowchart is not time-oriented. B) the process chart includes the supply chain, while the flowchart stays within an organization. C) the process chart is more like a table, while the flowchart is more like a schematic diagram. D) the process chart focuses on the customer and on the provider's interaction with the customer, while the flowchart does not deal directly with the customer. E) None of these is true, because a process chart and a flowchart are the same thing.
C
Process X has fixed costs of $10,000 and variable costs of $2.40 per unit. Process Y has fixed costs of $9,000 and variable costs of $2.25 per unit. Which of the following statements is TRUE? A) The crossover point is approximately 6667 units. B) It is impossible for one process to have both of its costs lower than those of another process. C) Process Y is cheaper than process X at all volumes. D) Process X should be selected for very large production volumes. E) Process X is more profitable than process Y and should be selected.
C
Product focused processes: A) allow more customization, but are not very efficient. B) are desirable because resource needs increase slowly with the complexity of a process. C) are processes that are specialized for relatively few products or customer groups. D) apply only to service firms, not to manufacturers. E) are profitable because customers demand flexibility, not specialization.
C
Effective capacity × Efficiency equals: A) efficient capacity. B) utilization. C) actual capacity. D) expected output. E) design capacity.
D
Harley Davidson: A) utilizes job shops to make each of its modules. B) uses product focused manufacturing. C) uses a large number of modules to build a small number of different bikes. D) uses work cells to feed its assembly line. E) All of the above are true.
D
In mass service and professional service, the operations manager should focus extensively on:
D
Service blueprinting: A) provides the basis to negotiate prices with suppliers. B) mimics the way people communicate. C) determines the best time for each step in the process. D) focuses on the provider's interaction with the customer. E) uses the schematic of a house to diagram a service process.
D
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? A) 1350 students B) 1710 students C) 78.9% D) 87.7% E) 90%
D
The crossover point is that production quantity where: A) variable costs of one process equal the variable costs of another process. B) fixed costs of a process are equal to its variable costs. C) total costs equal total revenues for a process. D) total costs for one process equal total costs for another process. E) the process no longer loses money.
D
Which of the following phrases best describes product focus? A) low volume, high variety B) Finished goods are usually made to order. C) Processes are designed to perform a wide variety of activities. D) high fixed costs, low variable costs E) high inventory
D
Additive manufacturing can use which of the following materials? A) plastics B) ceramics C) living cells D) chocolate E) all of the above
E
In the mass service and service factory quadrants of the service process matrix, the operations manager could focus on all of the following except: A) automation. B) standardization. C) tight quality control. D) removing some services. E) customization.
E
Value-stream mapping: A) is a variation of time-function mapping. B) examines the supply chain to determine where value is added. C) extends time function mapping back to the supplier. D) starts with the customer and works backwards. E) All of the above are true.
E
What have restaurants such as Steakhouses and Stacked Restaurants used to replace their traditional paper menus? A) spoken descriptions B) singing descriptions C) menus painted on the walls D) index cards containing a picture of each item E) iPad menus
E
Which of the following is not one of the four principles of bottleneck management? A) Release work orders to the system at the bottleneck's capacity pace. B) Lost time at the bottleneck is lost system capacity. C) Increasing capacity at non-bottleneck stations is a mirage. D) Increased bottleneck capacity is increased system capacity. E) Bottlenecks should be moved to the end of the system process.
E
4) The typical full-service restaurant uses a product-focused process.
False
5) Harley-Davidson, because it has so many possible combinations of products, utilizes the process strategy of mass customization.
False
Flowcharts use distance, but not time, to show the movement of material, product, or people through a process.
False
Production technology has had a major impact on services, but as yet there has been little reduction in service labor requirements.
False
Recent events suggest that additive manufacturing is just a fad.
False
Substantial research has proved that the only successful method of dealing with bottlenecks is to increase the bottleneck's capacity.
False
Successful process redesign focuses on departmental areas where small, continuous improvements can be made.
False
The bottleneck time is always at least as long as the throughput time.
False
To find the throughput time with simultaneous processes, compute the time over all paths and choose the shortest path through the system.
False
21) Align Technology uses a ________ approach to produce clear plastic removable aligners. A) mass customization B) product focus C) process focus D) repetitive focus E) crossover
A
A tortilla chip workstation produces 1,000 chips in 20 seconds. What is its bottleneck time? A) .02 seconds per chip B) 50 chips per second C) 20 seconds D) 6000 chips per minute E) 20,000 seconds
A
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. B) has a facility that is above optimum operating level and should reduce facility size. C) is suffering from diseconomies of scale. D) has utilization higher than efficiency. E) has expected output higher than rated capacity.
A
Computer-integrated manufacturing (CIM) includes manufacturing systems that have: A) computer-aided design, a flexible manufacturing system, inventory control, warehousing and shipping integrated. B) transaction processing, management information systems, and decision support systems integrated. C) automated guided vehicles, robots, and process control integrated. D) robots, automated guided vehicles, and transfer equipment integrated. E) all of their computers integrated with the marketing department.
A
Process A has fixed costs of $1000 and variable costs of $5 per unit. Process B has fixed costs of $500 and variable costs of $15 per unit. What is the crossover point between process A and process B? A) 50 units B) 200 units C) $2,500 D) $5,000 E) $9,500
A
The Theory of Constraints (TOC) was popularized by: A) Goldratt and Cox. B) Ford. C) Taguchi. D) Deming. E) Motorola and GE.
A
The advantage of additive manufacturing includes supporting: A) innovative product design. B) ASRS and AGVs. C) information numeric control. D) flexible manufacturing systems (FMS). E) all of the above
A
Utilization will always be lower than efficiency because: A) effective capacity is less than design capacity. B) effective capacity is greater than design capacity. C) effective capacity equals design capacity. D) expected output is less than actual output. E) expected output is less than rated capacity.
A
What is a drawing of the movement of material, product, or people? A) flowchart B) process chart C) service blueprint D) process map E) vision system
A
Which of the following are all strategies for improving productivity in services? A) separation, self-service, automation, and scheduling B) lean production, strategy-driven investments, automation, and process focus C) reduce inventory, reduce waste, reduce inspection, and reduce rework D) high interaction, mass customization, service factory, and just-in-time E) process focus, repetitive focus, product focus, and mass customization focus
A
Which of the following phrases best describes process focus? A) low volume, high variety B) Finished goods are usually made to a forecast and stored. C) Operators are less broadly skilled. D) high fixed costs, low variable costs E) low inventory
A
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 B) appointments C) reservations D) first-come, first-served rule E) none of the above
A
Additive manufacturing is often referred to as 3D printing.
True
Automated storage and retrieval systems are commonly used in distribution facilities of retailers.
True
Flexible manufacturing systems, because of easily changed control programs, are able to perform such tasks as manufacturing one-of-a-kind parts economically.
True
Price changes are useful for matching the level of demand to the capacity of a facility.
True
Process control is the use of information technology to monitor and control a physical process.
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
Time-function mapping is a flowchart with time added to the horizontal axis.
True
When selecting new equipment and technology, decision makers look for flexibility—the ability to respond with little penalty in time, cost, or customer value.
True