SCMA Chapter 7 Supplement
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, the weighted contribution of this product is approximately A) 0.133 B) 0.200 C) 0.40 D) 0.667 E) $1.667
A) 0.133
An assembly line has 10 stations with process times of 1, 2, 3, 4, ..., 10 respectively. The process time of the system is A) 18.18% of the process cycle time B) 100% of the process cycle time C) 550% of the process cycle time D) 50% of the process cycle time E) none of the above
A) 18.18% of the process cycle time
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) False, Utilization and efficiency are equal in value. E) False, Utilization is normally greater than efficiency.
A) Effective capacity is less than design capacity.
TOC was popularized by A) Goldratt and Cox B) Ford C) Taguchi D) Deming E) Motorola and GE
A) Goldratt and Cox
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) drum
A work system has five stations that have process times of 5, 9, 4, 9, and 8. What is the process time of the system? A) 4 B) 9 C) 18 D) 35 E) none of the above
B) 9
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
C) They delay capital expenditure.
A work system has five stations that have process times of 5, 9, 4, 9, and 8. What is the process cycle time of the system? A) 4 B) 9 C) 18 D) 35 E) none of the above
D) 35
A common method used to increase capacity with a lag strategy is A) overtime B) subcontractors C) new facilities D) new machinery E) A and B
E) A and B
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 A) $20,920 B) $26,160 C) $49,840 D) $70,920 E) $106,990
A) $20,920
A tortilla chip workstation produces 1,000 chips in 20 seconds. Its process time is A) .02 seconds per chip B) 50 chips per second C) 20 seconds D) 6000 chips per minute E) none of the above
A) .02 seconds per chip
If demand exceeds capacity at a new facility, an organization can use which of the following to move demand to an existing facility? A) aggressive marketing B) lower prices at all facilities C) build a facility of the correct size D) add a complementary product E) reduce lead times
A) aggressive marketing
A high value for which of the following signals that an operations manager is excelling? A) efficiency B) utilization C) effective capacity D) net present value E) none of the above
A) efficiency
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 build a smaller facility C) is suffering from diseconomies of scale D) has utilization higher than efficiency E) has efficiency higher than utilization
A) has a facility that is below optimum operating level and should build a larger facility
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) inexpensive rates for weekend phone calls B) appointments C) reservations D) first-come, first-served E) none of the above
A) inexpensive rates for weekend phone calls
The three main strategies for increasing capacity are A) leading, lag, straddle B) fast, normal, slow C) before, during, after D) leading, behind, mixed E) none of the above
A) leading, lag, straddle
The process time of a system is equivalent to the A) process time of the bottleneck B) sum of all workstation times C) shortest workstation time D) mean workstation time E) median workstation time
A) process time of the bottleneck
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 __________. 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) 90.5 percent; 79.2 percent
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) While fixed costs are ordinarily constant with respect to volume, they can "step" upward if volume increases result in additional fixed costs.
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) capacity a firm expects to achieve given the current operating constraints
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) price and variable cost for each product, and the percent of sales that each product represents
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 three 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) station 2
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) variable costs and revenues increase in direct proportion to the volume of production
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 A) 4,000 units, with A more profitable at low volumes B) 4,000 dollars, with A more profitable at low volumes C) 4,000 units, with B more profitable at low volumes D) 4,000 dollars, with B more profitable at low volumes E) none of the above
C) 4,000 units, with B more profitable at low volumes
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) 4845
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) changes in staffing levels
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 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) less than $30,000
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 which 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) the existing product has seasonal or cyclical demand
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 A) $90,000 dollars B) 90,000 units C) $15,000 dollars D) 15,000 units E) cannot be calculated from the information provided
D) 15,000 units
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) 87.7%
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 process cycle time D) A and B E) A, B, and C
D) A and B
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) All of the above are true.
D) Capacity may only be added in large chunks.
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) building rental costs
What is sometimes referred to as rated capacity? A) efficiency B) utilization C) effective capacity D) expected output E) design capacity
D) expected output
Net present value will be greater A) as a fixed set of cash receipts occurs later rather than earlier B) as the total of the cash receipts, made in same time periods, 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) for a 4% discount rate than for a 6% discount rate
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? A) machine A B) machine B C) either machine A or machine B D) no purchase because neither machine yields a profit at that volume E) purchase both machines since they are both profitable
D) 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? A) machine A B) machine B C) either machine A or machine B D) no purchase because neither machine yields a profit at that volume E) purchase both machines since they are both profitable
D) no purchase because neither machine yields a profit at that volume
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) the break-even point depends upon the proportion of sales generated by each of the products
Which of the following techniques is not a technique for dealing with a bottleneck? A) Schedule throughput to match capacity of the bottleneck. B) Increase capacity of the constraint. C) Have cross-trained employees available to keep the constraint at full operation. D) Develop alternate routings. E) All are tools for dealing with bottlenecks.
E) All are tools for dealing with bottlenecks.
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) Bottlenecks should be moved to the end of the system process.
Of the three approaches to capacity expansion, the approach that "straddles" demand A) uses incremental expansion B) uses one-step expansion C) at some times 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) Choices A and C are both correct.
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) Goldratt and Cox's book, The Goal: A Process of Ongoing Improvement
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) is the discounted value of a series of future cash receipts
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) total revenue equals total cost
Break-even analysis identifies the volume at which fixed costs and revenue are equal.
FALSE
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
Possible decision alternatives found in capacity EMV problems are future demands or market favorability.
FALSE
Substantial research has proved that the only successful method of dealing with bottlenecks is to increase the bottleneck's capacity.
FALSE
The net present value of $10,000 to be received in exactly three years is considerably greater than $10,000.
FALSE
The process time of a system is always at least a long as the process cycle time.
FALSE
To find the process cycle time with simultaneous processes, compute the time over all paths and choose the shortest path through the system.
FALSE
Utilization is the number of units a facility can hold, receive, store, or produce in a period of time.
FALSE
A useful tactic for increasing capacity is to redesign a product in order to get more throughput.
TRUE
Changes in capacity may lead, lag, or straddle the demand.
TRUE
Design capacity is the theoretical maximum output of a system in a given period under ideal conditions.
TRUE
Expected output is sometimes referred to as rated capacity.
TRUE
Fixed costs are those costs that continue even if no units are produced.
TRUE
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
Price changes are useful for matching the level of demand to the capacity of a facility.
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
