Deck 6: Strategic Capacity Planning

Question 1

Capacity decisions often involve a long-term commitment of resources which,when implemented,are difficult or impossible to modify without major added costs.

Answer 1

True

Question 2

The break-even quantity can be determined by dividing the fixed costs by the difference between the revenue per unit and the variable cost per unit.

Answer 2

True

Question 3

Evaluation of capacity alternatives involves economic calculations only.

Answer 3

False

Question 4

The term capacity is the upper limit on the workload an operating unit can handle.

Question 5

If a company produces a variety of outputs,capacity has to be expressed as several partial measures; no overall measure of capacity is possible.

Question 6

As utilization increases the number of jobs/people waiting in an operating system decreases.

Question 7

Efficiency is defined as the ratio of actual output to effective capacity.

Question 8

Strategic capacity planning is the systematic determination of facility and major machine/equipment requirements to meet long-term demand for goods,however,this does not apply to services.

Question 9

A simple method for estimating the throughput capacity of a productive unit from its size is to divide the size by the average time a product spends in the productive unit (this is called Littlele method ):

Question 10

In break-even analysis,costs that vary directly with volume of output are referred to as fixed costs because they are fixed to the level of output.

Question 11

Among the assumptions of break-even analysis is that the variable cost per unit remains the same regardless of quantity of output.

Question 12

Supply chain factors are not usually taken into account in capacity planning if substantial capacity changes are involved.

Question 13

Stating capacity in dollar amounts generally results in a consistent measure of capacity.

Question 14

Facilities are a major factor influencing effective capacity.

Question 15

Capacity increases are usually acquired in fairly large "chunks" rather than smooth increments.

Question 16

Capacity decisions are always long-term decisions.

Question 17

Design capacity refers to the maximum output rate under ideal conditions.

Question 18

As forecasts are usually only accurate for the short term,forecasts are not useful in long-term capacity decisions.

Question 19

Design capacity refers to the maximum output rate possible given a product mix,operating hours,and machine maintenance.

Question 20

The more uniform the mix of products being produced,the more opportunity there is to increase the effective capacity of the system.

Question 21

The maximum possible output rate given a product mix,scheduling difficulties,operating hours,and so on,is:

A)utilization.
B)design capacity.
C)efficiency.
D)effective capacity.
E)available capacity.

Question 22

Production units have an optimal rate of output where:

A)total costs are minimum.
B)unit costs are minimum.
C)marginal costs are minimum.
D)rate of output is maximum.
E)total revenue is maximum.

Question 23

Which of the following is not a consideration for developing capacity alternatives?

A)Avoiding capacity cushions
B)Taking a big-picture approach to capacity changes
C)Preparing to deal with capacity in "chunks"
D)Attempting to smooth out capacity requirements
E)Identifying the optimal operating level

Question 24

Demand volatility tends to be higher for services than for goods,not only in timing of demand,but also in the amount of time required to service individual customers.

Question 25

Capacity refers to the upper limit on the _______ an operating unit can handle.

A)inventories
B)workload
C)supplies
D)available time
E)finances

Question 26

Given the following information,the efficiency is: Effective capacity = 50 units per day
Design capacity = 100 units per day
Actual output = 30 units per day

A)40%
B)50%
C)60%
D)80%
E)90%

Question 27

Which of the following is not a determinant of effective capacity?

A)Facilities
B)Product mix
C)Actual output
D)The workforce
E)External factors

Question 28

Installing capacity before an increase in demand occurs is referred to as:

A)an incremental strategy.
B)a lagging strategy.
C)a leading strategy.
D)a capacity cushion.
E)a capacity chunk.

Question 29

Utilization is defined as the ratio of:

A)actual output to effective capacity.
B)used time to available time.
C)available time to effective capacity.
D)effective capacity to actual output.
E)design capacity to actual output.

Question 30

Which is not true about long-term capacity?

A)Excess capacity can serve as a barrier to entry for other companies.
B)Capacity may be difficult and costly to modify.
C)Exceeding capacity minimizes operating costs.
D)Capacity affects the ability to satisfy customer's demand.
E)Capacity is usually a major determinant of initial capital costs.

Question 31

Efficiency is defined as the ratio of:

A)actual output to effective capacity.
B)actual output to design capacity.
C)design capacity to effective capacity.
D)effective capacity to actual output.
E)design capacity to actual output.

Question 32

The ratio of actual output to effective capacity is:

A)design capacity.
B)effective capacity.
C)actual capacity.
D)efficiency.
E)utilization.

Question 33

Given the following information,the efficiency is: Effective capacity = 20 units per day
Design capacity = 60 units per day
Actual output = 15 units per day

A)25%
B)33%
C)50%
D)75%
E)80%

Question 34

The maximum output rate under ideal conditions is:

A)design capacity.
B)effective capacity.
C)actual output.
D)efficiency.
E)utilization.

Question 35

Break-even analysis can also be used for make-or-buy decisions,and deciding between two or more capacity alternatives.

Question 36

Seasonal variations are typically easier to deal with in capacity planning than random variations because seasonal variations tend to be:

A)smaller.
B)larger.
C)predictable.
D)controllable.
E)less frequent.

Question 37

Considerations in forecasting long-term demand do not include:

A)identifying demand trends
B)duration of demand trends
C)amplitude of demand cycles
D)the slope of the trend
E)exclusion from marketing input into the forecast

Question 38

Throughput capacity for a productive unit measured as a rate is:

A)actual output to effective capacity.
B)used time to available time.
C)available time to effective capacity.
D)effective capacity to actual output.
E)size of productive unit to average cycle time.

Question 39

Which of the following is not an important long-term capacity decision consideration?

A)matching capacity and demand
B)commitment of resources
C)level of capacity and operation costs
D)ensuring capacity always exceeds demand to allow for forecasting errors
E)capacity affects ease of management

Question 40

Given the following information,the efficiency is: Effective capacity = 80 units per day
Design capacity = 100 units per day
Actual output = 72 units per day

A)50%
B)64%
C)72%
D)80%
E)90%

Question 41

Doctor J.is considering purchasing a new blood analysis machine for $60,000.He estimates that he could charge $80.00 for an office visit to have a patient's blood analyzed,while the variable cost of a blood analysis would be $30.00. How many blood analyses would he have to perform in order to break even?

A)3,000
B)2,400
C)2,000
D)1,200
E)750

Question 42

The owner of Firewood To Go is considering buying a hydraulic wood splitter which sells for $50,000.He figures it will cost an additional $150 per cord to purchase and split wood with this machine,while he can sell each cord of split wood for $200. How many cords of wood would he have to split with this machine to make a profit of $50,000?

A)3000
B)2000
C)1500
D)1000
E)500

Question 43

For fixed costs of $1,000,revenue per unit of $1,and variable cost per unit of $0.80,the break-even quantity is:

A)1,000
B)1,250
C)2,250
D)5,000
E)6,000

Question 44

At the break-even point:

A)output equals capacity.
B)total cost equals total revenue.
C)total cost equals profit.
D)variable cost equals fixed cost.
E)variable cost equals total revenue.

Question 45

Doctor J.is considering purchasing a new blood analysis machine for $60,000.He estimates that he could charge $80.00 for an office visit to have a patient's blood analyzed,while the variable cost of a blood analysis would be $30.00. If this new blood analysis machine has design and effective capacities of 6,000 and 5,000 blood analyses per year,respectively,and Dr.J.expects to be 80% efficient in his use of this machine,how many blood analyses does he plan to perform each year?

A)3,200
B)4,800
C)4,000
D)1,000
E)5,000

Question 46

The owner of Firewood To Go is considering buying a hydraulic wood splitter which sells for $50,000.He figures it will cost an additional $150 per cord to purchase and split wood with this machine,while he can sell each cord of split wood for $200. If,for this machine,design capacity is 50 cords per day,effective capacity is 40 cords per day,and actual output is expected to be 32 cords per day,what would be its efficiency?

A)100%
B)80%
C)75%
D)70%
E)0%

Question 47

The owner of Firewood To Go is considering buying a hydraulic wood splitter which sells for $50,000.He figures it will cost an additional $150 per cord to purchase and split wood with this machine,while he can sell each cord of split wood for $200. If,for this machine,design capacity is 50 cords per day,effective capacity is 40 cords per day,and actual output is anticipated to be 35 cords per day,what would its utilization be?

A)100%
B)80%
C)75%
D)70%
E)0%

Question 48

The owner of Firewood To Go is considering buying a hydraulic wood splitter which sells for $50,000.He figures it will cost an additional $150 per cord to purchase and split wood with this machine,while he can sell each cord of split wood for $200. What would the potential profit be if he were to split 4,000 cords of wood with this machine?

A)$100,000
B)$150,000
C)$200,000
D)$600,000
E)$800,000

Question 49

Doctor J.is considering purchasing a new blood analysis machine for $60,000.He estimates that he could charge $80.00 for an office visit to have a patient's blood analyzed,while the variable cost of a blood analysis would be $30.00. If this new blood analysis machine has design and effective capacities of 6,000 and 5,000 blood analyses per year,respectively,and Dr.J.expects to perform 4,500 blood analyses each year,what will be the utilization of this machine?

A)0%
B)75%
C)83%
D)90%
E)100%

Question 50

An alternative will have fixed costs of $10,000 per month,variable costs of $50 per unit,and revenue of $70 per unit.The break-even point volume is:

A)143
B)200
C)350
D)500
E)600

Question 51

Doctor J.is considering purchasing a new blood analysis machine for $60,000.He estimates that he could charge $80.00 for an office visit to have a patient's blood analyzed,while the variable cost of a blood analysis would be $30.00. What would be his profit if he were to perform 5,000 blood analyses?

A)$100,000
B)$150,000
C)$190,000
D)$300,000
E)$400,000

Question 52

The owner of a greenhouse and nursery is considering whether to spend $12,000 to acquire the licensing rights to grow a new variety of rose bush,which she could then sell for $8 each.Variable costs would be $5 per rosebush. How many rose bushes would she have to produce and sell in order to make a profit of $6,000?

A)6,000
B)4,000
C)3,000
D)2,400
E)1,500

Question 53

Which of the following is not an accurate statement concerning break-even analysis?

A)The revenue per unit will be the same regardless of volume.
B)Costs related to production of a product are classified as fixed or variable
C)Variable cost per unit will be the same regardless of volume.
D)At quantities greater than the break-even point there is a loss.
E)All costs related to production of a product must be identified.

Question 54

What is the break-even quantity for the following situation? FC = $1,200 per week
VC = $2 per unit
Revenue (R)= $6 per unit

A)100
B)200
C)300
D)600
E)1200

Question 55

The owner of a greenhouse and nursery is considering whether to spend $12,000 to acquire the licensing rights to grow a new variety of rose bush,which she could then sell for $8 each.Variable costs would be $5 per rosebush. If her available land has design and effective capacities of 3,000 and 2,000 rose bushes per year,respectively,and she expects to be 80% efficient in her use of this land,how many rosebushes does Rose plan to grow each year on this land?

A)1,600
B)2,400
C)3,000
D)2,000
E)1,000

Question 56

The owner of a greenhouse and nursery is considering whether to spend $12,000 to acquire the licensing rights to grow a new variety of rose bush,which she could then sell for $8 each.Variable costs would be $5 per rosebush. How many rose bushes would she have to produce and sell in order to break even?

A)1,500
B)2,400
C)3,000
D)4,000
E)6,000

Question 57

The owner of a greenhouse and nursery is considering whether to spend $12,000 to acquire the licensing rights to grow a new variety of rose bush,which she could then sell for $8 each.Variable costs would be $5 per rosebush. What would the profit be if she were to produce and sell 5,000 rose bushes?

A)$2000
B)$3,000
C)$5,000
D)$25,000
E)$40,000

Question 58

The owner of Firewood To Go is considering buying a hydraulic wood splitter which sells for $50,000.He figures it will cost an additional $150 per cord to purchase and split wood with this machine,while he can sell each cord of split wood for $200. How many cords of wood would he have to split with this machine to break even?

A)1000
B)500
C)333
D)250
E)200

Question 59

The owner of a greenhouse and nursery is considering whether to spend $12,000 to acquire the licensing rights to grow a new variety of rose bush,which she could then sell for $8 each.Variable costs would be $5 per rosebush. If her available land has design and effective capacities of 3,000 and 2,000 rose bushes per year respectively,and she plans to grow 1,200 rosebushes each year on this land,what will be the efficiency of her use of this land?

A)0%
B)40%
C)60%
D)67%
E)100%

Question 60

Which of the following is not an assumption of the break-even model?

A)One product is involved.
B)Everything that is produced can be sold.
C)Total variable cost is the same regardless of volume.
D)Fixed costs do not change with volume changes.
E)Revenue per unit is the same regardless of volume.

Question 61

When demand is variable,capacity is usually chosen above the average (forecast)demand.The excess of capacity over the average demand is called capacity cushion or _______.

A)Capacity excess
B)Marginal capacity
C)Design capacity
D)Safety capacity
E)Effective capacity

Question 62

11eab92b_c4a6_0c4a_99e6_156d4ae9ec01 What quantity would be required for a profit of $2,000?

Question 63

11eab92b_c4a5_e537_99e6_a1d14b80666a What is the anticipated utilization?

Question 64

The utilization of an operation is .90 and it is .87 efficient.If the quality ratio is .98 what is the overall equipment effectiveness?

A)0.567
B)0.667
C)0.767
D)0.870
E)0.98

Question 65

The utilization of an operation is .95 and it is .93 efficient.If the quality ratio is .95 what is the overall equipment effectiveness?

A)0.678
B)0.768
C)0.810
D)0.825
E)0.839

Question 66

In break-even analysis with step fixed cost what must be considered when making the final decision?

A)Forecast demand
B)Fixed costs
C)Variable costs
D)Variation in the fixed costs
E)Step costs

Question 67

Doctor J.is considering purchasing a new blood analysis machine for $60,000.He estimates that he could charge $80.00 for an office visit to have a patient's blood analyzed,while the variable cost of a blood analysis would be $30.00. How many blood analyses would he have to perform in order to make a profit of $50,000?

A)2,200
B)2,000
C)1,200
D)625
E)500

Question 68

11eab92b_c4a6_0c49_99e6_d5b5c80f77a9 What is the break-even quantity (produced and sold)?

Question 69

Machine #1 has total annual fixed cost of $8,500 and a corresponding range of output of 0 to 300.Machine #2 has total annual fixed cost of $10,000 and a corresponding range of output of 301 to 600.Machine #3 has total annual fixed cost of $15,000 and a corresponding range of output of 601 to 900.Variable cost is $10 per unit and revenue is $40 per unit.What is the break-even point for each machine?

A)200,300,450
B)233.33,300,433.37
C)255,320,466.67
D)283.33,333.33,500
E)350,550,750

Question 70

Break-even analysis focuses on the relationship between three values.What are the three values?

A)Profit,volume,utilization
B)Costs,utilization,efficiency
C)Efficiency,capacity,velocity
D)Revenue,profit,utilization
E)Costs,revenue,volume

Question 71

Which of the following is not a common long-term demand pattern?

A)Growth
B)Maturity
C)Decline
D)Cyclical
E)Stable

Question 72

What is the term used to define the length of time it will take for an investment to return its original cost.

A)Break even time
B)Investment horizon
C)Payback
D)Break even term
E)Break-even point in dollars

Question 73

11eab92b_c4a5_e538_99e6_dd8bc67c481f What is the anticipated efficiency?

Question 74

Machine #1 has total annual fixed cost of $9,800 and a corresponding range of output of 0 to 300.Machine #2 has total annual fixed cost of $15,000 and a corresponding range of output of 301 to 600.Machine #3 has total annual fixed cost of $20,000 and a corresponding range of output of 601 to 900.Variable cost is $15 per unit and revenue is $40 per unit.What is the break-even point for each machine?

A)225.33,455,500
B)392,600,800
C)433.33,567.67,700
D)392,567.67,767.67
E)392,600,767.67

Question 75

The efficiency of a productive unit is 60%.The unit produces an average of 20 forklift trucks per day.Determine the effective capacity of the unit.