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Exam9: Capacity and Constraint Management

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Question 1

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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

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Question 2

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A firm is about to undertake the manufacture of a product, and is weighing three capacity alternatives: small job shop, large job shop, and repetitive manufacturing. The small job shop has fixed costs of $3,000 per month, and variable costs of $10 per unit. The larger job shop has fixed costs of $12,000 per month and variable costs of $3 per unit. The repetitive manufacturing plant has fixed costs of $30,000 and variable costs of $1 per unit. Demand for the product is expected to be 1,000 units per month with "moderate" market acceptance, but 2,000 under "strong" market acceptance. The probability of moderate acceptance is estimated to be 60 percent; strong acceptance has a probability of 40 percent. The product will sell for $25 per unit regardless of the capacity decision. Which capacity choice should the firm make?

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The payoffs are as follows: small job sh...

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Question 3

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How is break-even analysis useful in the study of the capacity decision? What limitations does this analytical tool have in this application?

Distinguish between utilization and efficiency.

Expected output is sometimes referred to as rated capacity.

TOC strives to reduce the effect of constraints by

__________ analysis finds the point at which costs equals revenues.

Define fixed costs.

Substantial research has proved that the only successful method of dealing with bottlenecks is to increase the bottleneck's capacity.

The process time of a system is equivalent to the

A firm is weighing three capacity alternatives: small, medium, and large job shop. Whatever capacity choice is made, the market for the firm's product can be "moderate" or "strong." The probability of moderate acceptance is estimated to be 40 percent; strong acceptance has a probability of 60 percent. The payoffs are as follows. Small job shop, moderate market = $24,000; Small job shop, strong market = $54,000. Medium job shop, moderate market = $20,000; medium job shop, strong market = $64,000. Large job shop, moderate market = -$2,000; large job shop, strong market = $96,000. Which capacity choice should the firm make?

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?

Effective capacity is the

The net present value of $10,000 to be received in exactly three years is considerably greater than $10,000.

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

Which of the following is False regarding capacity expansion?

A firm is considering adding a second secretary to answer phone calls and make appointments. The cost of the secretary will be $10/hour and she will work 200 hours each month. If each new client adds $400 of profit to the firm, how many clients must the secretary arrange for the firm to break even? Suppose that the secretary has an equal chance of providing either 0, 2, or 6 new clients each month. Should the firm hire the secretary?

__________ is a means of determining the discounted value of a series of future cash receipts.

Changes in capacity may lead, lag, or straddle the demand.

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