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Exam 6: Capacity Planning

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Question 41

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What information would managers use to choose the best cost-effective capacity to balance customer service with the cost of adding capacity?

A) decision trees
B) economies of scale
C) capacity cushion
D) waiting line models

E) A) and D)
F) A) and C)

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Question 42

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A planning horizon is defined as the period beyond which the company does not have customer orders.

A) True
B) False

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Question 43

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George P.Burdell owns a hot tub store that is experiencing significant growth.Burdell is trying to decide whether to expand the store's capacity,which currently is at $750,000 in sales per quarter.He is thinking about expanding to the $850,000 level.The before-tax profit from additional sales is 20 percent.Sales are seasonal,with peaks in the spring and summer quarters.Forecasts of capacity requirements,expressed in ($000) sales per quarter,for next year (year 2) are: Demand in year 3 and beyond is expected to exceed $850,000 per quarter.Burdell is considering expansion at the end of the fourth quarter of this year (year 1) .How much would before-tax profits in year 2 increase because of this expansion?

Table 6.2 High Tech,Inc.is producing two types of products: A and B.Both are produced at the same sawing operation.Because of demand uncertainties,the operations manager obtained three demand forecasts (pessimistic,expected,and optimistic) .The demand forecasts,batch sizes (units/batch) ,processing times (hr/unit) ,and setup times (hr/batch) follow. The sawing machines operate on two 8-hour shifts,5 days per week,and 50 weeks per year.The manager wants to maintain a 10 percent capacity cushion. -Using the information from Table 6.2,what is the maximum number of machines needed (assuming no reliance on short-term option) ?

Input measures include such metrics as:

Define each of the following capacity strategies: expansionist,wait-and-see,and follow-the-leader.

Table 6.7 The B.Sharp Company has a rapidly growing product line that requires two work centers,X and Y for manufacture.Work Center X has a current capacity of 50,000 units per year,and Work Center Y is capable of 55,000 units per year.This year (year 0),sales of the product line are expected to reach 50,000 units.Growth is projected at an additional 3,000 units each year through year 3.Pre-tax profits are expected to be $60 per unit throughout the 3-year planning period.Two alternatives are being considered: -Expand both Work Centers X and Y at the end of year 0 to a capacity of 60,000 units per year,at a total cost for both Work Centers of $500,000;

Capacity decisions should be linked closely to ________ and ________ throughout the organization.

Which one of the following statements concerning capacity cushions is best?

A process's capacity requirement states the future process capacity needed to meet projected customer demands,and includes an allowance for the desired capacity cushion.

Lucy's Pancake House,a no-frills diner along a major interstate,has discovered that if precious employee time is not wasted on frivolous duties such as cleaning work surfaces,properly storing ingredients,and pest control,they can achieve an average output rate of 25 customers per hour.If the diner was designed to accommodate a maximum of 30 customers per hour,what is the utilization?

Long-term capacity plans deal with:

Table 6.2 High Tech,Inc.is producing two types of products: A and B.Both are produced at the same sawing operation.Because of demand uncertainties,the operations manager obtained three demand forecasts (pessimistic,expected,and optimistic) .The demand forecasts,batch sizes (units/batch) ,processing times (hr/unit) ,and setup times (hr/batch) follow. The sawing machines operate on two 8-hour shifts,5 days per week,and 50 weeks per year.The manager wants to maintain a 10 percent capacity cushion. -Using the information from Table 6.2,how many hours of capacity can the company expect from each of its sawing machines?

The ________ is the act of doing nothing and losing orders from any demand that exceeds capacity,or incurs costs because capacity is too large.

Utilization is the degree to which equipment,space,or labor is currently being used.

A company's production facility,consisting of two identical machines,currently caters only to product A.The annual demand for the product is 4000 units.Management has now decided to introduce another product,B,which uses the same facilities as that of product A.Product B has an annual demand of 2000 units.In view of the uncertainties involved in producing two products,management desires to have an overall 10 percent capacity cushion.Given the following additional information,how many more machines are required? (Assume 8 hours/shift,2 shifts/day,250 days/year,and that no overtime is allowed) .

Expand Work Center A at the end of year 0 to 12,500 units per year,matching Work Center B,at a cost of $100,000,then expanding both Work Centers to 15,000 units per year at the end of year 3,at an additional cost at that time of $200,000. The King Company will not consider projects that don't show a 5th year positive net present value using a discount rate of 15%.What are the pre-tax cash flows for the two alternatives compared to the base case of doing nothing for the next five years,and what action,if any,should the company take?

Large,infrequent jumps in capacity are characteristic of companies that:

Cash flow is the difference between the flows of funds into and out of an organization over a period of time.

A wait-and-see capacity strategy: