Chapter 6 Capacity Planning: Operations Management: Processes and Supply Chains, 10e (Krajewski Et Al.)

Operations Management: Processes and Supply Chains, 10e (Krajewski et al.
)
Chapter 6 Capacity Planning
1) Capacity is the maximum rate of output of a process.

Answer: TRUE
Reference: Introduction
Difficulty: Easy
Keywords: capacity, maximum output rate
2) Capacity decisions should be made separately from strategic decisions.

Answer: FALSE
Difficulty: Moderate
Keywords: capacity decision, strategic decisions
3) Capacity can be expressed by output or input measures.

Answer: TRUE
Reference: Planning Long-Term Capacity
Keywords: capacity, input measures, output measures
4) Input measures of capacity are inherently more accurate than output measures of capacity.
Answer: FALSE
Keywords: input measures, output measures, capacity
5) Utilization is the degree to which equipment, space, or labor is currently being used.
Answer: TRUE
Difficulty: Easy
Keywords: utilization, equipment used, space used, labor used
6) One reason economies of scale drive down cost is the spreading of fixed costs.
Answer: TRUE
Keywords: economies of scale, fixed cost
7) Economies of scale drive down cost even though the cost of purchased materials can be expected to
increase.
Answer: FALSE
Keywords: economies of scale, purchased materials cost
6-1
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
8) Diseconomies of scale is a concept that states that the average unit cost of a service or good can be
reduced by increasing its output rate.
Answer: FALSE
Difficulty: Easy
Keywords: diseconomies of scale, average unit cost, output rate
9) A capacity cushion is the amount of inventory that a firm maintains to handle sudden increases in
demand or temporary loss of production capacity.
Answer: FALSE
Reference: Capacity Timing and Sizing Strategies
Keywords: capacity cushion
Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and
manufacturing processes.
10) A larger capacity cushion may be required due to variation in demand, changing product mix, or
supply uncertainty.
Answer: TRUE
Keywords: capacity cushion, variation in demand, changing product mix, supply uncertainty
11) A smaller capacity cushion may be required if a process is highly capital intensive.
Answer: TRUE
Keywords: capacity cushion, capital intensity
12) One advantage of a smaller capacity cushion is that it is less expensive than a larger cushion.
Answer: TRUE
Difficulty: Easy
6-2
13) A larger capacity cushion can help firms uncover process inefficiencies, so they can find ways to
correct them.
Answer: FALSE
Keywords: capacity cushion, process inefficiencies
14) Capacity cushions may be lowered if companies smooth the output rate by raising prices when
inventory is low and decreasing prices when it is high.
Answer: TRUE
Keywords: capacity cushion, output rate, changes in pricing, inventory levels
15) An expansionist capacity strategy involves large, infrequent jumps in capacity, where a wait-and-see
strategy involves smaller, more frequent jumps.
Answer: TRUE
Keywords: expansionist strategy, wait-and-see strategy, size and timing of capacity increases
16) A wait-and-see capacity strategy minimizes the chances of lost sales due to insufficient capacity.
Answer: FALSE
Keywords: expansionist strategy, lost sales, insufficient capacity
17) A firm may preempt the expansion of competitive firms by using an expansionist capacity strategy
and announcing a large capacity expansion.
Answer: TRUE
Keywords: expansionist strategy, capacity expansion
6-3
18) An expansionist capacity strategy minimizes the risks of overexpansion due to overly optimistic
demand forecasts.
Answer: FALSE
Keywords: wait-and-see strategy, overexpansion, demand forecasts
19) 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.
Answer: TRUE
Reference: A Systematic Approach to Long-Term Capacity Decisions
Keywords: capacity requirement, customer demand, capacity cushion
20) A planning horizon is defined as the period beyond which the company does not have customer
orders.
Answer: FALSE
Keywords: time horizon
21) Output measures are used for estimating capacity requirements when product variety and process
divergence are high.
Answer: FALSE
Keywords: input measures, capacity requirements, product variety, process divergence
22) Kristen made a batch of chocolate chip cookie dough and then had to clean the utensils and mixing
bowl before she made a batch of oatmeal raisin cookie dough. The time spent cleaning the bowl and
utensils is an example of setup time.
Answer: TRUE
Keywords: setup time
23) As the desired capacity cushion increases, the processing hours required for a year's demand
decrease.
Answer: FALSE
Keywords: capacity cushion, capacity requirement
6-4
24) The capacity requirement for a year's output is inversely proportional to the total number of hours per
year during which the process operates.
Answer: TRUE
Keywords: capacity requirement
25) Cash flow is the difference between the flows of funds into and out of an organization over a period
of time.
Answer: TRUE
Difficulty: Easy
Keywords: cash flow
26) When a firm makes a long-term capacity decision, selecting the base case alternative means doing
nothing and losing orders from any demand that exceeds current capacity, or incurring costs due to
excess capacity.
Answer: TRUE
Keywords: base case alternative, capacity decisions, capacity
27) Waiting line models are often used for capacity planning.
Answer: TRUE
Reference: Tools for Capacity Planning
Keywords: waiting line models, capacity planning
28) Long-term capacity plans deal with:

A) investments in new facilities.
B) workforce size.
C) inventories.
D) overtime budgets.
Answer: A
Keywords: long-term capacity, new facilities
6-5
29) Long-term capacity decisions that confront managers include all of the following except:
A) capital equipment.
B) additional land.
C) buildings.
D) workforce size.
Answer: D
Reference: Capacity Planning Over Longer Time Horizons
Keywords: long-term capacity
30) Regarding the measurement of capacity, when a firm provides a relatively small number of
standardized products and services:
A) capacity cannot be determined reliably.
B) input measures are typically used.
C) output measures are typically used.
D) utilization becomes equal to capacity.
Answer: C
Keywords: output measure, capacity
31) Input measures include such metrics as:

A) the number of customers served per hour.
B) the number of trucks produced per day.
C) the number of machine hours available.
D) the number of bills processed in a week.
Answer: C
Keywords: input measure, capacity
32) The degree to which equipment, space, or labor is being used is commonly referred to as:
A) capacity.
B) output.
C) utilization.
D) cushion.
Answer: C
Keywords: utilization, capacity
6-6
33) A manufacturing plant is capable of producing 10 tons of product per day when it runs three shifts
with no breakdowns and plenty of raw materials. Over the past week, the plant has produced an average
of 7.3 tons per day because the third shift has devoted much of their time to preventive maintenance.
What is the utilization of the plant?
A) 10 tons/day
B) 7.3 tons/day
C) 137%
D) 73%
Answer: D
AACSB: Analytic skills
34) A manufacturing plant is capable of producing 10 tons of product per day when it runs three shifts
with no breakdowns and plenty of raw materials. Over the past week, the plant has produced an average
of 7.3 tons per day since the third shift has devoted much of their time to preventive maintenance. What
is the capacity of the plant?
A) 10 tons/day
B) 7.3 tons/day
C) 73%
D) 137%
Answer: A
35) A lumber mill is capable of producing 10,000 board feet of lumber per day when it runs ten hours per
day with minimal breaks. Over the past year, forestry legislation has reduced the availability of raw
materials, so the mill has produced an average of 4,575 board feet per day. What is the capacity of the
plant?
A) 4,575 board feet/day
B) 10,000 board feet/day
C) 45.75%
D) 219%
Answer: B
6-7
36) A lumber mill is capable of producing 10,000 board feet of lumber per day when it runs ten hours per
day with minimal breaks. Over the past year, forestry legislation has reduced the availability of raw
materials, so the mill has produced an average of 4,575 board feet per day. What is the utilization of the
plant?
A) 4,575 board feet/day
B) 10,000 board feet/day
C) 219%
D) 45.75%
Answer: D
37) The transition from economies of scale to diseconomies of scale:

A) is more likely to occur in a service operation.
B) is more likely to occur in a manufacturing operation.
C) is more likely to occur when utilization is low.
D) contains the point at which average unit costs are at their lowest.
Answer: D
Reference: Capacity Planning Over Longer Time Horizons
Keywords: economies of scale, diseconomies of scale
38) Large, infrequent jumps in capacity are characteristic of companies that:

A) have an expansionist strategy.
B) have a wait-and-see strategy.
C) have low utilization.
D) have high utilization.
Answer: A
Keywords: expansionist capacity strategy
39) Which one of the following factors usually motivates a smaller capacity cushion?
A) unevenly distributed demands
B) high capital intensity
C) high penalty costs for overtime usage
D) requests for quick customer services
Answer: B
6-8
40) Which one of the following factors usually calls for a larger capacity cushion?
A) uncertain demand
B) high capital intensity
C) more reliable equipment
D) high worker flexibility
Answer: A
Keywords: capacity cushion, demand variability
41) Which one of the following statements about capacity cushions is best?
A) Companies with flexible flow processes tend to have small capacity cushions.
B) Companies with high capital costs tend to have large capacity cushions.
C) Companies that have considerable customization tend to have larger capacity cushions.
D) Constant demand rates require larger-capacity cushions.
Answer: C
Keywords: capacity cushion, customization
42) Which one of the following statements concerning capacity cushions is best?
A) Large capacity cushions are used more often when future demand is level and known.
B) Small capacity cushions are used extensively in capital intensive firms.
C) Capacity cushions are used primarily in manufacturing organizations, not in service organizations.
D) Small cushions are used in organizations where the products and services produced often change.
Answer: B
43) If a system is well balanced, which one of the following changes usually calls for a larger capacity
cushion?
A) higher capital intensity
B) higher worker flexibility
C) requests for fast delivery times
D) higher inventories
Answer: C
Keywords: balanced system, cushion capacity
6-9
44) If a system is well balanced, which one of the following changes usually calls for a smaller capacity
cushion?
A) higher customization
B) more of a flexible-flow strategy
C) higher yield losses
D) higher capital intensity
Answer: D
45) An expansionist capacity strategy:

A) lags behind demand.
B) reduces the risk of overexpansion based on overly optimistic demand forecasts.
C) can preempt expansion by competitors by announcing a large capacity expansion.
D) meets capacity shortfalls with overtime, temporary workers, subcontracting, and stockouts.
Answer: C
Keywords: capacity cushion, capacity expansion
46) A wait-and-see capacity strategy:

A) involves small, frequent jumps in capacity.
B) minimizes the chance of lost sales due to insufficient capacity.
C) can result in economies of scale and a fast rate of learning, yielding reduced manufacturing costs.
D) stays ahead of demand.
Answer: A
Keywords: capacity cushion, capacity jumps
6-10
47) A wait-and-see capacity strategy does all of the following EXCEPT:
A) lag behind demand.
B) minimize the chance of lost sales due to insufficient capacity.
C) meet capacity shortfalls with overtime, temporary workers, subcontracting, and stockouts.
D) reduce the risk of overexpansion based on overly optimistic demand forecasts.
Answer: B
Keywords: capacity cushion, lost sales, insufficient capacity
48) An expansionist capacity strategy does all of the following EXCEPT:

A) stay ahead of demand.
B) minimize the chance of lost sales due to insufficient capacity.
C) result in economies of scale and a fast rate of learning, yielding reduced manufacturing costs.
D) involve small, frequent jumps in capacity.
Answer: D
Keywords: capacity cushion, capacity jumps
49) The time required to change a machine from making one product or service to the next is called:
A) cycle time.
B) setup time.
C) queue time.
D) hold time.
Answer: B
Keywords: setup time
50) A well-educated operations manager used the capacity requirements equation to determine the
number of crackerbox welders to purchase for the shop, given the standard time per unit, hours available
per machine, among other relevant parameters. He studied the answer, 12.6, and concluded that:
A) he had made a mistake, since it isn't possible to purchase a fractional welder.
B) he needed to decrease his desired capacity cushion to bring him up to an even thirteen welders.
C) he should buy twelve welders and spend 50% more time per part to reach the 12.6 figure.
D) he should buy twelve welders and use all of them at 5% overtime to achieve the necessary output.
Answer: D
Keywords: capacity, cushion
6-11
51) A well-educated operations manager used the capacity requirements equation to determine the
number of crackerbox welders to purchase for the shop, given the standard time per unit, hours available
per machine, among other relevant parameters. He studied the answer, 2.2, and concluded that:
A) he had made a mistake, since it isn't possible to purchase a fractional welder.
B) he needed to decrease his desired capacity cushion to bring him up to exactly three welders.
C) he should buy two welders and authorize 10% overtime to reach the 2.2 figure.
D) he should buy two welders and reduce the time per part by 10% to reduce the capacity need to two
welders.
Answer: C
Keywords: capacity, cushion
52) The single milling machine at Stout Manufacturing was severely overloaded last year. The plant
operates eight hours per day, five days per week, and 50 weeks per year. Management prefers a capacity
cushion of 15 percent. Two major types of products are routed through the milling machine. The annual
demand for product A is 3000 units and 2000 units for product B. The batch size for A is 20 units and 40
units for B. The standard processing time for A is 0.5 hours/unit and 0.8 hours/unit for B. The standard
setup time for product A is 2 hours and 8 hours for product B. How many new milling machines are
required if Stout does not resort to any short-term capacity options?
A) no new machines
B) 1 or 2 new machines
C) 3 or 4 new machines
D) more than 4 new machines
Answer: B
Keywords: capacity requirement, evaluate alternatives, select alternative
6-12
Table 6.1
The Union Manufacturing Company is producing two types of products: A and B. The demand forecasts,
batch size, and time standards follow:
Product A Product B
Demand forecast (units/yr) 1,000 4,000
Batch size (units/batch) 20 10
Processing time (hr/unit) 3.2 4.5
Setup time (hr/batch) 10 20
Both products are produced on the same machine, called Mark I.
53) Using Table 6.1, what is the total number of hours required of Mark I equipment for the next year?
A) fewer than 29,000 hours
B) between 29,000 and 30,000 hours
C) between 30,000 and 31,000 hours
D) more than 31,000 hours
Answer: B
Keywords: capacity requirement, evaluate alternatives
54) Use the information in Table 6.1. The company works 250 days per year and operates two shifts, each
covering 8 hours. If a 15 percent capacity cushion is maintained, how many hours of capacity can the
company expect from each of its Mark I machines?
A) fewer than 3000
B) between 3000 and 3500
C) between 3501 and 4000
D) more than 4000
Answer: B
55) Use the information in Table 6.1. How many Mark I machines are required to produce Union
Manufacturing's for the year's production?
A) fewer than 4 machines
B) more than 4 but fewer than or equal to 6 machines
C) more than 6 but fewer than or equal to 8 machines
D) more than 8 machines
Answer: D
6-13
56) The Southeast Manufacturing Company is producing two types of products: A and B. Demand
forecasts for next year and other production-related information are provided in the following table:
Product A Product B
Both of these products are produced at the same workstation, called the Automatic Lathe. Currently, the
company has 12 automatic lathes, and financial constraints prevent any expansion for the next year. It
works 250 days per year with two 8-hour shifts and desires a 25 percent capacity cushion. Which one of
the following alternatives will allow next year's demand to be fully covered?
A) Do nothing.
B) Increase the capacity cushion to 30 percent.
C) Increase the batch size of product B to 300 units.
D) Decrease the capacity cushion by 1 percent.
Answer: C
6-14
57) Up, Up & Away is a producer of kites and windsocks. Relevant data concerning their production for
the upcoming fiscal year are as follows:
Assume: 1 shift/day, 8 hours/shift, 5 days/week, and 50 weeks/year;

They currently have four machines, and management wants a capacity cushion of 20 percent.
Which of the following alternatives will enable Up, Up & Away to meet all of the upcoming year's
demand using the minimum number of machines?
A) Add six additional machines.
B) Add five additional machines.
C) Add four additional machines.
D) Add three additional machines.
Answer: B
58) The lock box department at Bank 21 handles the processing of monthly loan payments to the bank,
monthly and quarterly premium payments to a local insurance company, and bill payments for 85 of the
bank's largest commercial customers. The payments are processed by machine operators, with one
operator per machine. An operator can process one payment in 0.25 minute. Setup times are negligible in
this situation. A capacity cushion of 20 percent is needed for the operation. The average monthly (not
annual) volume of payments processed through the department currently is 400,000. However, it is
expected to increase by 20 percent. The department operates eight hours per shift, two shifts per day, 260
days per year. How many machines (not operators) are needed to satisfy the new total processing
volume? (Round up to the next whole integer.)
A) fewer than 7
B) 7
C) 8
D) more than 8
Answer: C
Difficulty: Hard
6-15
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.
59) Using the information from Table 6.2, what is the minimum total number of hours required of sawing
equipment for the next year?
A) fewer than 85,000 hours
B) more than 85,000 but fewer than 95,000
C) more than 95,000 but fewer than 105,000
D) more than 105,000 hours
Answer: A
Difficulty: Hard
60) Using the information from Table 6.2, how many hours of capacity can the company expect from each
of its sawing machines?
A) fewer than 3500 hours
B) more than 3500 hours but fewer than 3700 hours
C) more than 3700 hours but fewer than 3900 hours
D) more than 3900 hours
Answer: B
Difficulty: Hard
6-16
61) Using the information from Table 6.2, what is the minimum number of machines needed (assuming
no reliance on short-term options)?
A) fewer than or equal to 22
B) more than 22 but fewer than or equal to 25
C) more than 25 but fewer than or equal to 28
D) more than 28
Answer: B
Difficulty: Hard
62) Using the information from Table 6.2, what is the maximum number of machines needed (assuming
no reliance on short-term option)?
D) more than 31
Answer: D
Difficulty: Hard
63) Using the information from Table 6.2, if the operation currently has 18 machines and the manager is
willing to expand capacity by 20 percent through short-term options, what is the capacity gap (in terms of
number of machines) if you assume the optimistic demand forecasts?
D) more than 14
Answer: A
Difficulty: Hard
6-17
64) 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).
A) No additional machines are necessary.

B) One additional machine is necessary.
C) Two additional machines are necessary.
D) More than two additional machines are necessary.
Answer: C
6-18
65) The Northern Manufacturing Company is producing products A and B, using the same machine
called MASAC27A. Demand forecasts for next year and other production-related information are
provided in the following table.
Product A Product B
The company works 250 days per year and operates 2 shifts each day, each shift covering 8 hours. If 25
percent of capacity cushion is maintained throughout the year, how many machines (MASAC27A) does
the company need next year to meet the demand? (Round your answer up to the next whole machine.)
B) 11 machines
C) 12 machines
Answer: C
Table 6.3
The North Bend Manufacturing Company is producing two types of products, A and B. Demand
forecasts for next year and other production-related information are provided in the following table:
Product A Product B
Demand forecast (units/year) 4,000 12,000
Standard processing time (hr/unit) 2.5 2
Standard setup time (hr/batch) 18 24
Both products A and B are produced at the same operation called MASAC27A.
66) Using the information in Table 6.3, what is the total number of hours required for MASAC27A
equipment for the next year?
A) 34,000 hours
B) 34,285 hours
C) 36,820 hours
D) 312,000 hours
Answer: C
6-19
67) Use the information in Table 6.3 to help answer this question. Additionally, the company works 250
days every year and operates 2 shifts, each of which covers 8 hours. If a 25 percent capacity cushion is
maintained, how many machines does the company need next year to fully cover the demand?
B) 13 machines
C) 14 machines
Answer: B
68) Use the information in Table 6.3 to help answer this question. Currently, the company has 12
MASAC27A machines, and financial constraints prevent any expansion for the next year. Which one of
the following alternatives will allow next year's demand to be fully covered?
A) Do nothing.
B) Increase the capacity cushion to 30 percent.
C) Increase the batch size of product B to 300 units.
D) Decrease the capacity cushion by 1 percent.
Answer: C
6-20
69) 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:
Quarter ($000)
1 720
2 800
3 890
4 690
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?
A) less than $28,000
B) more than $28,000 but less than $32,000
C) more than $32,000 but less than $36,000
D) more than $36,000
Answer: D
Keywords: capacity requirement, before-tax profit
6-21
70) Sleep Tight Motel has the opportunity to purchase an adjacent plot of land. Building on this land
would increase their capacity from the current sales level of $515,000/year to $600,000/year. Sleep Tight
experiences a 20 percent before-tax profit margin. It wishes to estimate the additional before-tax profits
that the expansion will produce. Using the following information, how much more before-tax cash flow
would be realized just in year 10 alone?
Capacity Requirement
Year (Annual Sales)
1 $515,000
2 $517,000
3 $520,000
4 $525,000
5 $540,000
6 $560,000
7 $565,000
8 $575,000
9 $600,000
10 $620,000
A) less than or equal to $20,000

B) greater than $20,000 but less than or equal to $25,000
C) greater than $25,000 but less than or equal to $30,000
D) greater than 30,000
Answer: A
Keywords: capacity requirement, cash flow
6-22
71) Innovative Inc. is experiencing a boom for the products it has introduced recently. The estimated
annual sales projected for the next five years are given in the following table. The current capacity is
equivalent to only $100 million sales. The company is considering the alternative of expanding capacity to
an equivalent of $250 million sales. Assume a 25 percent pretax profit margin. What is the increase in
total pretax cash flow (summed over all years) that would be enjoyed because of the expansion?
Annual Sales
Year (in $ million)
1 100
2 140
3 170
4 200
5 250
A) less than or equal to $40 million

B) more than $40 million but less than or equal to $70 million
C) more than $70 million but less than or equal to $100 million
D) more than $100 million
Answer: C
Keywords: capacity requirement, cash flow
72) John Owen owns a drugstore that is experiencing significant growth. Owen is trying to decide
whether to expand its capacity, which currently is $200,000 in sales per quarter. Sales are seasonal.
Forecasts of capacity requirements, expressed in sales per quarter for the next year, follow.
Quarter ($000)
1 240
2 180
3 220
4 260
Owen is considering expanding capacity to the $250,000 level in sales per quarter. The before-tax profit
margin from additional sales is 15 percent. How much would before-tax profits increase next year
because of this expansion?
Answer: C
Keywords: capacity requirement, evaluate alternatives, cash flow
6-23
Table 6.4
Mr. Lee is considering a capacity expansion for his supermarket. The annual sales projected for the next
five years follow. The current capacity is equivalent to $300,000 sales. Assume a 20 percent pretax profit
margin.
Annual Sales
Year ($000)
1 310
2 320
3 340
4 370
5 400
73) Using the information in Table 6.4, if Lee expands the capacity to an equivalent of $360,000 sales now
(year 0), how much would pretax cash flow in year 1 increase because of this expansion?
A) less than $3000
B) more than $3000 but less than $5000
C) more than $5000 but less than $7000
D) more than $7000
Answer: A
(year 0), how much would pretax cash flow in year 5 increase because of this expansion?
A) less than $7000
B) more than $7000 but less than $10,000
Answer: C
6-24
(year 0), and then expands the capacity to an equivalent of $400,000 sales at the beginning of year 4, how
much would pretax cash flow increase in total for all years (years 1 through 5)?
Answer: C
Table 6.5
The T. H. King Company has introduced a new product line that requires two work centers, A and B for
manufacture. Work Center A has a current capacity of 10,000 units per year, and Work Center B is
capable of 12,500 units per year. This year (year 0), sales of the new product line are expected to reach
10,000 units. Growth is projected at an additional 1,000 units each year through year 5. Pre-tax profits are
expected to be $30 per unit throughout the 5-year planning period. Two alternatives are being
considered:
1) Expand both Work Centers A and B at the end of year 0 to a capacity of 15,000 units per year, at a
total cost for both Work Centers of $200,000;
2) 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%.
76) Use the information in Table 6.5. What is the pre-tax cash flow (net present value) for alternative #1
compared to the base case of doing nothing for the next five years?
A) negative pre-tax cash flow
Answer: C
6-25
Answer: B
78) Use the information in Table 6.5. What action, if any, should the King Company take?
A) Do nothing—neither alternative provides a positive net present value after five years.
B) Select Alternative #1.
C) Select alternative #2.
D) Either alternative may be selected, since the positive net present values are the same after five years.
Answer: B
6-26
Table 6.6
Burdell Labs is a diagnostic laboratory that does various tests (blood tests, urine tests, etc.) for doctors'
offices in the Indianapolis area. Test specimens are picked up at the doctors' offices and are transported to
the testing facility, with uniform arrivals throughout the day. All tests go through two testing centers in
the testing facility, Test Center A and Test Center B. A has a current capacity of 1,000 units per week, and
B is capable of 1,500 units per week. The facility operates 50 weeks per year. This year (year 0), test
volumes are expected to reach 1,000 units per week. Growth per week is projected at an additional 200
units through year 5 (i.e., 1,200 per week in year #1, 1,400 per week in year #2, etc.). Pre-tax profits are
expected to be $5 per test throughout the 5-year planning period. Two alternatives are being considered:
1) Expand both Test Centers A and B at the end of year 0 to a capacity of 2,000 units per week, at a total
cost for both Test Centers of $300,000;
2) Expand Test Center A at the end of year 0 to 1,500 units per week, matching Test Center B, at a cost of
$100,000, then expanding both Test Centers to 2,000 units per year at the end of year 3, at an additional
cost at that time of $250,000.
Burdell Labs will not consider projects that don’t show a 5th year positive net present value using a
discount rate of 15%.
Answer: C
Answer: D
6-27
81) Use the information in Table 6.6. What action, if any, should the Burdell Labs take?
A) Do nothing—neither alternative provides a positive net present value after five years.
D) Either alternative may be selected, since the positive net present values are the same after five years.
Answer: C
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
considered:
1) Expand both Work Centers X and Y at the end of year 0 to a capacity of 60,000 units per year, at a
2) Expand Work Center X at the end of year 0 to 55,000 units per year, matching Work Center Y, at a
The Sharp Company will not consider projects that don't show a 3rd year positive net present value using
a discount rate of 20%.
Answer: D
6-28
Answer: C
84) Use the information in Table 6.7. What action, if any, should the Sharp Company take?
A) Do nothing—neither alternative provides a positive net present value after three years.
D) Either alternative may be selected, since the positive net present values are the same after three years.
Answer: B
6-29
Table 6.8
The Summerville Vitamin Company manufactures bottles of animal-shaped chewable vitamins for
children. This product line requires two work centers, tablet manufacturing and packaging. The tablet
manufacturing work center has a current capacity of 140,000 bottles per month, and packaging is capable
of 100,000 units per month. This year (year 0), monthly sales of the product line are expected to reach
100,000 units. Growth per month is projected at an additional 25,000 units through year 4 (i.e., 125,000 per
month in year #1, 150,000 per month in year #2, etc.). Pre-tax profits are expected to be $5 per unit
throughout the 4-year planning period. Two alternatives are being considered:
1) Expand both tablet manufacturing and packaging at the end of year 0 to a capacity of 200,000 units
per month, at a total cost for both work centers of $2,250,000;
2) Expand packaging at the end of year 0 to 140,000 units per year, matching tablet manufacturing, at a
cost of $1,200,000, then expanding both work centers to 200,000 units per month at the end of year 2, at an
additional cost at that time of $1,400,000.
Summerville will not consider projects that don’t show a 4th year positive net present value using a
discount rate of 25%.
compared to the base case of doing nothing for the next four years?
A) less than or equal to $5.1 million
B) more than $5.1 million but less than $5.3 million
C) more than $5.3 million less than $5.5 million
D) more than $5.5 million
Answer: D
compared to the base case of doing nothing for the next four years?
A) less than or equal to $5.1 million
B) more than $5.1 million but less than $5.3 million
C) more than $5.3 million less than $5.5 million
D) more than $5.5 million
Answer: C
6-30
87) Use the information in Table 6.8. What action, if any, should Summerville take?
A) Find another option—neither alternative provides a positive net present value after four years.
D) Either alternative may be selected, since the positive net present values are the same after four years.
Answer: B
88) Which of the following descriptions about waiting line models is best?
A) They account for major events such as competitor actions.
B) They account for the random, independent behavior of many customers.
C) They assume that each branch can give the highest expected payoff.
D) They deal with the certainty and stability in demand.
Answer: B
Keywords: waiting line model
89) 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
Answer: D
Keywords: waiting line model
90) When future demand is uncertain and sequential decisions are involved in capacity planning, a
manager should use a:
A) waiting line model.
B) cash flow analysis.
C) decision tree.
D) gap analysis.
Answer: C
Keywords: decision tree, capacity planning
6-31
Figure 6.1
91) A manager weighs three options for capacity cushion as depicted in Figure 1. If the dollar amounts
expressed in the Figure 9.1 are cash flows, which option is optimal?
A) large cushion
B) medium cushion
C) small cushion
D) Not enough information is given to select an option.
Answer: B
Keywords: decision tree, capacity planning, cushion
expressed in the Figure 9.1 are cash flows, what is the value of the optimal decision?
A) $11,700
B) $11,500
C) $12,300
D) $10,500
Answer: A
6-32
expressed in the Figure 9.1 are costs, what is the optimal decision?
A) large cushion
B) medium cushion
C) small cushion
D) Not enough information is given to select an option.
Answer: C
94) ________ is the maximum rate of output for a process.

Answer: Capacity
Difficulty: Easy
Keywords: capacity, maximum rate of output
95) Capacity decisions should be linked closely to ________ and ________ throughout the organization.
Answer: processes, supply chains
Keywords: capacity decision, strategy, process, supply chains
96) ________ is the degree to which equipment, space, or labor is currently being used.
Answer: Utilization
Difficulty: Easy
Keywords: utilization, use of equipment, space, labor
97) The ________ concept states that the average unit cost of a service or good can be reduced by
increasing its output rate.
Answer: economies of scale
Difficulty: Easy
Keywords: economies of scale
98) ________ occurs when the average cost per unit increases as the facility's size increases.
Answer: Diseconomies of scale
Difficulty: Easy
Keywords: diseconomies of scale
6-33
99) ________ is the amount of reserve capacity that a firm maintains to handle a sudden increase in
demand or temporary losses of production capacity.
Answer: Capacity cushion
Keywords: capacity cushion, reserve capacity
100) If demand is increasing, and you also prefer to increase the time between capacity increments, then
the size of increments should ________.
Answer: increase
Keywords: demand increase, time between capacity increments
101) A process's ________ is what its capacity should be for some future time period to meet the demand
of its customers, allowing for the desired capacity cushion.
Answer: capacity requirement
102) A process's ________ is the length of time it takes to switch from making one type of product to
another.
Answer: setup time
Keywords: setup
103) The ________ is the set of consecutive time periods considered for planning purposes.
Answer: planning horizon
Difficulty: Easy
Keywords: planning horizon
104) A ________ is the difference between demand and current capacity.

Answer: capacity gap
Difficulty: Easy
Keywords: capacity gap
6-34
105) ________ are more appropriate measures of capacity in situations where a task that is initially
difficult and time-consuming to perform becomes second-nature and short in duration.
Answer: Input measures
Difficulty: Easy
Keywords: input measures
106) The ________ is the act of doing nothing and losing orders from any demand that exceeds capacity,
or incurs costs because capacity is too large.
Answer: base case
Difficulty: Easy
Keywords: base case
107) A capacity decision in a call center, such as the number of customer service representatives to answer
the phone during a peak period, can be addressed using a(n) ________.
Answer: waiting-line (queuing) model
Difficulty: Easy
Keywords: waiting-line models, queuing
108) Extremely complex service capacity problems for which there are no optimizing equations should be
analyzed using ________.
Answer: simulation
Difficulty: Easy
Keywords: simulation
109) ________ are useful capacity analysis tools when the future is uncertain and capacity decisions can
be made in a sequential fashion.
Answer: Decision trees
Difficulty: Easy
Keywords: decision tree
110) Define utilization and give a service process example of it.

Answer: Utilization is expressed as a percent and is the degree to which equipment, space, or labor is
currently being used. Examples will vary.
Difficulty: Easy
6-35
111) Discuss the relationship between setup time and utilization.
Answer: Setup time is the time required to adjust a process when switching from making one product to
another and is unproductive time in the sense that no product is being built during the setup. Utilization
is the ratio of the average output rate to the maximum capacity. As output rate increases, the resource is
more productive and utilization rises. Setups enable output but do not create it, so the faster a setup can
be performed, the more of the total time is productive, thus increasing utilization.
Difficulty: Easy
Keywords: setup time, utilization
112) Give four principal reasons economies of scale can occur when output increases. Provide examples
of each for a service firm.
Answer: The four reasons are spreading fixed costs, reducing construction costs, cutting costs of
purchased materials, and finding process advantages. Examples will vary, but spreading fixed costs
might include managers' salaries, rent, and utilities applied to a larger output volume. In construction,
the costs of architect's fees, permits, rental of construction equipment, and land might be the same
regardless of the size of the store front under consideration. Higher volume of purchased materials might
allow the purchasing firm to take advantage of price breaks or delivery scheduling. Finally, process
advantages could include more efficient technology, like card readers at gas pumps, RFID for inventory
tags, etc.
Keywords: economies of scale, output
113) What factors should be considered when selecting the appropriate capacity cushion? How does the
choice of capacity cushion relate to other decisions in operations management? To other functional areas?
Answer: The appropriate size of the capacity cushion varies by industry. Large cushions are necessary
when future demand is uncertain, resource flexibility is low, product mix changes, uncertainty exists
regarding suppliers, and employee absenteeism and penalty costs for overtime and subcontracting exist.
Small-capacity cushions reduce costs and expose problems in the system. Capacity cushions are linked to
competitive priorities, quality management, capital intensity, resource flexibility, inventory, scheduling,
and location. Obviously, many of these decisions cut across functional boundaries.
Difficulty: Hard
114) Define each of the following capacity strategies: expansionist, wait-and-see, and follow-the-leader.
Answer: Expansionist means large, infrequent jumps in capacity. Wait-and-see means smaller and more
frequent jumps. Follow-the-leader means to expand when others do.
Keywords: capacity strategy, expansionist, wait-and-see, follow-the-leader
6-36
115) Depict the expansionist strategy graphically as a plot of capacity against time and discuss the
benefits of adopting this strategy.
Answer:
The expansionist means large, infrequent jumps in capacity. Several factors favor the expansionist
strategy. Expansion can result in economies of scale and a faster rate of learning, thus helping a firm
reduce its costs and compete on price. This strategy might increase the firm's market share or act as a
form of preemptive marketing. By making a large capacity expansion or announcing that one is
imminent, the firm can preempt the expansion of other firms. These other firms must sacrifice some of
their market share or risk burdening the industry with overcapacity. To be successful, however, the
preempting firm must have the credibility to convince the competition that it will carry out its plans and
must signal its plans before the competition can act.
Keywords: capacity strategy, expansionist
116) What is a capacity cushion? Provide examples of capacity cushions in a university setting and an
automotive producer.
Answer: The term capacity cushion refers to the amount of reserve capacity a process uses to handle
sudden increases in demand or temporary losses of production capacity. It measures the amount by
which the average utilization (in terms of total capacity) falls below 100%. Examples will vary, but in the
academic milieu may include adjunct faculty, off-campus apartments, and online sections of a class. In
the automotive setting cushions could include parts inventory, subcontractors, and excess/idled
equipment.
6-37
117) What are the four steps involved in making capacity decisions?
Answer: The steps are: 1) estimate future capacity requirements, 2) identify gaps by comparing
requirements with alternatives, 3) develop alternative plans for filling the gaps, and 4) evaluate
alternatives, both qualitatively and quantitatively, and make a final choice.
Keywords: capacity decision, steps
118) Capacity planning requires a demand forecast for an extended period of time into the future. What
concerns would you have regarding an extended forecast as a capacity planner?
Answer: Unfortunately, forecast accuracy declines as the forecasting horizon lengthens. In addition,
anticipating what competitors will do increases the uncertainty of demand forecasts. Demand during any
period of time may not be evenly distributed; peaks and valleys of demand may (and often do) occur
within the time period.
Keywords: forecasting
119) What is a waiting line model, and what information can it provide?
Answer: Waiting line models use probability distributions to estimate delay times, line length, and
utilization.
Keywords: waiting line model, capacity planning
120) 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?
Answer:
Average ou tput Rate
Utilization = × 100%
Maximum ca pacity
25
Utilization = × 100% = 83.3%
30
Difficulty: Easy
6-38
121) The seven-person maintenance function at a hospital performs both preventive and corrective
maintenance on hundreds of items each month. All the workers are scheduled for 40 hours per week and
there are four weeks in a month. It is the goal of the maintenance department to achieve 90% utilization
with a mix of two-thirds preventive maintenance and one-third corrective maintenance. How many
hours each month are spent performing corrective maintenance if they achieve their 90% utilization and
correct/preventive mix targets?
Answer:
Maximum ca pacity
Corrective Hours 1
Utilization = × 100% = 90% ×
7  40  4 3
Corrective Hours = 30% × 7 × 40 × 4
Corrective Hours = 336 hours
Difficulty: Easy
122) The seven-person maintenance function at a hospital performs both preventive and corrective
maintenance on hundreds of items each month. All the workers are scheduled for 40 hours per week and
there are four weeks in a month. It is the goal of the maintenance department to achieve 90% utilization
with a mix of two-thirds preventive maintenance and one-third corrective maintenance. How many
hours each month are spent performing preventive maintenance if they achieve their 90% utilization and
correct/preventive mix targets?
Answer:
Maximum ca pacity
Preventive Hours 2
Utilization = × 100% = 90% ×
7  40  4 3
Preventive Hours = 60% × 7 × 40 × 4
Preventive Hours = 672 hours
Difficulty: Easy
6-39
123) A printing company works on three types of printing jobs, each of which could be produced on the
same model printing machine. The predicted annual demands and typical order sizes are shown in the
table. The company has 2000 production hours available each year and requires a 10% capacity cushion to
allow for preventive maintenance, breakdowns, and other unforeseen circumstances. How many printing
machines must they have under these circumstances?
Job Type Job A Job B Job C

Demand 6000 4000 5000
Process time per unit .8 .75 .25
Average order size 40 100 50
setup time (hours) 1 .75 .5
Answer:
[6000(.8)  (6000 / 40)1] Job A  [4000(.75)  (4000 / 100).75] Job B  [5000(.25)  (5000 / 50).5] Job C
M=
2000[1 - (10 / 100)]
= 5.15 → 6
124) A printing company works on three types of printing jobs, each of which could be produced on the
same model printing machine. The predicted annual demands and typical order sizes are shown in the
table. The company has 2000 production hours available each year and requires a 10% capacity cushion to
allow for preventive maintenance, breakdowns, and other unforeseen circumstances. They have floor
space for five printing machines. If the time needed to set up a printing machine to switch from one job to
the next is identical for all three job types, what must their setup time be to achieve their required output?
Job Type Job A Job B Job C

Demand 6000 4000 5000
Process time per unit .8 .75 .25
Average order size 40 100 50
Answer: It can't be done; the production time required is 4800 + 3000 + 1250 = 9050 hours, which exceeds
the 9000 hours available. The setup time would need to be a negative one-sixth of an hour in order to
meet the five machine limit.
[6000(.8)  (6000 / 40) s] Job A  [4000(.75)  (4000 / 100) s] Job B  [5000(.25)  (5000 / 50) s] Job C
M= = 5.00
2000[1 - (10 / 100)]
5 × 1800 = [4800 + 150s] + [3000 + 40s] + [1250 + 100s]
9000 - 4800 - 3000 - 1250 = 290s
-50 = 290s
s = -.1724 hours
Difficulty: Hard
6-40
125) The single milling machine at Fred's Manufacturing was severely overloaded last year. The plant
operates 8 hours per day, 5 days per week, and 50 weeks per year. Management prefers a capacity
cushion of 20 percent. Two major types of products are routed through the milling machine. The annual
demand for product A is 4000 units and 3000 units for product B. The batch size for A is 20 units and 30
units for B. The standard processing time for A is 0.5 hours/unit and 0.8 for B. The standard setup time for
product A is 2 hours and 8 hours for product B. How many new milling machines are required if Fred's
does not resort to any short-term capacity options?
Answer:
 
D p  ( D / Q) s
product 1
 
 D p  ( D / Q) s
product 2
M=
N[1 - (C / 100)]
where M = number of machines required, D = number of units forecast per year, p = processing time in
hours per unit, N = total number of hours per year that the process operates, C = desired capacity cushion,
Q = number of units in each batch, and s = setup time.
[4000(.5)  (4000 / 20)2] product A  [3000(.8)  (3000 / 30)8] product B

M= = 3.5 → 4 machines
2000 [1 - (20 / 100)]
6-41
126) The Union Manufacturing Company is producing two types of products: A and B. The demand
forecasts, batch size, and time standards for the Mark I operation follow:
Product A Product B
The company works 250 days per year and operates 2 shifts, each covering 8 hours. If a 20 percent
capacity cushion is maintained, how many new Mark I machines are required if Union does not resort to
any short-term capacity options?
Answer:
 
D p  ( D / Q) s
product 1

 D p  ( D / Q) sproduct 2
M=
N[1 - (C / 100)]
where M = number of machines required, D = number of units forecast per year, p = processing time (in
hours per unit), N = total number of hours per year that the process operates, C = desired capacity
cushion, Q = number of units in each batch, and s = setup time.
[1000(3.2)  (1000 / 20)10] product A  [4000(4.5)  (4000 / 10)20] product B

M= = 9.28 → 10 machines
4000 [1 - (20 / 100)]
6-42
127) Larry's Wickets, Inc. is producing two types of products: A and B. Both are produced at the same
machining 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 machines operate on two 8-hour shifts, 5 days per week, and 50 weeks per year. The manager wants
to maintain a 20 percent capacity cushion.
a. What is the minimum number of hours required of the machining equipment for the next year?
b. How many hours of capacity can the company expect from each machine?
c. What is the minimum number of machines needed (assuming no reliance on short-term options)?
d. What is the maximum number of machines needed (assuming no reliance on short-term options)?
Answer:
a. 81,800 hours
b. 3,200 hours
c. 26 machines
d. 34 machines
Difficulty: Hard
Keywords: capacity cushion, capacity requirement
6-43
128) The T. H. King Company has introduced a new product line that requires two work centers, A and B
for manufacture. Work Center A has a current capacity of 10,000 units per year, and Work Center B is
capable of 12,500 units per year. This year (year 0), sales of the new product line are expected to reach
10,000 units. Growth is projected at an additional 1,000 units each year through year 5. Pre-tax profits are
considered:
1) Expand both Work Centers A and B at the end of year 0 to a capacity of 15,000 units per year, at a
2) Expand Work Center A at the end of year 0 to 12,500 units per year, matching Work Center B, at a
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?
Answer: The following table summarizes demand and output capabilities for the two alternatives:
Alternative #1 Net Present Value (in $000s)

= -200 + 30/1.15 + 60/(1.15)2 + 90/(1.15)3 + 120/(1.15)4 + 150/(1.15)5
= -200 + 26.1 + 45.4 + 59.2 + 68.6 + 74.6 = $73.9
= -100 + 30/1.15 + 60/(1.15)2 + (75 - 200)/(1.15)3 + 120/(1.15)4 + 150/(1.15)5
= -100 + 26.1 + 45.4 - 82.2 + 68.6 + 74.6 = $32.5
Both alternatives have a positive net present value after five years at a discount rate of 15%. However,
Alternative #1 has a higher net present value after the five-year period ($73,900 versus $32,500) and
should therefore be the alternative selected.
Difficulty: Hard
Keywords: evaluating alternatives, net present value, pre-tax cash flow, discount rate
6-44
129) Burdell Labs is a diagnostic laboratory that does various tests (blood tests, urine tests, etc.) for
doctors' offices in the Indianapolis area. Test specimens are picked up at the doctors' offices and are
transported to the testing facility, with uniform arrivals throughout the day. All tests go through two
testing centers in the testing facility, Test Center A and Test Center B. A has a current capacity of 1,000
units per week, and B is capable of 1,500 units per week. The facility operates 50 weeks per year. This
year (year 0), test volumes are expected to reach 1,000 units per week. Growth is projected at an
additional 200 units each week through year 5 (i.e., 1,200 per week in year #1, 1,400 per week in year #2,
etc.). Pre-tax profits are expected to be $5 per test throughout the 5-year planning period. Two
alternatives are being considered:
1) Expand both Test Centers A and B at the end of year 0 to a capacity of 2,000 units per week, at a total
cost for both Test Centers of $300,000;
2) Expand Test Center A at the end of year 0 to 1,500 units per week, matching Test Center B, at a cost of
$100,000, then expanding both Test Centers to 2,000 units per year at the end of year 3, at an additional
cost at that time of $250,000.
Burdell Labs 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 Burdell take?
6-45
Answer:
The following table summarizes demand and output capabilities for the two alternatives:

= -300 + 50/1.15 + 100/(1.15)2 + 150/(1.15)3 + 200/(1.15)4 + 250/(1.15)5
= -300 + 43.5 + 75.6 + 98.6 + 114.4 + 124.3 = $156.4
= -100 + 50/1.15 + 100/(1.15)2 + (125 - 250)/(1.15)3 + 200/(1.15)4 + 250/(1.15)5
= -100 + 43.5 + 75.6 - 82.2 + 114.4 + 124.3 = $175.6
Both alternatives have a positive net present value after five years at a discount rate of 15%. However,
Alternative #2 has a higher net present value after five years ($175,600 versus $156,400) and should
therefore be the alternative selected.
Difficulty: Hard
Keywords: evaluating alternatives, net present value, pre-tax cash flow, discount rate
6-46

Chapter 6 Capacity Planning: Operations Management: Processes and Supply Chains, 10e (Krajewski Et Al.)

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chapter 6 Capacity Planning: Operations Management: Processes and Supply Chains, 10e (Krajewski Et Al.)

Uploaded by

Copyright:

Available Formats

Operations Management: Processes and Supply Chains, 10e (Krajewski et al.

1) Capacity is the maximum rate of output of a process.

2) Capacity decisions should be made separately from strategic decisions.

3) Capacity can be expressed by output or input measures.

28) Long-term capacity plans deal with:

31) Input measures include such metrics as:

37) The transition from economies of scale to diseconomies of scale:

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

45) An expansionist capacity strategy:

46) A wait-and-see capacity strategy:

48) An expansionist capacity strategy does all of the following EXCEPT:

Both products are produced on the same machine, called Mark I.

Assume: 1 shift/day, 8 hours/shift, 5 days/week, and 50 weeks/year;

A) No additional machines are necessary.

A) less than or equal to $20,000

A) less than or equal to $40 million

94) ________ is the maximum rate of output for a process.

104) A ________ is the difference between demand and current capacity.

110) Define utilization and give a service process example of it.

Job Type Job A Job B Job C

Job Type Job A Job B Job C

[4000(.5)  (4000 / 20)2] product A  [3000(.8)  (3000 / 30)8] product B

[1000(3.2)  (1000 / 20)10] product A  [4000(4.5)  (4000 / 10)20] product B

Alternative #1 Net Present Value (in $000s)

Alternative #1 Net Present Value (in $000s)

You might also like