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Chapter 05 Test Bank – Static 1.

The term capacity refers to the maximum quantity an operating unit can process over a given period of time. TRUE An operation's capacity is defined as the maximum rate of output possible. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-03 Describe ways of defining and measuring capacity. Topic: Defining and Measuring Capacity

2.

Capacity decisions are usually one-time decisions; once they have been made, we know the limits of our operations. FALSE A number of factors can either increase or reduce a unit's capacity over time. While capacity decisions often involve longterm commitments, we need to monitor both our performance and demand to identify needs to adjust capacity. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-02 Explain the importance of capacity planning. Topic: Capacity Decisions are Strategic

3.

Stating capacity in dollar amounts generally results in a consistent measure of capacity regardless of the actual units of measure. FALSE The dollar value of a unit's output can change even though that unit's capacity hasn't. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-03 Describe ways of defining and measuring capacity. Topic: Defining and Measuring Capacity

4.

Design capacity refers to the maximum output rate that can be achieved under ideal conditions. TRUE Design capacity is the maximum output rate or service rate an operation, process, or facility is designed for. AACSB: Reflective Thinking

5-1 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-03 Describe ways of defining and measuring capacity. Topic: Defining and Measuring Capacity

5.

If the unit cost to buy something is less than the variable cost to make it, the decision to make or buy is based solely on the fixed costs. FALSE Cost is not the only consideration that enters into the make-or-buy decision. Other factors such as available capacity, expertise, quality, and risks must also be considered. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-05 Discuss factors to consider when deciding whether to operate in-house or outsource. Topic: Do It In-House or Outsource It?

6.

Increasing productivity and also quality will result in increased effective capacity. TRUE Effective capacity can be increased over time by these and similar factors. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-04 Name several determinants of effective capacity. Topic: Determinants of Effective Capacity

5-2 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

7.

Utilization is defined as the ratio of effective capacity to design capacity. FALSE Utilization is the ratio of actual output to design capacity. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-03 Describe ways of defining and measuring capacity. Topic: Defining and Measuring Capacity

8.

Increasing capacity just before a bottleneck operation will improve the output of the process. FALSE If the bottleneck isn't increased, the capacity of the process remains unchanged. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-06 Discuss the major considerations related to developing capacity alternatives. Topic: Developing Capacity Strategies

9.

An example of an external factor that influences effective capacity is government safety regulations. TRUE Stricter safety regulations can reduce effective capacity. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-04 Name several determinants of effective capacity. Topic: Determinants of Effective Capacity

5-3 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

10.

Having excess capacity tends to keep operating costs low. FALSE Operating costs tend to be minimized when capacity and demand requirements are matched. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 3 Hard Learning Objective: 05-02 Explain the importance of capacity planning. Topic: Capacity Decisions are Strategic

11.

Capacity increases are usually acquired in fairly large "chunks" rather than in smooth increments. TRUE Hotels and hospitals are among many examples of circumstances in which capacity cannot be added in very small increments. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-06 Discuss the major considerations related to developing capacity alternatives. Topic: Developing Capacity Strategies

12.

In cost-volume analysis, costs that vary directly with volume of output are referred to as fixed costs because they are a fixed percentage of output levels. FALSE Costs that vary directly with volume of output are variable costs. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Topic: Evaluating Alternatives

13.

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. TRUE The difference between the revenue per unit and the variable cost per unit goes toward covering fixed costs. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Apply

5-4 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Difficulty: 2 Medium Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Topic: Evaluating Alternatives

14.

According to the reading on restaurant sourcing practices, only fast-food restaurants are able to bring in outsourced foods. FALSE A wide range of restaurants use outsourced foods. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-05 Discuss factors to consider when deciding whether to operate in-house or outsource. Topic: Additional Challenges of Planning Service Capacity Topic: Do It In-House or Outsource It?

15.

The more current capacity exceeds desired capacity, the greater the opportunity for profit. FALSE A substantial capacity overage increases operating costs and reduces the opportunity for profit; but it may serve as a deterrent to entry by competitors. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-02 Explain the importance of capacity planning. Topic: Capacity Decisions are Strategic

16.

The current trend toward global operations has made capacity decisions much easier since we have the whole world in which to consider operations. FALSE Global operations increase the complexity of decision making with regard to capacity. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-02 Explain the importance of capacity planning. Topic: Capacity Decisions are Strategic

17.

Capacity planning requires an analysis of needs: what kind, how much, and when. TRUE Type, quantity, and timing are essential to capacity decisions. AACSB: Reflective Thinking Accessibility: Keyboard Navigation

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Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-01 Name the three key questions in capacity planning. Topic: Introduction

18.

Waiting line analysis can be useful for capacity design, especially for service systems. TRUE In service systems, waiting lines are symptoms of bottleneck operations. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-08 Briefly describe approaches that are useful for evaluating capacity alternatives. Topic: Evaluating Alternatives

19.

Capacity decisions often involve a long-term commitment of resources which, when implemented, are difficult or impossible to modify without major added costs. TRUE The cost to modify capacity decisions, once they've been made, is what makes capacity decisions so consequential. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-02 Explain the importance of capacity planning. Topic: Capacity Decisions are Strategic

20.

Outsourcing some production is a means of supporting a constraint. FALSE Reducing the burden placed on a constraint is an example of overcoming the constraint. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-07 Describe the steps that are used to resolve constraint issues. Topic: Constraint Management

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21.

Outsourcing some production is a means of _________ a capacity constraint. A. B. C. D. E.

identifying modifying supporting overcoming repeating

Outsourcing some production reduces the burden placed on the constraint. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-07 Describe the steps that are used to resolve constraint issues. Topic: Constraint Management

22.

Which of the following is a key question in capacity planning? A. B. C. D. E.

Should we make the product in-house or outsource it? Where do we need the capacity? When do we need the capacity? Who will pay for the capacity change? Should we change capacity all at once, or through several small changes?

What kind, how much, and when is it needed are the three key questions in capacity planning. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-01 Name the three key questions in capacity planning. Topic: Introduction

23.

Allowances for which of these factors would be subtracted from design capacity when calculating effective capacity? A. B. C. D. E.

personal time equipment maintenance scheduling problems changing the mix of products all of the other choices

Effective capacity reflects all of the above issues, including required personal time, periodic maintenance of equipment, delays due to scheduling problems, and changes to the product mix. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-03 Describe ways of defining and measuring capacity. Topic: Defining and Measuring Capacity

5-7 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

24.

Which of the following is not a reason why capacity decisions are so important? A. B. C. D. E.

Capacity limits the rate of output possible. Capacity affects operating costs. Capacity is a major determinant of initial costs. Capacity is a long-term commitment of resources. Capacity chunks can be added or deleted quickly and inexpensively.

Capacity is a strategic decision that influences costs and the firm's ability to satisfy customers. Capacity increases frequently come in large chunks which can require significant time and money to complete. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 1 Easy Learning Objective: 05-02 Explain the importance of capacity planning. Topic: Capacity Decisions are Strategic

5-8 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

25.

Which of the following is the case where capacity is measured in terms of inputs? A. B. C. D. E.

tons of steel per day that can be produced by a steel mill kilowatt hours per day that can be generated by an electrical power plant number of meals per day that can be served by a restaurant gallons of gasoline that can be produced per day by a petroleum refinery number of passenger seats that can be filled per day on an airline route

Airlines measure capacity in terms of passenger seats available, which are inputs to their service processes. The other capacity measures above are all based on outputs. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-03 Describe ways of defining and measuring capacity. Topic: Defining and Measuring Capacity

26.

Unbalanced systems are evidenced by: A. B. C. D. E.

top-heavy operations. labor unrest. bottleneck operations. increasing capacities. assembly lines.

Bottleneck operations have capacities that restrict the overall output of the system to something less than could be achieved by the non-bottleneck operations. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-06 Discuss the major considerations related to developing capacity alternatives. Topic: Developing Capacity Strategies

27.

Maximum capacity commonly refers to the upper limit on: A. B. C. D. E.

utilization. the rate of demand. efficiency. the rate of output. finances.

Capacity often refers to the maximum rate of output that is possible; although in some industries it may refer to a limit on inputs. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium

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Learning Objective: 05-03 Describe ways of defining and measuring capacity. Topic: Defining and Measuring Capacity

28.

The impact that a significant change in capacity will have on a key vendor is a: A. B. C. D. E.

supply chain factor. process limiting factor. internal factor. human resource factor. operational process factor.

Vendors and their performance can be critical factors with respect to effective capacity. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-04 Name several determinants of effective capacity. Topic: Determinants of Effective Capacity

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29.

The maximum possible output given a product mix, scheduling difficulties, personal time, and so on is: A. B. C. D. E.

utilization. design capacity. efficiency. effective capacity. available capacity.

Effective capacity reflects the realities of the production environment. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-03 Describe ways of defining and measuring capacity. Topic: Defining and Measuring Capacity

30.

Efficiency is defined as the ratio of: A. B. C. D. E.

actual output to effective capacity. actual output to design capacity. design capacity to effective capacity. effective capacity to actual output. design capacity to actual output.

Efficiency measures the usage of effective capacity. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-03 Describe ways of defining and measuring capacity. Topic: Determinants of Effective Capacity

5-11 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

31.

Utilization is defined as the ratio of: A. B. C. D. E.

actual output to effective capacity. actual output to design capacity. design capacity to effective capacity. effective capacity to actual output. design capacity to actual output.

Utilization measures the usage of design capacity. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-03 Describe ways of defining and measuring capacity. Topic: Defining and Measuring Capacity

32.

Which of the following would tend to reduce effective capacity? A. B. C. D. E.

suppliers that provide more reliable delivery performance reduced changeover times employees that are fully trained improved production quality greater variety in the product line

All things being equal, product line variety reduces effective capacity. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-04 Name several determinants of effective capacity. Topic: Determinants of Effective Capacity

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33.

The decision to outsource opens the firm up to certain risks, among them _________ and ________. A. lower costs; fewer task-specific investments B. loss of direct control over operations; need to disclose proprietary information C. access to greater expertise; greater demand variability D. greater capacity rigidity; tight knowledge control E. higher marketing costs; small orders Loss of direct control over operations, knowledge sharing, and the possible need to disclose proprietary information are three risks that accompany outsourcing. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-05 Discuss factors to consider when deciding whether to operate in-house or outsource. Topic: Do It In-House or Outsource It?

34.

The ratio of actual output to effective capacity is: A. B. C. D. E.

design capacity. effective capacity. actual capacity. efficiency. utilization.

Efficiency measures the usage of effective capacity. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-03 Describe ways of defining and measuring capacity. Topic: Defining and Measuring Capacity

5-13 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of ...