Show Ch. 5 Strategic Capacity Planning for Products and ServicesChapter 5 Managers should recognize the broader effects capacity decisions have on the entire organization. Common strategies include leading capacity, where capacity is increased to meet expected demand, and following capacity, where companies wait for demand increases before expanding capabilities. A third approach is tracking capacity which adds incremental capacity over time to meet demand. Finally, The two most useful functions of capacity planning are design capacity and effective capacity. Design capacity refers to the maximum designed service capacity or output rate and the effective capacity is the design capacity minus personal and other allowances. These two functions of capacity can be used to find the efficiency and utilization. These are calculated by the formulas below: Efficiency = Actual Output/ Effective Capacity x 100% Utilization = Actual Output/ Design Capacity x 100% Capacity refers to a system’s potential for producing goods or delivering services over a specified time interval. Capacity planning involves long-term and short term considerations. Long-term considerations relate to the overall level of capacity; short-term considerations relate to variations in capacity requirements due to seasonal, random, and irregular fluctuations in demand. Excess capacity arises when actual production is less than what is achievable or optimal for a firm. This often means that the demand in the market for the product is below what the firm could potentially supply to the market. Excess capacity is inefficient and will cause manufacturers to incur extra costs or lose market share. Capacity can be broken down in two categories: Design Capacity and Effective Capacity: refers to the maximum designed service capacity or output rate. Effective capacity is design capacity minus personal and other allowances. Product and service factors effect capacity tremendously. Chapter 5 focuses on capacity planning for products and services. Capacity is the ability of a systems potential for producing goods or delivering services over a specific time interval. The capacity decisions within a company are very important because they help determine the limit of output and provide a major insight to determining operating costs. Basic decisions about capacity often have long term consequences and this chapter explains the ramifications of those choices. When considering capacity planning within a company, three key inputs should be considered. The three inputs are the kind of capacity to be determined, how much of the products will be needed, and when will the product be needed. The most important concept of capacity planning is to find a medium between long term supply and capabilities of an organization and the predicted level of long term demand. Organizations also have to plan for actual changes in capacity, changes in consumer wants and demand, technology and even the environment. When evaluating alternatives in capacity planning, managers have to consider qualitative and quantitative aspects of the business. These aspects involve economic factors, public opinions, personal preferences of managers. This chapter describes capacity planning as a key factor in designing systems. The capacity decision is strategic and long-term in nature. Capacity planning is described as matching the capabilities of an organization with the predicted level of future demand. Many organizations become involved with capacity planning due to changes in demand, technology, the environment, etc. Organizations have capacities or limits that their system can handle. Three key
inputs to capacity planning: Defining And Measuring Capacity Determinants of Effective Capacity
The most important parts of effective capacity are process and human factors. Process factors must be efficient and must operate smoothly, if not the rate of output will dramatically decrease. Human factors must be trained well and have experience, they must be motivated and have a low absenteeism and labor turnover. In resolving constraint issues, all possible alternative solutions must be evaluated. This is possible by using CVP analysis and the Break-Even Point formula. Steps in the Capacity Planning Process Questions: [reveal-answer q=”724278″]Show Answer[/reveal-answer] answer:d design factors…page 181[/hidden-answer] 2. The capacity planning process DOES NOT include which of the following? [reveal-answer q=”87079″]Show Answer[/reveal-answer] answer:c page 183[/hidden-answer] 3. All of the following are true of Capacity decisions except: [reveal-answer q=”325866″]Show Answer[/reveal-answer] answer: d [/hidden-answer] 4. Which of the following industries measure capacity? [reveal-answer q=”371459″]Show Answer[/reveal-answer] answer e. page 180[/hidden-answer] 5. Which of the following describes the initial cost of
an investment? [reveal-answer q=”276593″]Show Answer[/reveal-answer] answer: c. page 196[/hidden-answer] 6) Which statement best describes a constraint of capacity planning? [reveal-answer q=”480240″]Show Answer[/reveal-answer] Answer: B answer on page 201 in the margin [/hidden-answer] 7) What are the three primary strategies in capacity planning? [reveal-answer q=”143043″]Show Answer[/reveal-answer] Answer: C found on page 191[/hidden-answer] 8) Which of the following is NOT a determinant of effective capacity planning? [reveal-answer q=”155670″]Show Answer[/reveal-answer] Answer: E all the above, answer found on page 189[/hidden-answer] 9) What are the major difference between design capacity and effective capacity?
Answer: D actual output vs. potential maximum output[/hidden-answer] 10) Which answer(s) defines why capacity decisions are important? [reveal-answer q=”11480″]Show Answer[/reveal-answer] Answer: E all of the above [/hidden-answer] 11) When would a company incorporate a capacity cushion? a. when
demand is certain [reveal-answer q=”734710″]Show Answer[/reveal-answer] Answer: B demand is uncertain (192)[/hidden-answer] 12) Which of the following is a reason a company would want to outsource? [reveal-answer q=”426387″]Show Answer[/reveal-answer] answer: E none of the above (195)[/hidden-answer] 13) What is the evidence of an unbalanced system? [reveal-answer q=”915050″]Show Answer[/reveal-answer] Answer: E bottleneck operation exists (197)[/hidden-answer] 14) At the break even point… [reveal-answer q=”884118″]Show Answer[/reveal-answer] answer: (A) total cost and total revenue are equal (203)[/hidden-answer] 15) Dis-economies of scale happen when… [reveal-answer q=”97987″]Show Answer[/reveal-answer] answer: C the output rate is more than the optimal level (200) [/hidden-answer] 16) Reasons for strategic
capacity planning include all of the following except : [reveal-answer q=”103661″]Show Answer[/reveal-answer] D. Strengths and weaknesses (pg 185)[/hidden-answer] 17) Strategic capacity planning for services differs from that for goods due to: [reveal-answer q=”65766″]Show Answer[/reveal-answer] E. All of the above (pg 194)[/hidden-answer] 18) Relevant criteria in determining whether to outsource production include: a) Location [reveal-answer
q=”397993″]Show Answer[/reveal-answer] E. All of the above (pg 195)[/hidden-answer] 19) In dis-economies of scale, average unit costs after the optimal level are: [reveal-answer q=”46858″]Show Answer[/reveal-answer] A. Larger (pg 200)[/hidden-answer] 20) Which of the following assumptions must be satisfied in order to use
Cost Volume Analysis? [reveal-answer q=”448585″]Show Answer[/reveal-answer] B. Variable cost per unit is constant (pg 205)[/hidden-answer] 21) Which of the following is NOT a primary capacity strategy? [reveal-answer q=”547680″]Show Answer[/reveal-answer] Answer: a, page 191[/hidden-answer] 22) Which is an important factor in planning service capacity? [reveal-answer q=”290284″]Show
Answer[/reveal-answer] Answer: d, page 194[/hidden-answer] 23)The maximum designed service capacity or output rate is known as? [reveal-answer q=”19014″]Show Answer[/reveal-answer] Answer: d, page 188[/hidden-answer] 24) Given the following information, compute the efficiency: Effective
capacity = 40 trucks per day, Actual output = 36 trucks per day [reveal-answer q=”311620″]Show Answer[/reveal-answer] Answer: c, page 189[/hidden-answer] 25) Which of the following are steps in the capacity planning process? [reveal-answer q=”810968″]Show Answer[/reveal-answer] Answer: e, page 192[/hidden-answer] 26) Which of these are NOT determinants of effective capacity? [reveal-answer q=”604261″]Show Answer[/reveal-answer] Answer E (page 190)[/hidden-answer] 27) What is a
constraint? [reveal-answer q=”551606″]Show Answer[/reveal-answer] Answer B (page 201)[/hidden-answer] 28) Which assumptions must be
satisfied in order for cost-volume analysis to be a valuable tool? [reveal-answer q=”834176″]Show Answer[/reveal-answer] Answer C (page 205)[/hidden-answer] 29) What is the correct formula for the break even
point in units? [reveal-answer q=”188712″]Show Answer[/reveal-answer] Answer A (page 204)[/hidden-answer] 30) What is the best way to measure capacity for a steel mill? [reveal-answer q=”479056″]Show Answer[/reveal-answer] Answer D (page 188)[/hidden-answer] 31) What is the first step in the capacity planning process? [reveal-answer q=”625917″]Show Answer[/reveal-answer] Answer = B. Page 192[/hidden-answer] 32) Which of these is a determinant of effective capacity? [reveal-answer q=”922882″]Show Answer[/reveal-answer] Answer = E. Page 190[/hidden-answer] 33) What is the first step in strategy formulation? [reveal-answer q=”939674″]Show Answer[/reveal-answer] Answer = C. Page 191[/hidden-answer] 34) When is it best to use simulation? [reveal-answer q=”605353″]Show Answer[/reveal-answer] Answer = E. Page 207[/hidden-answer] 35) Decision theory is best
used in which of the following? [reveal-answer q=”979803″]Show Answer[/reveal-answer] Answer = A. Page 207[/hidden-answer] 36) What is capacity? I. The upper limit or ceiling on the load that an operating unit can handle. a.) I and II
37) What is the difference between efficiency and utilization? a.) Efficiency is the
ratio of actual output to effective capacity, while capacity utilization is the ratio of actual output to design capacity.
Answer: A. Found on page 188[/hidden-answer] 38) Find the design capacity when utilization = 72 and actual output = 36 trucks per day. a.) 35 trucks per day [reveal-answer q=”826829″]Show
Answer[/reveal-answer] Answer: D. Found on page 189 (Utilization = [Actual Output/ Design Capacity] x 100)[/hidden-answer] 39) An operation in a sequence of operations whose capacity is lower than that of the other operations is known as: a.) Effective Capacity
Answer: C. Found on page 197[/hidden-answer] 40) Which of the following is NOT one of the five steps used to resolve constraint issues: a.) Identify the most pressing constraint.
Answer: E. Found on page 201 and 202[/hidden-answer]
41. Use the information above to answer this question. If the company uses Maxi-min Criterion to choose the best alternative, what would be the best choice for this company? [reveal-answer q=”572158″]Show Answer[/reveal-answer] Answer is A found on page 217 (Supplement to Chapter 5)[/hidden-answer] 42. What is Capacity cushion? If utilization is 38%.
Answer is E found on page The formula is Capacity cushion = 100% – Utilization[/hidden-answer]
43. Use the information in the table to answer this question. Note: department is working one 8-hour shift 250 days a year. How many machines would be needed to handle the required volume? (Round your answer to the whole number) [reveal-answer q=”266604″]Show Answer[/reveal-answer] Answer is A found on page 194.[/hidden-answer] Based on the information below answer the following Questions 44-47. The owner of Cookies Inc., Zoya, is contemplating adding a new line of cookies, which require leasing for a monthly payment of $4,000. Variable costs would be $2 per cookie, and cookies retail price for $6 each. 44. How many cookies must be sold in order to break-even? a) 1000 cookies/month [reveal-answer q=”909983″]Show Answer[/reveal-answer] Answer is A found on page 204. FC=$4,000; VC=$2 per cookie: Rev.=$6 per cookie; Q=FC/(Rev-VC); Q=$4,000/($6-$2)=1000 cookies/month.[/hidden-answer] 45. What would be the profit (loss) if 900 cookies are made and sold in a month? a) 400 profit [reveal-answer q=”782303″]Show Answer[/reveal-answer] Answer is B found on page 204. P = Q(R – v) – FC [/hidden-answer] 46. How many cookies must be sold to realize a profit of $10,000? a) 3500 cookies [reveal-answer q=”184969″]Show Answer[/reveal-answer] Answer is A found on page 204. Q=($10,000+$4,000)/($6-$2)=3,500 cookies[/hidden-answer] 47. If 2,500 cookies can be sold, and a profit is $8,000, what price should be charged per cookie? a) $7.00 [reveal-answer q=”368491″]Show Answer[/reveal-answer] Answer is C found on page 204.Profit = Q(R – v) – FC
Variable Cots is $12 per unit, and revenue is $42 per unit. Use the table above to answer the following Questions 8-10. 48. Determine the break-even point for range (0 to 300). a) 400 units [reveal-answer q=”114352″]Show Answer[/reveal-answer] Answer is A found on page 205. Q=FC/(R-v); 12,000/($42-$12)=400
units.[/hidden-answer] a) 500 units [reveal-answer q=”464300″]Show Answer[/reveal-answer] Answer is A found on page 205.[/hidden-answer] 50. If projected annual demand is between 580 and 650 units, how many machines should the manager purchase. If break-even point for [reveal-answer q=”804364″]Show Answer[/reveal-answer] 51) If the output rate is less than the optimal level, increasing the output rate results in decreasing average unit costs according to: [reveal-answer q=”91709″]Show Answer[/reveal-answer] Answer B (Page 200)[/hidden-answer] 52) If: Design capacity= 60 trucks per day, effective capacity = 40 trucks per day, actual output = 36 trucks per day, compute the efficiency: a) 20% [reveal-answer q=”729977″]Show Answer[/reveal-answer] Answer E (Efficiency=Actual output/effective capacity=36trucks per day/40 trucks per day=90%) (Page 188)[/hidden-answer] 54) What is capacity cushion? a) Extra amount of capacity
intended to offset uncertainty in demand [reveal-answer q=”767423″]Show Answer[/reveal-answer] Answer A (Page 192)[/hidden-answer] 55) What do long term considerations relate to? a) demand [reveal-answer q=”779150″]Show Answer[/reveal-answer] Answer D (Page 192)[/hidden-answer] 56) What are the three primary strategies of a strategy formulation? a. leading, following, and concluding [reveal-answer q=”173575″]Show Answer[/reveal-answer] answer is c. (found on page 191)[/hidden-answer] What are the three key questions in capacity planning?The three inputs are the kind of capacity to be determined, how much of the products will be needed, and when will the product be needed. The most important concept of capacity planning is to find a medium between long term supply and capabilities of an organization and the predicted level of long term demand.
Which of the following is a key question in capacity planning * 1 point?What are the three key questions in capacity planning? What kind of capacity is needed? How much is needed? When is it needed?
What are the three primary capacity strategies?There are three commonly recognized capacity strategies: lead, lag, and tracking. A lead capacity strategy adds capacity in anticipation of increasing demand.
What is capacity planning quizlet?Strategic Capacity Planning Goal. To achieve a match between the long-term supply capabilities of an organization and the predicted level of long-term demand. Overcapacity - operating costs that are too high. Undercapacity - strained resources and possible loss of customers. You just studied 28 terms!
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