Chapter 6 Facility and Inventory Management

Question 1
1 / 1 point
A larger capacity cushion can help firms uncover process inefficiencies, so they can find ways to correct them.
True
False
Question 2
Long-term capacity plans deal with:

1 / 1 point

workforce size.
overtime budgets.
investments in new facilities.
inventories.
Question 3
1 / 1 point
When future demand is uncertain and sequential decisions are involved in capacity planning, a manager should
use a:
decision tree.
cash flow analysis.
gap analysis.
waiting line model.
Question 4
1 / 1 point
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.
True
False
Question 5
Which one of the following statements about capacity cushions is best?

1 / 1 point

Constant demand rates require larger-capacity cushions.

Companies with flexible flow processes tend to have small capacity cushions.
Companies that have considerable customization tend to have larger capacity cushions.
Companies with high capital costs tend to have large capacity cushions.
Question
6

1 / 1 point

The degree to which equipment, space, or labor is being used is commonly referred to as:
capacity.
utilization.
cushion.
output.
Question 7
1 / 1 point
Regarding the measurement of capacity, when a firm provides a relatively small number of standardized
products and services:
capacity cannot be determined reliably.
output measures are typically used.
utilization becomes equal to capacity.
input measures are typically used.
Question 8
A wait-and-see capacity strategy minimizes the chances of lost sales due to insufficient capacity.

0 / 1 point

True
False
Question 9
Utilization is the degree to which equipment, space, or labor is currently being used.

1 / 1 point

True
False
Question 10
0 / 1 point
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?
3 or 4 new machines
1 or 2 new machines
No new machines
More than 4 new machines
Question 11
A wait-and-see capacity strategy does all of the following EXCEPT:

1 / 1 point

reduce the risk of overexpansion based on overly optimistic demand forecasts.

lag behind demand.
meet capacity shortfalls with overtime, temporary workers, subcontracting, and stockouts.
minimize the chance of lost sales due to insufficient capacity.
Question
12
An expansionist capacity strategy does all of the following EXCEPT:

1 / 1 point

involve small, frequent jumps in capacity.

minimize the chance of lost sales due to insufficient capacity.
result in economies of scale and a fast rate of learning, yielding reduced manufacturing costs.
stay ahead of demand.
Question
13
Long-term capacity decisions that confront managers include all of the following except:

1 / 1 point

capital equipment.
additional land.
workforce size.
buildings.
Question 14
A wait-and-see capacity strategy:

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can result in economies of scale and a fast rate of learning, yielding reduced manufacturing
costs.
involves small, frequent jumps in capacity.
stays ahead of demand.
minimizes the chance of lost sales due to insufficient capacity.
Question
1 / 1 point
15
A lumber mill is capable of producing 10,000 board feet of lumber per day when run 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?
45.75%
10,000 board feet/day
219%

4,575 board feet/day

Question 16
One reason economies of scale drive down cost is the spreading of fixed costs.

1 / 1 point

True
False
Question 17
Large, infrequent jumps in capacity are characteristic of companies that:

1 / 1 point

have a wait-and-see strategy.

have low utilization.
have high utilization.
have an expansionist strategy.
Question 18
Waiting line models are often used for capacity planning.

1 / 1 point

True
False
Question 19
1 / 1 point
A lumber mill is capable of producing 10,000 board feet of lumber per day when run 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?
4,575 board feet/day
45.75%
10,000 board feet/day
219%
Question 20
1 / 1 point
What information would managers use to choose the best cost-effective capacity to balance customer service
with the cost of adding capacity?
Waiting line models
Capacity cushion
Economies of scale
Decision trees
Question 21
Capacity is the maximum rate of output of a process.

1 / 1 point

True
False
Question 22
Capacity can be expressed by output or input measures.

1 / 1 point

True
False
Question 23
A smaller capacity cushion may be required if a process is highly capital intensive.

1 / 1 point

True
False
Question 24
Input measures of capacity are inherently more accurate than output measures of capacity.

1 / 1 point

True
False
Question 25
An expansionist capacity strategy:

1 / 1 point

can preempt expansion by competitors by announcing a large capacity expansion.

lags behind demand.
reduces the risk of overexpansion based on overly optimistic demand forecasts.
meets capacity shortfalls with overtime, temporary workers, subcontracting, and stockouts.
Question
26
Which one of the following factors usually calls for a larger capacity cushion?

1 / 1 point

High worker flexibility

More reliable equipment
High capital intensity
Uncertain demand
Question 27
1 / 1 point
If a system is well balanced, which one of the following changes usually calls for a smaller capacity cushion?
Higher yield losses
More of a flexible-flow strategy

Higher customization
Higher capital intensity
Question 28
1 / 1 point
A firm may preempt the expansion of competitive firms by using an expansionist capacity strategy and
announcing a large capacity expansion.
True
False
Question 29
1 / 1 point
A capacity cushion is the amount of inventory that a firm maintains to handle sudden increases in demand or
temporary loss of production capacity.
True
False
Question 30
1 / 1 point
A manufacturing plant is capable of producing 10 tons of product per day when run 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?
73%
137%
7.3 tons/day
10 tons/day
Question 31
Which one of the following factors usually motivates a smaller capacity cushion?

1 / 1 point

Unevenly distributed demands

High capital intensity
High penalty costs for overtime usage
Requests for quick customer services
Question 32
The time required to change a machine from making one product or service to the next is called:
cycle time.
hold time.
setup time.

1 / 1 point

queue time.
Question 33
1 / 1 point
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.)
More than 8
Fewer than 7
8
7
Question 34
1 / 1 point
A planning horizon is defined as the period beyond which the company does not have customer orders.
True
False
Question 35
1 / 1 point
A larger capacity cushion may be required due to variation in demand, changing product mix, or supply
uncertainty.
True
False
Question 36
Which one of the following statements concerning capacity cushions is best?

0 / 1 point

Small cushions are used in organizations where the products and services produced often
change.
Capacity cushions are used primarily in manufacturing organizations, not in service
organizations.
Small capacity cushions are used extensively in capital intensive firms.
Large capacity cushions are used more often when future demand is level and known.
Question
37
Capacity decisions should be made separate from strategic decisions.
True

1 / 1 point

False
Question 38
0 / 1 point
A manufacturing plant is capable of producing 10 tons of product per day when run 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?
10 tons/day
73%
7.3 tons/day
137%
Question 39
0 / 1 point
If a system is well balanced, which one of the following changes usually calls for a larger capacity cushion?
Higher inventories
Requests for fast delivery times
Higher capital intensity
Higher worker flexibility
Question 40
Input measures include such metrics as:
the number of machine hours available.
the number of customers served per hour.
the number of trucks produced per day.
the number of bills processed in a week.

0 / 1 point