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Exam 5: Strategic Capacity Planning for Products and Services

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Question 51

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For fixed costs of $2,000, revenue per unit of $2, and variable cost per unit of $1.60, the break-even quantity is:

A) 1,000.
B) 1,250.
C) 2,250.
D) 5,000.
E) 3,000.

F) A) and C)
G) A) and B)

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Question 52

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The owner of Firewood To Go is considering buying a hydraulic wood splitter which sells for $50,000. He figures it will cost an additional $100 per cord to purchase and split wood with this machine, while he can sell each cord of split wood for $125. If, for this machine, design capacity is 50 cords per day, effective capacity is 40 cords per day, and actual output is anticipated to be 35 cords per day, what would be its utilization?

A) 100 percent
B) 80 percent
C) 75 percent
D) 70 percent
E) 0 percent

F) A) and E)
G) A) and D)

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Question 53

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Design capacity refers to the maximum output that can possibly be attained.

Suppose operation X feeds directly into operation Y. All of X's output goes to Y, and Y has no other operations feeding into it. X has a design capacity of 80 units per hour and an effective capacity of 72 units per hour. Y has a design capacity of 100 units per hour. What is Y's maximum possible utilization?

The method of financial analysis which results in an equivalent interest rate is:

Which of the following would not be a potential upside in a decision to outsource?

The more current capacity exceeds desired capacity, the greater the opportunity for profit.

Increasing capacity just before a bottleneck operation will improve the output of the process.

Seasonal variations are often easier to deal with in capacity planning than random variations because seasonal variations tend to be:

Given the following data for a make-or-buy decision: $\begin{array} { l l l } \text { Alternative } & \text { Fixed Cost } & \text { Variable Cost } \\\hline \text { Buy } & \$ 0 \text { per year } & \$ 8 \text { per unit } \\\text { Make } & \$ 100,000 \text { per year } & \$ 4 \text { per unit }\end{array}$ For what range of output would you prefer to buy?

A Virginia county is considering whether to pay $50,000 per year to lease a prisoner transfer facility in a prime location near Washington,

Everything else being equal, a firm considering outsourcing can be reasonably certain that:

Consider the following information: $\begin{array} { l l } \text { Fixed Costs: } & \$ 15,000 \text { per year } \\\text { Variable Costs: } & \$ 1.00 \text { per unit } \\\text { Revenue: } & \$ 1.60 \text { per unit } \\\text { Design Capacity: } & 45,000 \text { units per year } \\\text { Effective Capacity: } & 40,000 \text { units per year } \\\text { Anticipated Output: } & 36,000 \text { units per year }\end{array}$ What is the break-even quantity (produced and sold)?

Waiting line analysis can be useful for capacity design, especially for service systems.

Given the following information, what would efficiency be? Effective capacity = 80 units per day Design capacity = 100 units per day Utilization = 48 percent

Which of the following is not a basic question in capacity planning?

When buying component parts, risk does not include:

The owner of a greenhouse and nursery is considering whether to spend $6,000 to acquire the licensing rights to grow a new variety of rosebush, which she could then sell for $6 each. Per-unit variable cost would be $3. If her available land has design and effective capacities of 3,000 and 2,000 rosebushes per year respectively, and she plans to grow 1,200 rosebushes each year on this land, what will be the utilization of this land?

The owner of Firewood To Go is considering buying a hydraulic wood splitter which sells for $50,000. He figures it will cost an additional $100 per cord to purchase and split wood with this machine, while he can sell each cord of split wood for $125. If, for this machine, design capacity is 50 cords per day, effective capacity is 40 cords per day, and actual output is expected to be 32 cords per day, what would be its efficiency?

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.