Q&A Hero

Q: Nearly any business activity can be outsourced.

Q: Some business activities, such as human resources and legal processes, cannot be outsourced.

Q: Outsourcing has expanded to become a major strategy in business due to the continuing move toward specialization in an increasingly technological society.

Q: Outsourcing is not a new concept; it is simply an extension of the long-standing practice of subcontracting production activities.

Q: Offshoring is the practice of moving a business process to a foreign country but retaining control of it.

Q: Outsourcing is the practice of moving a business process to a foreign country but retaining control of it.

Q: Outsouring is the practice of procuring from external sources services or products that are normally part of an organization.

Q: Offshoring is the practice of procuring from foreign external sources services or products that are normally part of an organization.

Q: Some organizations use outsourcing to replace entire purchasing, information systems, marketing, finance, and operations departments.

Q: Operations Management, 10e (Heizer/Render) Supplement 11 Outsourcing as a Supply-Chain Strategy True/False

Q: Suppose that the market has a 70% chance of being favorable and a 30% chance of being unfavorable. A favorable market will yield a profit of $300,000, while an unfavorable market will yield a profit of $20,000. What is the expected monetary value (EMV) in this situation?

Q: Advantage Milling Devices is preparing to buy a new machine for precision milling of special metal alloys. This device can earn $300 per hour, and can run 3,000 hours per year. The machine is expected to be this productive for four years. If the interest rate is 6%, what is the present value? What is the present value if the interest rate is not 6%, but 9%? Why does present value fall when interest rates rise?

Q: A firm is about to undertake the manufacture of a product, and is weighing three capacity alternatives: small job shop, large job shop, and repetitive manufacturing. The small job shop has fixed costs of $3,000 per month, and variable costs of $10 per unit. The larger job shop has fixed costs of $12,000 per month and variable costs of $3 per unit. The repetitive manufacturing plant has fixed costs of $30,000 and variable costs of $1 per unit. Demand for the product is expected to be 1,000 units per month with "moderate" market acceptance, but 2,000 under "strong" market acceptance. The probability of moderate acceptance is estimated to be 60 percent; strong acceptance has a probability of 40 percent. The product will sell for $25 per unit regardless of the capacity decision. Which capacity choice should the firm make?

Q: A firm produces three products. Product A sells for $60; its variable costs are $20. Product B sells for $200; its variable costs are $120. Product C sells for $25; its variable costs are $10. Last year, the firm sold 1000 units of A, 2000 units of B, and 10,000 units of C. The firm has fixed costs of $320,000 per year. Calculate the break-even point of the firm.

Q: Health Care Systems of the South is about to buy an expensive piece of diagnostic equipment. The company estimates that it will generate uniform revenues of $500,000 for each of the next eight years. What is the present value of this stream of earnings, at an interest rate of 6%? What is the present value if the machine lasts only six years, not eight? If the equipment cost $2,750,000, should the company purchase it?

Q: A firm produces three products in a repetitive process facility. Product A sells for $60; its variable costs are $20. Product B sells for $200; its variable costs are $80. Product C sells for $25; its variable costs are $15. The firm has annual fixed costs of $320,000. Last year, the firm sold 1000 units of A, 2000 units of B, and 10,000 units of C. Calculate the break-even point of the firm. The firm has some idle capacity at these volumes, and chooses to cut the selling price of A from $60 to $45, believing that its sales volume will rise from 1000 units to 2500 units. What is the revised break-even point?

Q: A local business owner is considering adding another employee to his staff in an effort to increase the number of hours the store is open per day. a. If the employee will cost the owner $4,000 per month and the store takes in $50/hour in revenue with variable costs of $15/hour, how many hours must the new employee work for the owner to break even? b. The employee again costs $4000 and has agreed to work 120 hours. If variable costs remain at $15/hour and revenue is uncertain with a 40% chance of being $40/hour, 35% chance of being $20/hour, and 25% chance of being $35/hour should the owner hire the employee?

Q: A firm is considering adding a second secretary to answer phone calls and make appointments. The cost of the secretary will be $10/hour and she will work 200 hours each month. If each new client adds $400 of profit to the firm, how many clients must the secretary arrange for the firm to break even? Suppose that the secretary has an equal chance of providing either 0, 2, or 6 new clients each month. Should the firm hire the secretary?

Q: A graphic design studio is considering three new computers. The first model, A, costs $5000. Model B and C cost $3000 and $1000 respectively. If each customer provides $50 of revenue and variable costs are $20/customer, find the number of customers required for each model to break even.

Q: A factory outputs 1000 units a month. If design capacity is 3000 and efficiency is 50% find utilization and effective capacity.

Q: The efficiency of a factory is 75% and its utilization 50%. If effective capacity is 1000 find design capacity.

Q: A firm is weighing three capacity alternatives: small, medium, and large job shop. Whatever capacity choice is made, the market for the firm's product can be "moderate" or "strong." The probability of moderate acceptance is estimated to be 40 percent; strong acceptance has a probability of 60 percent. The payoffs are as follows. Small job shop, moderate market = $24,000; Small job shop, strong market = $54,000. Medium job shop, moderate market = $20,000; medium job shop, strong market = $64,000. Large job shop, moderate market = -$2,000; large job shop, strong market = $96,000. Which capacity choice should the firm make?

Q: A firm sells two products. Product R sells for $20; its variable cost is $6. Product S sells for $50; its variable cost is $30. Product R accounts for 60 percent of the firm's sales, while S accounts for 40 percent. The firm's fixed costs are $4 million annually. Calculate the firm's break-even point.

Q: A product is currently made in a process-focused shop, where fixed costs are $9,000 per year and variable cost is $50 per unit. The firm sells the product for $200 per unit. What is the break-even point for this operation? What is the profit (or loss) on a demand of 200 units per year?

Q: The local convenience store makes personal pan pizzas. Currently, their oven can produce 50 pizzas per hour. It has a fixed cost of $2,000, and a variable cost of $0.25 per pizza. The owner is considering a bigger oven that can make 75 pizzas per hour. It has a fixed cost of $3,000, but a variable cost of $0.20 per pizza. a. At what quantity do the two ovens have equal costs? b. If the owner expects to sell 9,000 pizzas, should he get the new oven?

Q: A fleet repair facility has the capacity to repair 800 trucks per month. However, due to scheduled maintenance of their equipment, management feels that they can repair no more than 600 trucks per month. Last month, two of the employees were absent several days each, and only 400 trucks were repaired. What are the utilization and efficiency of the repair shop?

Q: An executive conference center has the physical ability to handle 1,100 participants. However, conference management personnel believe that only 1,000 participants can be handled effectively for most events. The last event, although forecasted to have 1,000 participants, resulted in the attendance of only 950 participants. What are the utilization and efficiency of the conference facility?

Q: The staff training center at a large regional hospital provides training sessions in CPR to all employees. Assume that the capacity of this training system was designed to be 1800 employees per year. Since the training center was first put in use, the program has become more complex, so that 1400 now represents the most employees that can be trained per year. In the past year, 1350 employees were trained. Calculate the efficiency and the utilization of this system.

Q: What techniques exist for dealing with bottlenecks? Which of these leads to increased capacity? Which of these leads to more throughput without adding capacity? Do any of these techniques fail to increase throughput?

Q: Explain the importance of a bottleneck operation in a production sequence.

Q: Identify, in proper sequence, the steps in the process of recognizing and managing constraints.

Q: Describe the theory of constraints in a sentence.

Q: What are the assumptions of the net present value technique?

Q: Describe how EMV might be used to analyze a capacity decision.

Q: How is break-even analysis useful in the study of the capacity decision? What limitations does this analytical tool have in this application?

Q: Define variable costs. What special assumption is made about variable costs in the textbook?

Q: Define fixed costs.

Q: Identify the tactics for matching capacity to demand.

Q: A sugar mill receives sugar cane from farmers, extracts the juice, boils it into syrup, and then crystallizes the syrup into raw sugar. There has been an ongoing consolidation of sugar mills, and an increase in the capacity of those that remain. The number of mills in Louisiana was 48 in the 1960s, was 18 in 1999 and is currently 13. In 1999 the break-even point for a typical mill was 600,000 tons. But as the surviving mills have added capacity, the break-even point is now 1,000,000 tons. In 1999, the state's farmers produced 16,000,000 tons of cane, but by 2004, the crop was down to 13,000,000 tons. Analyze this situation with what you have learned about the capacity decision. Is the industry better off with fewer but larger mills, or not?

Q: A good capacity decision requires that it be tightly integrated with the organization's strategy and investments. But there are other "considerations" to making a good capacity decision. Name them. Describe each in a sentence or two.

Q: Why is the capacity decision important?

Q: Distinguish between utilization and efficiency.

Q: What is the fundamental distinction between design capacity and effective capacity? Provide a brief example.

Q: Some organizations use number of beds, number of rooms, or room size to measure capacity. There's no time period in this capacity, and no "throughput." Why are these firms using such a different concept of capacity?

Q: __________ is a means of determining the discounted value of a series of future cash receipts.

Q: Multiproduct break-even analysis calculates the __________ of each product, __________ it in proportion to each product's share of total sales.

Q: __________ cost is the cost that continues even if no units are produced.

Q: __________ analysis finds the point at which costs equals revenues.

Q: The capacity planning strategy that delays adding capacity until capacity is below demand, then adds a capacity increment so that capacity is above demand, is said to__________ demand.

Q: In the service sector, scheduling customers is __________, and scheduling the workforce is __________.

Q: __________ is actual output as a percent of effective capacity.

Q: __________ is actual output as a percent of design capacity.

Q: __________ is the amount a facility can hold, store, receive, or produce in a period of time.

Q: In "drum, buffer, rope," the __________ acts like kanban signals.

Q: In "drum, buffer, rope," what provides the schedule, i.e. the pace of production? A) drum B) buffer C) rope D) all three of the above in combination E) none of the above

Q: Which of the following techniques is not a technique for dealing with a bottleneck? A) Schedule throughput to match capacity of the bottleneck. B) Increase capacity of the constraint. C) Have cross-trained employees available to keep the constraint at full operation. D) Develop alternate routings. E) All are tools for dealing with bottlenecks.

Q: The theory of constraints has its origins in A) linear programming theory B) the theory of economies of scale C) material requirements planning D) the theory of finite capacity planning E) Goldratt and Cox's book, The Goal: A Process of Ongoing Improvement

Q: A capacity alternative has an initial cost of $50,000 and cash flow of $20,000 for each of the next four years. If the cost of capital is 5 percent, the net present value of this investment is approximately A) $20,920 B) $26,160 C) $49,840 D) $70,920 E) $106,990

Q: A capacity alternative has an initial cost of $50,000 and cash flow of $20,000 for each of the next four years. If the cost of capital is 5 percent, the net present value of this investment is A) greater than $80,000 B) greater than $130,000 C) less than $30,000 D) Impossible to calculate, because no interest rate is given. E) Impossible to calculate, because variable costs are not known.

Q: Net present value will be greater A) as a fixed set of cash receipts occurs later rather than earlier B) as the total of the cash receipts, made in same time periods, is smaller C) for one end-of-year receipt of $1200 than for twelve monthly receipts of $100 each D) for a 4% discount rate than for a 6% discount rate E) All of the above are true.

Q: Net present value A) is gross domestic product less depreciation B) is sales volume less sales and excise taxes C) is profit after taxes D) ignores the time value of money E) is the discounted value of a series of future cash receipts

Q: A common method used to increase capacity with a lag strategy is A) overtime B) subcontractors C) new facilities D) new machinery E) A and B

Q: The three main strategies for increasing capacity are A) leading, lag, straddle B) fast, normal, slow C) before, during, after D) leading, behind, mixed E) none of the above

Q: Lag and straddle strategies for increasing capacity have what main advantage over a leading strategy? A) They are cheaper. B) They are more accurate. C) They delay capital expenditure. D) They increase demand. E) all of the above

Q: A product sells for $5, and has unit variable costs of $3. This product accounts for $20,000 in annual sales, out of the firm's total of $60,000. When performing multiproduct break-even analysis, the weighted contribution of this product is approximately A) 0.133 B) 0.200 C) 0.40 D) 0.667 E) $1.667

Q: The basic break-even model can be modified to handle more than one product. This extension of the basic model requires A) price and sales volume for each product B) price and variable cost for each product, and the percent of sales that each product represents C) that the firm have very low fixed costs D) that the ratio of variable cost to price be the same for all products E) sales volume for each product

Q: Break-even analysis can be used by a firm that produces more than one product, but A) the results are estimates, not exact values B) the firm must allocate some fixed cost to each of the products C) each product has its own break-even point D) the break-even point depends upon the proportion of sales generated by each of the products E) None of these statements is true.

Q: A shop wants to increase capacity by adding a new machine. The firm is considering proposals from vendor A and vendor B. The fixed costs for machine A are $90,000 and for machine B, $75,000. The variable cost for A is $15.00 per unit and for B, $18.00. The revenue generated by the units processed on these machines is $22 per unit. If the estimated output is 9,000 units, which machine should be purchased? A) machine A B) machine B C) either machine A or machine B D) no purchase because neither machine yields a profit at that volume E) purchase both machines since they are both profitable

Q: Fred's Fabrication, Inc. wants to increase capacity by adding a new machine. The firm is considering proposals from vendor A and vendor B. The fixed costs for machine A are $90,000 and for machine B, $70,000. The variable cost for A is $9.00 per unit and for B, $14.00. The revenue generated by the units processed on these machines is $20 per unit. The crossover between machine A and machine B is A) 4,000 units, with A more profitable at low volumes B) 4,000 dollars, with A more profitable at low volumes C) 4,000 units, with B more profitable at low volumes D) 4,000 dollars, with B more profitable at low volumes E) none of the above

Q: A fabrication company wants to increase capacity by adding a new machine. The firm is considering proposals from vendor A and vendor B. The fixed costs for machine A are $90,000 and for machine B, $75,000. The variable cost for A is $15.00 per unit and for B, $18.00. The revenue generated by the units processed on these machines is $21 per unit. If the estimated output is 5000 units, which machine should be purchased? A) machine A B) machine B C) either machine A or machine B D) no purchase because neither machine yields a profit at that volume E) purchase both machines since they are both profitable

Q: Fabricators, Inc. wants to increase capacity by adding a new machine. The fixed costs for machine A are $90,000, and its variable cost is $15 per unit. The revenue is $21 per unit. The break-even point for machine A is A) $90,000 dollars B) 90,000 units C) $15,000 dollars D) 15,000 units E) cannot be calculated from the information provided

Q: Basic break-even analysis typically assumes that A) revenues increase in direct proportion to the volume of production, while costs increase at a decreasing rate as production volume increases B) variable costs and revenues increase in direct proportion to the volume of production C) both costs and revenues are made up of fixed and variable portions D) costs increase in direct proportion to the volume of production, while revenues increase at a decreasing rate as production volume increases because of the need to give quantity discounts E) All of the above are assumptions in the basic break-even model.

Q: Which of the following costs would be incurred even if no units were produced? A) raw material costs B) direct labor costs C) transportation costs D) building rental costs E) purchasing costs

Q: Which of the following statements regarding fixed costs is true? A) Fixed costs rise by a constant amount for every added unit of volume. B) While fixed costs are ordinarily constant with respect to volume, they can "step" upward if volume increases result in additional fixed costs. C) Fixed costs are those costs associated with direct labor and materials. D) Fixed costs equal variable costs at the break-even point. E) Fixed cost is the difference between selling price and variable cost.

Q: Break-even is the number of units at which A) total revenue equals price times quantity B) total revenue equals total variable cost C) total revenue equals total fixed cost D) total profit equals total cost E) total revenue equals total cost

Q: TOC strives to reduce the effect of constraints by A) offloading work from constrained workstations B) increasing constrained workstation capability C) changing workstation order to reduce process cycle time D) A and B E) A, B, and C

Q: TOC was popularized by A) Goldratt and Cox B) Ford C) Taguchi D) Deming E) Motorola and GE

Q: Which of the following is not one of the four principles of bottleneck management? A) Release work orders to the system at the bottleneck's capacity pace. B) Lost time at the bottleneck is lost system capacity. C) Increasing capacity at non-bottleneck stations is a mirage. D) Increased bottleneck capacity is increased system capacity. E) Bottlenecks should be moved to the end of the system process.

Q: An assembly line has 10 stations with process times of 1, 2, 3, 4, , 10 respectively. The process time of the system is A) 18.18% of the process cycle time B) 100% of the process cycle time C) 550% of the process cycle time D) 50% of the process cycle time E) none of the above

Q: The process time of a system is equivalent to the A) process time of the bottleneck B) sum of all workstation times C) shortest workstation time D) mean workstation time E) median workstation time