Net Present Value and Moderate Keywords

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Chapter
6 |

Capacity Planning | |
TRUE/FALSE

1. Capacity is the maximum rate of output of a process.
Answer: True
Reference: Introduction

Difficulty: Easy

Keywords: capacity, maximum output rate

2. Capacity decisions should be made separate from strategic decisions. Answer: False
Reference: Introduction
Difficulty: Moderate
Keywords: capacity decision, strategic decisions

3. Capacity can be expressed by output or input measures.
Answer: True
Reference: Planning Long-Term Capacity
Difficulty: Moderate
Keywords: capacity, input measures, output measures

4. Input measures of capacity are inherently more accurate than output measures of capacity. Answer: False
Reference: Planning Long-Term Capacity
Difficulty: Moderate
Keywords: input measures, output measures, capacity

5. Utilization is the degree to which equipment, space, or labor is currently being used. Answer: True
Reference: Planning Long-Term Capacity
Difficulty: Easy
Keywords: utilization, equipment used, space used, labor used

6. One reason economies of scale drive down cost is the spreading of fixed costs. Answer: True
Reference: Planning Long-Term Capacity
Difficulty: Moderate
Keywords: economies of scale, fixed cost

7. Economies of scale drive down cost even though the cost of purchased materials can be expected to increase. Answer: False
Reference: Planning Long-Term Capacity
Difficulty: Moderate
Keywords: economies of scale, purchased materials cost

8. 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. Answer: False
Reference: Planning Long-Term Capacity
Difficulty: Easy
Keywords: diseconomies of scale, average unit cost, output rate

9. A capacity cushion is the amount of inventory that a firm maintains to handle sudden increases in demand or temporary loss of production capacity. Answer: False
Reference: Capacity Timing and Sizing Strategies
Difficulty: Moderate
Keywords: capacity cushion

10. A larger capacity cushion may be required due to variation in demand, changing product mix, or supply uncertainty. Answer: True
Reference: Capacity Timing and Sizing Strategies
Difficulty: Moderate
Keywords: capacity cushion, variation in demand, changing product mix, supply uncertainty

11. A smaller capacity cushion may be required if a process is highly capital intensive. Answer: True
Reference: Capacity Timing and Sizing Strategies
Difficulty: Moderate
Keywords: capacity cushion, capital intensity

12. A larger capacity cushion can help firms uncover process inefficiencies, so they can find ways to correct them. Answer: False
Reference: Capacity Timing and Sizing Strategies
Difficulty: Moderate
Keywords: capacity cushion, process inefficiencies

13. Capacity cushions may be lowered if companies smooth the output rate by raising prices when inventory is low and decreasing prices when it is high. Answer: True
Reference: Capacity Timing and Sizing Strategies
Difficulty: Moderate
Keywords: capacity cushion, output rate, changes in pricing, inventory levels

14. An expansionist capacity strategy involves large, infrequent jumps in capacity, where a wait-and-see strategy involves smaller, more frequent jumps. Answer: True
Reference: Capacity Timing and Sizing Strategies
Difficulty: Moderate
Keywords: expansionist strategy, wait-and-see strategy, size and timing of capacity increases

15. A wait-and-see capacity strategy minimizes the chances of lost sales due to insufficient capacity. Answer: False
Reference: Capacity Timing and Sizing...
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