Podcast
Questions and Answers
What is the efficiency of the vehicle repair department?
What is the efficiency of the vehicle repair department?
What is the utilization of the vehicle repair department?
What is the utilization of the vehicle repair department?
Which factor does NOT influence effective capacity?
Which factor does NOT influence effective capacity?
What is a determinant of effective capacity related to the ability to produce varied items?
What is a determinant of effective capacity related to the ability to produce varied items?
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What should be considered when making long-term capacity decisions?
What should be considered when making long-term capacity decisions?
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Which operational factor can impact effective capacity?
Which operational factor can impact effective capacity?
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What type of approach is recommended for capacity changes?
What type of approach is recommended for capacity changes?
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Which factor refers to the performance standards imposed by external sources?
Which factor refers to the performance standards imposed by external sources?
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What is typically observed regarding capacity increases?
What is typically observed regarding capacity increases?
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What happens to unit costs as production levels vary from the optimal level?
What happens to unit costs as production levels vary from the optimal level?
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Why do unit costs decrease as output levels increase?
Why do unit costs decrease as output levels increase?
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What is essential for assessing capacity choices?
What is essential for assessing capacity choices?
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How many machines are needed if a department has an annual capacity requirement of 5,800 hours?
How many machines are needed if a department has an annual capacity requirement of 5,800 hours?
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What is the focus of cost-volume analysis?
What is the focus of cost-volume analysis?
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What does the optimal operating level refer to?
What does the optimal operating level refer to?
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Which component is NOT essential for calculating processing requirements?
Which component is NOT essential for calculating processing requirements?
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What does the formula TC = FC + VC X Q represent?
What does the formula TC = FC + VC X Q represent?
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At what point are total cost and total revenue equal?
At what point are total cost and total revenue equal?
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Which of the following factors is NOT listed as a criterion influencing facility location planning?
Which of the following factors is NOT listed as a criterion influencing facility location planning?
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Which formula can be used to determine total profit?
Which formula can be used to determine total profit?
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What is a strategic reason for selecting a facility location close to customers?
What is a strategic reason for selecting a facility location close to customers?
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What is the primary objective in selecting a manufacturing site?
What is the primary objective in selecting a manufacturing site?
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Which of the following factors affects total costs in facility location planning?
Which of the following factors affects total costs in facility location planning?
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Which element is essential for ensuring adequate facility location?
Which element is essential for ensuring adequate facility location?
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What does capacity refer to in an organizational context?
What does capacity refer to in an organizational context?
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What is one of the basic questions in capacity planning?
What is one of the basic questions in capacity planning?
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Why are capacity decisions considered fundamental for managers?
Why are capacity decisions considered fundamental for managers?
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Which of the following is a potential consequence of mismatching capacity with demand?
Which of the following is a potential consequence of mismatching capacity with demand?
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What challenge may arise when defining capacity?
What challenge may arise when defining capacity?
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What can influence operational expenses in capacity planning?
What can influence operational expenses in capacity planning?
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Why might dollar amounts be an inadequate measure of capacity?
Why might dollar amounts be an inadequate measure of capacity?
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What might happen when real demand differs from planned demand?
What might happen when real demand differs from planned demand?
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What is the primary focus of locational break-even analysis?
What is the primary focus of locational break-even analysis?
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Which method is specifically used to test the cost impact of different candidate locations?
Which method is specifically used to test the cost impact of different candidate locations?
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What assumption does the center of gravity method make regarding transportation costs?
What assumption does the center of gravity method make regarding transportation costs?
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Why is maximizing revenue a primary consideration for service firms in location analysis?
Why is maximizing revenue a primary consideration for service firms in location analysis?
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Which statement about locational break-even analysis is correct?
Which statement about locational break-even analysis is correct?
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Study Notes
Capacity Planning
- Capacity is the level of output an organization can achieve within a specific period.
- Capacity is the upper limit of workload an operating unit can handle.
- Capacity planning answers:
- What kind of capacity is needed?
- How much is needed?
- When is it needed?
- Capacity planning impacts business ability to meet demand and operational cost.
- Capacity decisions directly influence output rate.
- Matching capacity to demand can reduce operational costs.
- Capacity challenges exist at all organizations, at all levels.
Defining and Measuring Capacity
- Capacity is often seen as the upper limit of output rate.
- Defining capacity can be complex due to different interpretations and appropriate metrics.
- Dollar amounts can be a poor measure of capacity due to price changes.
- Utilization is the ratio of actual output to design capacity.
- Efficiency is the ratio of actual output to effective capacity.
Determinants of Effective Capacity
- Key factors include:
- Facilities: Size, location, transportation costs, market proximity, labor supply, expansion potential.
- Products/Services: System ability to produce diverse items.
- Processes: Process capability, influence of output quality.
- Human Factors: Job tasks, variety, skill, training, and experience.
- Operations: Inventory stocking, delivery times, material quality, quality inspection.
- External Factors: Product standards limiting capacity options.
Developing Capacity Alternatives
- Design flexibility into systems to handle uncertain forecasts.
- Take a holistic approach to capacity changes for mature products with limited lifespans.
- Be prepared for capacity increases coming in large chunks instead of gradual increments.
- Identify the optimal operating level to minimize unit cost.
- Smaller or larger output rates can increase unit costs compared to the ideal level.
Evaluating Alternatives
- Cost-volume analysis quantifies relationships between cost, revenue, and output.
- Break-even point (BEP) is the output volume where total cost equals total revenue. Output below BEP results in loss, above BEP results in profit.
- Cost-volume analysis helps compare capacity alternatives.
- Calculating processing requirements involves considering demand projections, processing time, workdays, shifts, and machine availability.
- Linear programming can be used to assess the cost impact of different locations on a production-distribution network.
- The center of gravity method helps locate single facilities, involving existing facilities, distances, and volumes of shipped goods. This is used for locating intermediate or distribution warehouses.
Facility Location
- Facility location is a significant strategic decision for an organization.
- Key factors include: proximity to customers, favorable business climate, total costs, infrastructure.
- Location break-even analysis: Uses cost-volume analysis to compare location alternatives economically.
Locating Service Facilities
- While the focus in manufacturing is cost minimization, service firms prioritize revenue maximization.
- Location choice often influences revenue more than cost for service firms.
- Therefore, determining the volume of business and revenue is crucial for service facility location.
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Description
This quiz explores the critical concepts of capacity planning, including how to define and measure capacity within an organization. Understand the impacts of capacity decisions on business operations and the importance of matching capacity to demand to reduce costs. Learn about the challenges organizations face in effective capacity management.
