Podcast
Questions and Answers
What is the main purpose of segmenting larger operations into smaller operating units?
What is the main purpose of segmenting larger operations into smaller operating units?
- To increase subcontracting
- To focus on core objectives (correct)
- To reduce strategic implications
- To reduce capacity requirements
What is the primary benefit of subcontractor networks?
What is the primary benefit of subcontractor networks?
- Increase core capacity
- Free up capacity for core activities (correct)
- Reduce forecasting reliance on qualitative models
- Reduce strategic implications
How many steps are involved in making capacity planning decisions?
How many steps are involved in making capacity planning decisions?
- 5
- 2
- 4
- 3 (correct)
What is the primary purpose of forecasting in capacity planning?
What is the primary purpose of forecasting in capacity planning?
What is a capacity cushion?
What is a capacity cushion?
What should be considered when making capacity planning decisions?
What should be considered when making capacity planning decisions?
What is the first step in making capacity planning decisions?
What is the first step in making capacity planning decisions?
What is an example of a capacity alternative?
What is an example of a capacity alternative?
What is the variable cost per unit?
What is the variable cost per unit?
What is the fixed cost per month?
What is the fixed cost per month?
What is the breakeven point (BEP) in units?
What is the breakeven point (BEP) in units?
What is the target profit?
What is the target profit?
What is the price per unit?
What is the price per unit?
What is the breakeven point (BEP) for one machine?
What is the breakeven point (BEP) for one machine?
How many machines should the manager purchase if the projected annual demand is between 580 and 660 units?
How many machines should the manager purchase if the projected annual demand is between 580 and 660 units?
What is the total annual fixed cost for 3 machines?
What is the total annual fixed cost for 3 machines?
What is the utilization effective of the bakery?
What is the utilization effective of the bakery?
What is the design capacity of the bakery?
What is the design capacity of the bakery?
What is the reason for economies of scale?
What is the reason for economies of scale?
What is the result of diseconomies of scale?
What is the result of diseconomies of scale?
What is the best operating level?
What is the best operating level?
What is the advantage of adding capacity incrementally in smaller chunks?
What is the advantage of adding capacity incrementally in smaller chunks?
What is the characteristic of a focused factory?
What is the characteristic of a focused factory?
What is the current situation of the bakery?
What is the current situation of the bakery?
What is the total processing time needed to fulfill the annual demand?
What is the total processing time needed to fulfill the annual demand?
What is the annual capacity of one machine?
What is the annual capacity of one machine?
What is the break-even point (BEP) in a business?
What is the break-even point (BEP) in a business?
How many machines are needed to handle the required volume?
How many machines are needed to handle the required volume?
What is the processing time per unit for Product #1?
What is the processing time per unit for Product #1?
What is the primary basis for evaluating location decisions using the load-distance model and center of gravity approach?
What is the primary basis for evaluating location decisions using the load-distance model and center of gravity approach?
What is the primary purpose of break-even analysis in the context of location decisions?
What is the primary purpose of break-even analysis in the context of location decisions?
Which tool is used to evaluate the cost impact of adding sites to a network of current facilities?
Which tool is used to evaluate the cost impact of adding sites to a network of current facilities?
What is the common factor among the load-distance model, center of gravity approach, and transportation method?
What is the common factor among the load-distance model, center of gravity approach, and transportation method?
What is the primary application of break-even analysis in location decisions?
What is the primary application of break-even analysis in location decisions?
What is the key difference between the load-distance model and break-even analysis?
What is the key difference between the load-distance model and break-even analysis?
Study Notes
Capacity Planning
- The bakery's current utilization is slightly below its design capacity and considerably above its effective capacity.
- The bakery can only operate at this level for a short period of time.
Best Operating Level
- The Best Operating Level is the output that results in the lowest average unit cost.
- Economies of Scale occur when the cost per unit of output drops as the volume of output increases.
- Diseconomies of Scale occur when the cost per unit rises as the volume increases.
Capacity Alternatives
- When expanding capacity, there are two alternatives: purchasing one large facility or adding capacity incrementally in smaller chunks as needed.
- Focused factories are small, specialized facilities with limited objectives.
- Plant within a plant (PWP) involves segmenting larger operations into smaller operating units with focused objectives.
- Subcontractor networks outsource non-core items to free up capacity for what you do well.
Making Capacity Planning Decisions
- The three-step procedure for making capacity planning decisions is:
- Identify Capacity Requirements
- Develop Capacity Alternatives
- Evaluate Capacity Alternatives
Identifying Capacity Requirements
- Forecasting capacity involves long-term capacity requirements based on future demand.
- Capacity cushions plan for added capacity to provide flexibility.
- Strategic implications include considering how much capacity a competitor might have and the potential for overcapacity in the industry.
Developing Capacity Alternatives
- Capacity alternatives include:
- Doing nothing
- Expanding large now (may include a capacity cushion)
- Expanding small now with the option to add later
Example 1: Capacity Planning
- The example involves calculating the number of machines needed to handle the required volume.
- The solution involves calculating the annual capacity of a machine and then dividing the processing time needed by the capacity per machine.
Cost-Volume Relationships
- To be profitable, it is important to know what your break-even point is.
- The break-even point is the point at which total revenue equals total costs or expenses.
- The solution involves calculating the break-even point using the formula QBEP = FC / P - V.
Example 4: Break-Even Analysis
- The example involves determining the break-even point for each range of output based on the number of machines purchased.
- The solution involves calculating the break-even point for each machine and then determining which machine to purchase based on the projected annual demand.
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Description
This quiz assesses your understanding of capacity utilization in operations management, including effective and design capacity. Calculate the utilization and identify the current state of capacity.
