MGSC 395 EXAM 2 QUESTIONS WITH VERIFIED
ANSWERS
Capacity - Answers - The max rate of output of a process or system
What do long-term capacity plans involve? - Answers - Investments in new facilities and
equip at the organizational level, and require top mgmt participation and approval bc
they are not easily reversed
When choosing a capacity strategy, what do managers need to consider? - Answers -
How much of a cushion is needed for variable demand & should we expand capacity
ahead of demand or wait until demand is more certain
2 ways capacity can be expressed - Answers - 1. output measures
2. input measures
When are output measures of capacity best utilized? - Answers - When applied to
individual processes within the firm or when the firm provides a relatively small number
of standardized services or products
When are input measures of capacity best utilized? - Answers - Low volume, flexible
processes
What is the problem w/ input measures? - Answers - Demand is invariably expressed as
an output rate
Utilzation - Answers - The degree to which a resource such as equipment, space, or the
workforce is currently being used
Utilization formula - Answers - U= Average output rate / Max capacity * 100%
Deciding on the best level of capacity involves consideration for the __ of ___ - Answers
- Efficiency of operations
Economies of scale - Answers - States that the average unit cost of a service or good
can be reduced by increasing its output rate
4 reasons why economies of scale can drive costs down when output increases -
Answers - 1. fixed costs are spread over more units
2. construction costs are reduced
3. costs of purchased materials are cut
4. process advantages are found
, Diseconomies of scale - Answers - Occurs when the average cost per unit increases as
the facility's size increases
3 dimensions of capacity strategy - Answers - 1. sizing capacity cushions
2. timing and sizing expansion
3. linking process capacity and other operating decisions
Capacity cushion - Answers - The amount of reserve capacity a process uses to handle
sudden increases in demand or temporary losses of production capacity
Capacity cushion formula - Answers - CC= 100% - Average Utilization Rate %
In a capital intensive industry, a capacity cushion of __ % is preferred - Answers - 10%
or under
In less capital intensive industries, the capacity cushion should be around __ % -
Answers - 30-40%
Businesses find large capacity cushions appropriate when ___ varies - Answers -
demand
2 extreme strategies for expanding capacity - Answers - 1. expansionist strategy (large,
infrequent jumps in capacity)
2. wait & see strategy (smaller. more frequent jumps)
A ___ approach is needed for long term capacity decisions - Answers - systematic
4 steps for a sound capacity decision (assuming mgmt already determined existing
capacity & whether current capacity cushion is appropriate) - Answers - 1. estimate
future capacity requirements
2. identify gaps by comparing requirements w/ available capacity
3. develop alt plans for reducing the gaps
4. evaluate each alt, both quant and qual, and make a final choice
Capacity requirements - Answers - What a process's capacity should be for some future
time period to meet the demand of customers (ext or int) given the firm's desired
capacity cushion
2 ways capacity requirements can be expressed - Answers - 1. output measure
2. input measure
4 potential foundations for the estimate of capacity requirements - Answers - 1.
forecasts of demand
2. productivity
3. competition
4. technological change
ANSWERS
Capacity - Answers - The max rate of output of a process or system
What do long-term capacity plans involve? - Answers - Investments in new facilities and
equip at the organizational level, and require top mgmt participation and approval bc
they are not easily reversed
When choosing a capacity strategy, what do managers need to consider? - Answers -
How much of a cushion is needed for variable demand & should we expand capacity
ahead of demand or wait until demand is more certain
2 ways capacity can be expressed - Answers - 1. output measures
2. input measures
When are output measures of capacity best utilized? - Answers - When applied to
individual processes within the firm or when the firm provides a relatively small number
of standardized services or products
When are input measures of capacity best utilized? - Answers - Low volume, flexible
processes
What is the problem w/ input measures? - Answers - Demand is invariably expressed as
an output rate
Utilzation - Answers - The degree to which a resource such as equipment, space, or the
workforce is currently being used
Utilization formula - Answers - U= Average output rate / Max capacity * 100%
Deciding on the best level of capacity involves consideration for the __ of ___ - Answers
- Efficiency of operations
Economies of scale - Answers - States that the average unit cost of a service or good
can be reduced by increasing its output rate
4 reasons why economies of scale can drive costs down when output increases -
Answers - 1. fixed costs are spread over more units
2. construction costs are reduced
3. costs of purchased materials are cut
4. process advantages are found
, Diseconomies of scale - Answers - Occurs when the average cost per unit increases as
the facility's size increases
3 dimensions of capacity strategy - Answers - 1. sizing capacity cushions
2. timing and sizing expansion
3. linking process capacity and other operating decisions
Capacity cushion - Answers - The amount of reserve capacity a process uses to handle
sudden increases in demand or temporary losses of production capacity
Capacity cushion formula - Answers - CC= 100% - Average Utilization Rate %
In a capital intensive industry, a capacity cushion of __ % is preferred - Answers - 10%
or under
In less capital intensive industries, the capacity cushion should be around __ % -
Answers - 30-40%
Businesses find large capacity cushions appropriate when ___ varies - Answers -
demand
2 extreme strategies for expanding capacity - Answers - 1. expansionist strategy (large,
infrequent jumps in capacity)
2. wait & see strategy (smaller. more frequent jumps)
A ___ approach is needed for long term capacity decisions - Answers - systematic
4 steps for a sound capacity decision (assuming mgmt already determined existing
capacity & whether current capacity cushion is appropriate) - Answers - 1. estimate
future capacity requirements
2. identify gaps by comparing requirements w/ available capacity
3. develop alt plans for reducing the gaps
4. evaluate each alt, both quant and qual, and make a final choice
Capacity requirements - Answers - What a process's capacity should be for some future
time period to meet the demand of customers (ext or int) given the firm's desired
capacity cushion
2 ways capacity requirements can be expressed - Answers - 1. output measure
2. input measure
4 potential foundations for the estimate of capacity requirements - Answers - 1.
forecasts of demand
2. productivity
3. competition
4. technological change
