BUS 370 - Chapter 6 Study Guide
Exam and Actual Answers 2025-2026
Set.
Capacity - Answer The capability of a worker, machine, work center, plant or organization to
produce output per time period
Theoretical Capacity - Answer The maximum output capability, allowing for no adjustments for
preventive maintenance or unplanned downtime
Rated Capacity - Answer The long-term, expected output capability of a resource or system
Lead Capacity Strategy Definition - Answer A capacity strategy in which capacity is added in
anticipation of (before) demand
Advantages - Plans for adequate capacity to meet demand, even with high growth; Preempt
competitors; can be cheaper and less disruptive
Risks - Demand is unpredictable (demand may never materialize; technology is evolving rapidly -
your product or service becomes obsolete soon after building the capacity)
Lag Capacity Strategy Definition - Answer A capacity strategy in which capacity is added only
after demand has materialized - typically a good strategy for mature, cost sensitive products and
services
Advantages - Reduced risk of overbuilding; greater productivity due to higher utilization levels;
ability to put off large investments
Risks - Reduced availability of products or services during periods of high demand
Fixed Cost (FC) - Answer •Expenses an organization incurs regardless of the level of business
activity.
Examples: office building, equipment, monthly software costs for SAP or Oracle, etc
Variable Cost (VC) - Answer Expenses directly tied to the level of business activity.
•Examples: fabric cost for a pair of jeans, labor cost for assembling a computer, etc.
Indifference Point - Answer The output level at which two capacity alternatives generate equal
Exam and Actual Answers 2025-2026
Set.
Capacity - Answer The capability of a worker, machine, work center, plant or organization to
produce output per time period
Theoretical Capacity - Answer The maximum output capability, allowing for no adjustments for
preventive maintenance or unplanned downtime
Rated Capacity - Answer The long-term, expected output capability of a resource or system
Lead Capacity Strategy Definition - Answer A capacity strategy in which capacity is added in
anticipation of (before) demand
Advantages - Plans for adequate capacity to meet demand, even with high growth; Preempt
competitors; can be cheaper and less disruptive
Risks - Demand is unpredictable (demand may never materialize; technology is evolving rapidly -
your product or service becomes obsolete soon after building the capacity)
Lag Capacity Strategy Definition - Answer A capacity strategy in which capacity is added only
after demand has materialized - typically a good strategy for mature, cost sensitive products and
services
Advantages - Reduced risk of overbuilding; greater productivity due to higher utilization levels;
ability to put off large investments
Risks - Reduced availability of products or services during periods of high demand
Fixed Cost (FC) - Answer •Expenses an organization incurs regardless of the level of business
activity.
Examples: office building, equipment, monthly software costs for SAP or Oracle, etc
Variable Cost (VC) - Answer Expenses directly tied to the level of business activity.
•Examples: fabric cost for a pair of jeans, labor cost for assembling a computer, etc.
Indifference Point - Answer The output level at which two capacity alternatives generate equal
