Strategic Capacity Planning - OPM400

Open Ended

List 5 actions to improve your grades in OPM400 for this semester and which one should be your priority 1?

Open Ended

How do capacity strategies impact the overall effectiveness of an organization?

Multiple Choice

Why is strategic capacity planning important for organizations?

• It helps organizations meet future demand efficiently.

• It reduces the need for employee training.

• It eliminates all production bottlenecks.

• It guarantees maximum profit.

Multiple Choice

Which of the following is considered a 'useful' capacity decision?

• Design capacity

• Leading capacity

• Tracking capacity

• Following capacity

Multiple Select

Select all the correct formulas for calculating capacity metrics.

• Efficiency = (Actual Output / Effective Capacity) x 100%

• Utilization = (Actual Output / Design Capacity) x 100%

• Effective Capacity = Design Capacity + allowances

• Effective Capacity = Design Capacity - allowances

Multiple Choice

Actual production last week was 25,000 units, effective capacity was 28,000 units, and design capacity was 230 units per hour. The factory operates 7 days a week, three 8-hour shifts. What the Design capacity for one week, Utilization factor, & Efficiency Factor?

• 38,640 units per week, 64.7%, 89.3%

• 38,640 units per week, 66.7%, 89.3%

• 39,640 units per week, 64.7%, 89.3%

• 38,640 units per week, 64.7%, 98.3%

Multiple Choice

Actual production last week was 35,000 units, effective capacity was 48,000 units, and design capacity was 430 units per hour. The factory operates 7 days a week, three 8-hour shifts. What the Design capacity for one week, Utilization factor, & Efficiency Factor?

• "Design Capacity for one week": 72240, "Utilization Factor": 0.7492, "Efficiency Factor": 0.484

• "Design Capacity for one week": 72240, "Utilization Factor": 0.7292, "Efficiency Factor": 0.484

• "Design Capacity for one week": 72240, "Utilization Factor": 0.7292, "Efficiency Factor": 0.484

• "Design Capacity for one week": 72240, "Utilization Factor": 0.7292, "Efficiency Factor": 0.484

Multiple Choice

What are the three key inputs to capacity planning for products and services?

• Kind of capacity, amount of capacity, timing of capacity

• Labour hours, available beds, floor space

• Design capacity, effective capacity, tracking capacity

• Actual output, allowances, utilization

Multiple Select

Match each type of business with its corresponding input and output measures of capacity.

• Pizza store: Available Beds, Pizza

• Hospital: Available beds, Patients per month

• Car manufacturer: Labor hours, Cars

• Retailer: Labor hours, Floor space

Multiple Choice

Which of the following is NOT a determinant of effective capacity according to the slide?

• Facility

• Human

• External

• Finance

Open Ended

Explain how a bottleneck affects the overall capacity of a production process, using the diagrams provided.

Multiple Choice

Employees work 7 hours per day and produce 60 units/hour. Help Caroline to determine the following: Based on her very high demand, is there a bottleneck and what stage is it? What is the capacity of the process per day?

• S4, S1 = 105, S2 = 90, S3 = 42, S4 = 84

• S3, S1 = 105, S2 = 60, S3 = 42, S4 = 98

• S2, S1 = 109, S2 = 60, S3 = 42, S4 = 84

• S3, S1 = 105, S2 = 60, S3 = 42, S4 = 84

Solution

The maximum output is 42 units, because that is what the bottleneck can do.
The bottleneck is at stage #3.

Caroline should NOT invest any funds into step #2.

If Caroline added another person, she should add it to step #3. (Install zippers/ toggles/ liner).
- The capacity at stage three would now double to 84 units per day.
- The new capacity for the whole process would now be 60 units per day, as determined by Step 2 (Basic stitching) which is the new bottleneck of the process.

Multiple Choice

Which of the following is an economic factor used in evaluating capacity alternatives?

• Public opinion

• Employee

• Break-Even

• Policy

Multiple Choice

Which of the following statements about break-even analysis is correct?

• Break-even volume is the point where total revenue equals total cost.

• Profit is maximized at the break-even volume.

• Fixed costs are irrelevant in break-even analysis.

• Variable cost per unit does not affect the break-even point.

Multiple Choice

Which formula is used to calculate the break-even volume in break-even analysis?

• Q_BEP = FC / (r - v)

• Q_BEP = VC / (r - v)

• Q_BEP = TC / (r - v)

• Q_BEP = FC / (v - r)

Multiple Choice

The management of a pizza place would like to add a new line of small pizza, which will require leasing a new equipment for a monthly payment of $4,000. Variable costs would be $4 per pizza, and pizzas would retail for $9 each.

1.How many pizzas must be sold per month in order to break even?

2.What would the profit (loss) be if 1200 pizzas are made and sold in a month?

3.How many pizzas must be sold to realize a profit of $10,000 per month?

4.If demand is expected to be 700 pizzas per month, how much is profit/loss?

• 1.Q_BEP = 800

  2.P= $5,000

  3.Q = 2,800

  4.L=-500

• 1.Q_BEP = 800

  2.P= $6,000

  3. Q = 2,800

  4.L=-500

• 1.Q_BEP = 800

  2.P= $6,000

  3.Q = 3,800

  4.L=-500

• 1.Q_BEP = 800

  2.P= $6,000

  3.Q = $2,800

  4.L=-700

Multiple Choice

The management of a pizza place would like to add a new line of small pizza, which will require leasing a new equipment for a monthly payment of $6,000. Variable costs would be $7 per pizza, and pizzas would retail for $10 each.

1.How many pizzas must be sold per month in order to break even?

2.What would the profit (loss) be if 1,300 pizzas are made and sold in a month?

3.How many pizzas must be sold to realize a profit of $11,000 per month?

4.If demand is expected to be 800 pizzas per month, how much is profit/loss?

• 1.Q_BEP = 2000

  2.L= -$2,100

  3.Q = 5,667

  4.L=-3,600

• 1.Q_BEP = 2000

  2.L= -$3,100

  3.Q = 5,667

  4.L=-3,600

• 1.Q_BEP = 2000

  2.L= -$2,100

  3.Q = 5,767

  4.L=-3,600

• 1.Q_BEP = 2000

  2.L= -$2,100

  3. Q = 5,667

  4.L=-4,600

1. Break-even = Fixed cost / Contribution margin = 6,000/ (10 - 7) = 2,000 pizzas

2. Profit= (Sales)−(Variable cost)−(Fixed cost)

   (1300×10)−(1300×7)−6000=13,000−9,100−6,000=−$2,100 (Loss)

Solution:
Fixed cost = $6,000, Variable cost per pizza = $7, Selling price per pizza = $10

3. Pizzas needed for $11,000 profit

   Required pizzas = (Fixed cost + Target profit) / Contribution margin​ = (36000+11000​) / (10-7) ​≈ 5,667 pizzas

4. Profit/Loss for 800 pizzas

   (800×10)−(800×7)−6000=8,000−5,600−6,000=−$3,600 (Loss)

Multiple Choice

The ABX Company has developed a new product and is wondering if they should make this product in-house or have a capable supplier make the product for them.

Option 1: The Fixed Cost (annual) is $160,000 for Make in-house with Variable Cost is $100.

Option 2: Buy$150.

If the annual demand for the new product is estimated at 1000 units, should the company make or buy the product? Justify your answer using the cost data provided.

• Make
• Outsource
• Discontinue
• Buy

Fill in the Blanks

What is the break-even quantity at which the company will be indifferent between making in-house and buying?

Multiple Choice

The ABX Company has developed a new product and is wondering if they should make this product in-house or have a capable supplier make the product for them.

Option 1: The Fixed Cost (annual) is $260,000 for Make in-house with Variable Cost is $50.

Option 2: Buy $150.

1.If the annual demand for the new product is estimated at 5000 units, should the company make or buy the product?

2.From which quantity should they consider the option make or buy?

• 1.Make.

  2."2,600 units" is the Indifference point.

• 1.Make

  2."3,600 units" is the Indifference point.

• 1.Buy

  2."1,600 units" is the Indifference point.

• 1.Buy

  2."2,600 units" is the Indifference point.

1. Make in-house total cost

   260,000+(50×5,000) =260,000+250,000 = $510,000

2. Buy total cost

   150×5,000 = $750,000

Solution:
1. Make-in-house: Fixed cost = $260,000, Variable cost = $50/unit,
2. Buy: cost/unit = $150
3. Annual demand = 5,000 units

3. Indifference Point (Make = Buy)

   Fixed cost / (buy Price - Variable Cost) = (260,000 /(150-50) ​≈ 2,600 units

Multiple Choice

Why is it suggested to write down and simplify the total cost of each option before making a decision between suppliers?

• It provides a way to negotiate better terms with suppliers.
• It helps in making an informed and objective decision by clearly comparing costs.
• It ensures that all suppliers are treated equally regardless of cost.
• It allows for a quick decision without detailed analysis.

Multiple Choice

If the annual demand for the new product is estimated at 1000 units, which supplier should the company use? What is the cost for each supplier?

• Supplier A. The cost for Supplier A is 300k and for Supplier B is 310k.

• Supplier B. The cost for Supplier A is 310k and for Supplier B is 300k.

• Both suppliers are equally good. The cost for Supplier A and B is 310k each.

• Supplier B. The cost for Supplier A is 210k and for Supplier B is 200k.

Multiple Choice

For what range of demand volume will Supplier B be better than Supplier A?

• For quantities above 800 units

• For quantities below 800 units

• For quantities above 1000 units

• For quantities below 1000 units

Multiple Choice

Given the fixed and variable costs for Supplier A and Supplier B, what is the break-even quantity at which the company will be indifferent between the two options?

• 800 units

• 1000 units

• 3200 units

• 500 units

Fill in the Blanks

The total cost of Supplier B is less than the total cost of Supplier A when the quantity Q is greater than

.

Open Ended

How would you apply the steps of capacity planning to solve a bottleneck in a real-world process?