1. The Crystal Sparkle Co. produces glass tumblers.

The plant is
designed to produce 400 tumblers per hour, and there is 1 eight-
hour shift per working day. However, the plant does not operate
for the full 8 hours: the employees take two 15-minute breaks in
CAPACITY PLANNING PROBLEMS

each shift, one in the first 4 hours and one in the second 4 hours,
the first 30 minutes of the shift are spent raising the kilns to the
required temperature for firing glass. The plant usually produces
about 10,000 tumblers per five-day workweek. Answer the
following questions by adjusting the data to one eight-hour
shift.

a. What is the design capacity in tumblers?

b. What is the effective capacity in tumblers? As a percent?
c. What is the actual output in tumblers?
d. What is the efficiency ratio?
e. What is the utilization ratio?

2. Suppose a manufacturer makes bicycles composed of a body, a

steering wheel and two wheels. Demand for the bicycles is 500 a

week. The wheel production capacity is 1200 wheels a week, the

the steering wheel production capacity is 450 a week, and the

final assembly department can produce 550 bicycles a week.

a) What is the capacity of the factory?

 b) What limits the throughput of the factory?

c) How many wheels should be produced each week?

d) What is the utilization of wheel production operation?

e) What happens if the utilization in wheel production

department is increased to 100%?

3. The selling price of the product is $199.95. The variable costs

per unit are:

Labor $60.25
Raw material 25.70
Purchased component 21.50
Variable overhead 17.50

The fixed costs total $300,000 per year. Perform a breakeven analysis
of this company.

a. What is the total revenue function?

b. What is the total cost function?
c. What is the profit function?
d. What is the breakeven point in units of the product?
e. What is the revenue at the breakeven point?
f. What is the income at the breakeven point?
g. Estimate the profit when 9,000 units of the product are sold
in a year.
h. How many units must be sold for the company to make
$900,000?
i. $75,000 in a year?
4. A small grocery store has a total of four regular checkout lines
and one express checkout line. Recently on Sundays the store has
been experiencing either excessive idle time for cashiers or
excessively long customer waiting lines. The results of a recent time
study performed by a management consulting company showed that
the average service time for express and regular checkout lines are 3
and 10 minutes, respectively. As the next step in analyzing the
problem, the manager of the grocery store wants to determine the
estimated capacity of the store on Sundays in terms of total number of
customers. Currently the store is open from 6 a.m. to midnight on
Sundays. The express checkout line is always open while there is only
one regular line open from 6 a.m. to 9 a.m. and also one regular line
open from 9 p.m. to midnight. There are two regular checkout lines
open from 9 a.m. to noon and also from 6 p.m. to 9 p.m. All four
regular lines are open between noon and 6 p.m.
a. Determine the current capacity of the store in total number of
customers for Sundays.
b. Assume that the store manager decides to reduce the number of
regular lines from 2 to 1 between 7 p.m. and 9 p.m. and closes
the express line between 6 a.m. and 8 a.m. and 10 p.m. and
midnight. What is the revised capacity for Sundays?

5. A video equipment manufacturer produces videotapes and DVDs.

The manufacturing facility operates two eight-hour shifts per day for 6
days a week. The unit manufacturing time is 6 minutes for each
videotape and 8 minutes for each DVD.
a. Given that machine operators work at 80% efficiency, determine
the number of workers needed to produce 5000 videotapes and
2500 DVDs per week.
b. Given that machines have 95% efficiency, determine the number
of machines needed to produce 5000 videotapes and 2500 DVDs
per week.
c. Assume that the number of workers is sufficient, what is the
maximum number of videotapes and the maximum number of
DVDs that can be manufactured with 15 machines.
d. Assume that the number of machines is sufficient, what is the
maximum number of videotapes and the maximum number of DVDs
that can be manufactured with 20 workers.

SUPPLEMENT 7: CAPACITY PLANNING TRUE/FALSE

1. Utilization is the number of units a facility can hold, receive, store, or

produce in a period of time. False (Capacity, easy)

2. Design capacity is the theoretical maximum output of a system in a given

period under ideal conditions. True (Capacity, moderate)

3. Capacity decisions are based on technological concerns, not demand

forecasts. False (Capacity, easy)

4. Expected output is sometimes referred to as rated capacity. True (Capacity,

moderate)
 5. Price changes are useful for matching the level of demand to the capacity
of a facility. True (Capacity, moderate)

6. A useful tactic for increasing capacity is to redesign a product in order to

get more throughput. True (Capacity, moderate)

7. Changes in capacity may lead, lag, or straddle the demand. True (Capacity
planning, moderate)

8. Building an additional warehouse is an incremental expansion, not a one-

step expansion. False (Capacity planning, moderate)

9. Fixed costs are those costs that continue even if no units are produced.
True (Break-even analysis, moderate)

10. Break-even analysis identifies the volume at which fixed costs and revenue
are equal. False (Break-even analysis, moderate)

11. Break-even analysis is a powerful analytical tool, but is useful only when
the organization produces a single product. False (Break-even analysis,
moderate)

12. A decision tree indicates at what quantity profit changes from negative to
positive. False (Break-even analysis, moderate)

13. A decision tree for analyzing capacity would have future demands or
market favorability as the decision alternatives. False (Applying decision trees
to capacity decisions, moderate)

14. One limitation of the net present value approach to investments is that
investments with identical net present values may have very different cash
flows. True (Applying investment analysis to strategy-driven investments,
moderate) 173

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CHAPTER 4: FORECASTING
TRUE/FALSE
1.A naïve forecast for September sales of a product would be equal to the forecast for August.
False (Time-seriesforecasting, moderate)

2.The forecasting time horizon and the forecasting techniques used tend to vary over the life cycle of a
product.
True (What is forecasting? moderate)

3.Demand (sales) forecasts serve as inputs to financial, marketing, and personnel planning.
True (Types of forecasts, moderate)
 4.Forecasts of individual products tend to be more accurate than forecasts of product families.
False (Seven steps in the forecasting system, moderate)

5.Most forecasting techniques assume that there is some underlying stability in the system.
True (Seven steps in the forecasting system, moderate)

6.The sales force composite forecasting method relies on salespersons’ estimates of expected
sales.
True (Forecasting approaches, easy)

7.A time-seriesmodel uses a series of past data points to make the forecast.
True (Forecasting approaches, moderate)

8.The quarterly "make meeting" of Lexus dealers is an example of a sales force composite
forecast.
True (Forecasting approaches, easy)

9.Cycles and random variations are both components of time series.

True (Time-seriesforecasting, easy)

10.A naive forecast for September sales of a product would be equal to the sales in August.
True (Time-seriesforecasting, easy)

11.One advantage of exponential smoothing is the limited amount of record keeping involved.
True (Time-seriesforecasting, moderate)

12.The larger the number of periods in the simple moving average forecasting method, the greater the
method's responsiveness to changes in demand.
False (Time-seriesforecasting, moderate)

13.Forecast including trend is an exponential smoothing technique that utilizes two smoothing
constants: one for the average level of the forecast and one for its trend.
True (Time-seriesforecasting, easy)

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urces/5.htm

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cost-volume-profit-analysis-fo.html