Exam 4: Capacity

Sleep Tight Motel has the opportunity to purchase an adjacent plot of land.Building on this land would increase their capacity from the current sales level of $515,000/year to $600,000/year.Sleep Tight experiences a 20 percent before-tax profit margin.It wishes to estimate the additional before-tax profits that the expansion will produce.Using the following information,how much more before-tax cash flow would be realized just in the year 10 alone? Year Capacity Requirement (Annual Sales) 1 \ 515,000 2 \ 517,000 3 \ 520,000 4 \ 525,000 5 \ 540,000 6 \ 560,000 7 \ 565,000 8 \ 575,000 9 \ 600,000 10 \ 620,000

A(n)________ is an operation that has the lowest effective capacity of any operation in the process,and thus limits the system's output.

The Union Manufacturing Company is producing two types of products: A and B.The demand forecasts,batch size,and time standards for the Mark I operation follow: Product A Product B Demand forecast (units/yr) 1,000 4,000 Batd size (units/bat d) 20 10 Processing time (hr/unit) 3.2 4.5 Setup time (hr/batch 10 20 The company works 250 days per year and operates 2 shifts,each covering 8 hours.If a 20 percent capacity cushion is maintained,how many new Mark I machines are required if Union does not resort to any short-term capacity options?

Up,Up & Away is a producer of kites and windsocks.Relevant data concerning their production for the upcoming fiscal year are as follows: Product Demand (Units/yr) Batch Size Standard Setup time (hr/batch) Standard Processing Time (hr/unit) Kites 20,000 25 2 .25 Windsocks 9,000 75 3 .75 Assume: 1 shift/day,8 hours/shift,5 days/week,and 50 weeks/year. There currently are four machines,and management wants a capacity cushion of 20 percent. Which of the following alternatives will enable Up,Up & Away to meet all of the upcoming year's demand using the minimum number of machines?

Define each of the following capacity strategies: expansionist,and wait-and-see.

According to the theory of constraints (TOC),the role of work-in-process inventory is to dictate the pace that specific items are pulled through the process.

Table 4.4 Mr. Lee is considering a capacity expansion for his supermarket. The annual sales projected for the next five years follow. The current capacity is equivalent to $300,000 sales. Assume a 20 percent pretax profit margin. Year Annual Sales (\ 000) 1 310 2 320 3 340 4 370 5 400 -Using the information in Table 4.4,if Lee expands the capacity to an equivalent of $360,000 sales now (year 0),and then expands the capacity to an equivalent of $400,000 sales at the beginning of year 4,how much would pretax cash flow increase in total for all years (years 1 through 5)?

Explain the distinction between input and output measures of capacity.

If demand is increasing,and you also prefer to increase the time between capacity increments,then the size of increments should ________.

Musk L.Flexor owns a hot tub store that is experiencing significant growth.Flexor is trying to decide whether to expand its capacity,which currently is at $750,000 in sales per quarter.He is thinking about expanding to the $850,000 level.The before-tax profit from additional sales is 20 percent.Sales are seasonal,with peaks in the spring and summer quarters.Forecasts of capacity requirements,expressed in sales per quarter,for next year (year 2)are: Quarter (\ 000) 1 720 2 800 3 890 4 690 Demand in year 3 and beyond is expected to exceed $850,000 per quarter.Flexor is considering expansion at the end of the fourth quarter of this year (year 1).How much would before-tax profits in year 2 increase because of this expansion?

________ capacity plans focus on workforce size,overtime budgets,and inventories.

Increasing the overall process capacity can only occur when the capacity of the bottleneck of the process can be increased.

The ________ strategy refers to a condition which involves smaller,more frequent jumps in capacity.

As the total output increases,economies of scale lower costs because the total fixed costs required to produce the higher volume of output are lowered.

Larry's Wickets,Inc.is producing two types of products: A and B.Both are produced at the same machining operation.Because of demand uncertainties,the operations manager obtained three demand forecasts (pessimistic,expected,and optimistic).The demand forecasts,batch sizes (units/batch),processing times (hr/unit),and setup times (hr/batch)follow. Time Standard Demand Forecasts (000 units/yr) Product Processing Setup Batch Size Pessimisti Expected Optimistic A 30 1.0 200 100 120 150 B .25 2.0 100 190 210 230 The machines operate on two 8-hour shifts,5 days per week,and 50 weeks per year.The manager wants to maintain a 20 percent capacity cushion. a.What is the minimum number of hours required of the machining equipment for the next year? b.How many hours of capacity can the company expect from each machine? c.What is the minimum number of machines needed (assuming no reliance on short-term options)? d.What is the maximum number of machines needed (assuming no reliance on short-term options)?

Innovative Inc.is experiencing a boom for the products it has introduced recently.The estimated annual sales projected for the next five years are given below.The current capacity is equivalent to only $100 million sales.The company is considering the alternative of expanding capacity to an equivalent of $250 million sales.Assume a 25 percent pretax profit margin.What is the increase in total pretax cash flow (summed over all years)that would be enjoyed because of the expansion? Year Annual Sales (in \million ) 1 100 2 140 3 170 4 200 5 250

Equipment breakdowns are an example of an internal,random form of variability.

Input measures are generally used as a capacity measure for high-volume processes.

The ________ time is the time required to change an operation from making one type of product or service to making another.

Decision trees can be useful for evaluation capacity expansion alternatives.