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Indicate whether the statement is true or false.
1. In the Theory of Constraints, constraints determine the throughput of a facility.
a. True
b. False
2. Long-term capacity decisions usually involve adjusting schedules or staffing levels.
a. True
b. False
3. Offering complementary goods or services is an example of a short-term capacity strategy.
a. True
b. False
4. The ideas and methods surrounding a revenue management system are often called yield management.
a. True
b. False
5. Diseconomies of scale are known as the capacity cushion.
a. True
b. False
6. A work order is a specification of work to be performed for a customer or a client.
a. True
b. False
7. The Theory of Constraints focuses on eliminating all bottleneck activities in a process.
a. True
b. False
Indicate the answer choice that best completes the statement or answers the question.
8. In a revenue management system, forecasting, allocation, overbooking, and pricing must work in unison if the objective
is to:
a. manage a nonperishable asset.
b. meet the future demand of goods and services.
c. determine the single price that needs to be charged to all customers.
d. maximize the revenue generated by a perishable asset.
9. A _____ consists of dynamic methods to forecast demand, allocate perishable assets across market segments, decide
when to overbook and by how much, and determine what price to charge different customer classes.
a. focused factory
b. work order
c. revenue management system
d. nonbottleneck work activity
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10. Which of the following statements is true of a work order?
a. It is also called the capacity cushion.
b. It includes processing requirements for a type of work.
c. It cannot be defined for services.
d. It does not include resources needed for a type of work.
11. The traditional operations management definition of throughput is:
a. the average number of goods or services completed per time period by a process.
b. anything in an organization that limits it from moving toward its goal.
c. associated with the capacity of a resource such as a machine, employee, or workstation.
d. a physical activity in which idle capacity exists.
12. Harlose Suits owns more equipment than required for manufacturing goods during periods of regular demand in order
to tackle sudden demand surges. It also has a certain reserve of produced goods to tackle material shortages. In this case,
the reserve of equipment and produced goods are examples of _____.
a. a physical constraint
b. the capacity cushion
c. overbooking
d. capacity straddle
13. At Rues and West Bros., a spare parts manufacturing company, the most important competitive priority is quality.
Only a few key spare parts are produced using similar process designs. In this scenario, Rues and West Bros. _____.
a. is a focused factory
b. has no throughput
c. is an unfocused factory
d. uses a mass customization strategy
14. Which of the following is a way to manage capacity by adjusting short-term capacity levels?
a. Varying the price of goods or services
b. Adding peripheral goods and/or services
c. Providing reservations
d. Shifting work to slack periods
15. Greyon Spinning Mills Inc. owns 600 spinning machines. Out of these, only 500 are used in a given year. Given this
information, the utilization of spinning machines at Greyon Spinning Mills Inc. is _____.
a. 0.75
b. 0.83
c. 1
d. 1.2
16. A capacity _____ strategy is a strategy for expanding capacity that waits until demand has increased to a point where
additional capacity is necessary.
a. lag
b. lead
c. reduction
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d. match
17. Nonbottleneck management principles differ from bottleneck management principles because according to
nonbottleneck management principles, _____.
a. idle time is acceptable if there is no work to do
b. an hour lost at a nonbottleneck resource is an hour lost for the entire process or factory output
c. large order sizes should be used to minimize setup time and maximize resource utilization
d. the input should always exceed the capacity
18. The earliest revenue management systems focused solely on _____.
a. forecasting
b. overbooking
c. allocation
d. pricing
19. Scorla Corp. is an apparel manufacturing factory. Its average resource utilization per year is calculated as 70%. The
average safety capacity of Scorla Corp. is _____.
a. 20%
b. 30%
c. 40%
d. 50%
20. A _____ matches capacity additions with demand as closely as possible.
a. lag
b. straddle
c. lead
d. reduction
21. In the Theory of Constraints, a _____ activity is one that effectively limits the capacity of the entire process.
a. nonbottleneck
b. bottleneck work
c. nonphysical
d. core process
22. Lumeris Inc., an automobile manufacturer, has an inflexible work schedule and requires its workers to work nine
hours a day and six days a week. Its laborers do not have adequate skills to perform their job efficiently. The inflexible
work schedule and inadequate labor skills are examples of _____.
a. physical constraints
b. nonphysical constraints
c. bottleneck activities
d. work orders
23. Which of the following statements is true of setup time?
a. It is independent of order size for manufacturing work orders.
b. It varies with the volume of work orders.
c. It is the most insignificant part of total system capacity.
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d. It is usually the same for manufacturing and service-providing applications.
24. _____ occur when the average unit cost of a good or service begins to increase as the capacity and/or volume of
throughput increases.
a. Economies of scale
b. Diseconomies of scale
c. Demand lags
d. Nonphysical constraints
25. Blyrie Inc., a sports goods manufacturing company, follows a policy that involves manufacturing only when the
demand exceeds the amount of goods already manufactured. Given this information, Blyrie Inc. most likely uses a
capacity _____ strategy to expand its capacity.
a. lead
b. reduction
c. straddle
d. lag
26. Magnira Hotels is a leading chain of hotels. Its managers reserve 30% of the rooms available only to the members of
its club. They also provide the rooms at subsidized prices to these members. In this scenario, which of the following
components of revenue management system is most likely used by Magnira Hotels?
a. Investment
b. Allocation
c. Capacity expansion
d. Capacity sharing
27. Which of the following is a way to manage capacity by shifting and stimulating demand?
a. Adding peripheral goods and/or services
b. Adding or sharing equipment
c. Changing labor schedules
d. Changing labor skill mix
28. _____ are achieved when the average unit cost of a good or service decreases as the capacity and/or volume of
throughput increases.
a. Unfocused factories
b. Safety capacities
c. Diseconomies of scale
d. Economies of scale
29. Avexim Pharmaceutical Laboratories is an international group of companies that manufactures an antiepileptic
prescription drug in huge volumes. The setup time for manufacturing the drug is 75 minutes, the processing time is 8
minutes, and the order size is 700 units. In this case, which of the following is the total time required to meet the given
production volume?
a. 968 minutes
b. 1300 minutes
c. 4275 minutes
d. 5675 minutes
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30. In the context of strategies for expanding capacity, which of the following statements is true of one large capacity
increase?
a. This strategy aims to match capacity additions with demand as closely as possible.
b. An advantage of using this strategy is that the fixed costs of construction and operating system setup need to be
incurred only once.
c. This strategy waits until demand has increased to a point where additional capacity is necessary.
d. When this strategy is used, there is always excess capacity and safety capacity to meet unexpected demand from
large orders is provided.
31. Unlike a focused factory, an unfocused factory is characterized by:
a. a few key products.
b. particular market segments.
c. identical people skills.
d. dissimilar product lines.
32. In service industries, capacity is often viewed as the _____.
a. minimum rate of output per unit time
b. units of resource availability
c. amount of setup time
d. amount of overtime scheduled
33. A doctor’s office charges no-show patients $30 if they do not cancel their appointment 24 hours prior to the
appointment. In this scenario, which of the following can be used by the doctor’s office to handle the risk of idle service
capacity?
a. A capacity straddle strategy
b. A capacity lag strategy
c. A revenue management system
d. A pull system
34. Average safety capacity (%) is computed using the formula:
a. Average resource utilization (%) − 100%.
b. 100% − Average resource utilization (%).
c. [Maximum safety capacity (%) + Minimum safety capacity (%)]/2.
d. 100% − Maximum resource utilization (%).
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Answer Key
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chapter 10