21) Total cost to produce is the sum of expenses incurred regardless of output plus the variable
cost per unit of business activity multiplied by ________.
22) When demand is uncertain, the expected value criterion may be used. To do so, demand-
level scenarios and their ________ must be identified.
23) The ________ is the output volume level where the firm realizes a $0 net profit.
24) A learning percentage of 80 means that each time output is doubled, it takes ________
percent less time to produce than before.
25) Saul Goodman represents several clients and bills at $400 per hour. He forgot to record the
time it took to complete each activity, but he knows his eight hour day was spent representing
three clients involved in one high profile case. He also remembers that Walt told him once that
his learning curve percentage was 85%. How much more should Saul bill each of his three
clients?
26) A major computer manufacturer is interested in establishing a customer service center to
handle business for the next decade. They conduct exhaustive research on land and construction
costs, utilities, tax breaks, and wages at three sites, Oklahoma City, Austin, and Nashville.
Answer these questions using these costs as displayed in the table below.
Costs
Austin
Nashville
Oklahoma City
Fixed ($)
200,000
150,000
300,000
Variable ($/unit)
7
10
4
Graph the total cost curves and indicate the range of output that is best for each prospective site.
What are the assumptions you have made in this analysis?
27) An entrepreneur identifies a product that he knows will sell like crazy if he can only figure
out a way to bring it to her area. The idea is so fantastic that I can’t tell you what it is, so we will
just refer to it as X. The entrepreneur has identified four ways to bring X to the masses; she can
import it, she can smuggle it, she can try to produce it on her own, and she can have a local
reputable producer make it for her. The fixed and variable costs for each of these alternatives are
shown below. Develop a graph showing the ideal alternative across a range of demand that
reflects all decision points.
Import
Produce
Outsource
Fixed Cost
$25,000
$500,000
$0
Variable Cost
$30
$10
$37
28) A Seattle entrepreneur must decide on the size of a latte stand to construct. The manager has
narrowed the choice down to large or small. If he builds large and experiences low demand he
could grin and bear it for a $200 daily profit, lower prices ($225 daily profit), or hire street
performers to attract attention ($175 daily profit). If he builds small and experiences high
demand he could do nothing ($175 profit per day), stay open longer hours (profit of $225/day),
improve processes ($250/day profit), or raise prices ($200/day profit). Building large for high
demand has an expected payoff of $250/day and building small for low demand has an expected
payoff of $175/day. There is a 0.7 probability of high demand and 0.3 probability of low
demand. Sketch a decision tree for this scenario and determine what size stand should be
constructed to slake the unquenchable thirst of caffeine addicts.
29) A wise professor crafts a midterm that is beautiful to behold, painful to take, and a chore to
grade. The first exam takes almost an hour and a half to grade (89 minutes and 24.7 seconds to
be precise) but the second one takes only seventy-six minutes to complete. Realizing that
learning effects are at work, the professor looks at his social calendar and spots an important
social engagement at this time on the following day, exactly 24 hours from now. How long will
it take to grade the third exam? How long will it take to finish grading exams for the entire class
of 30 students?
Learning Objective 6-4
1) The Theory of Constraints would support the statement that a chain is only as strong as its
weakest link.
2) A busy toll highway that has four toll collectors for northbound traffic is an example of a
single-channel, single-phase system.
3) In operations and supply chain environments that must deal with random demand and variable
processing time, it is virtually impossible to achieve very high capacity utilization levels and still
provide acceptable customer service.
4) Consider the system composed of four processes linked by a conveyor belt. There is no
storage between these processes pictured below. Which statement is best?
A) The overall system output is 220 units/hr.
B) The process that determines the system’s capacity is process 4.
C) If process 3 experiences 5 minutes of unplanned downtime, the system’s overall output is
diminished.
D) Overall system improvement efforts should focus on process 1.
5) Consider the system composed of four processes linked by a conveyor belt. There is no
storage between these processes pictured below and market demand exceeds the company’s
ability to produce. Which statement is best?
A) The overall system output is 220 units/hr.
B) The overall system output is 70 units/hr.
C) The overall system output is 40 units/hr.
D) The overall system output is 55 units/hr.
6) Consider the system composed of four processes linked by a conveyor belt. There is no
storage between these processes pictured below and market demand of 40 units per hour drives
the conveyor belt. Assume that no defective units are made. Which statement is best?
A) The average time a unit spends in Process 1 is 2 and a half minutes.
B) The average time a unit spends in Process 2 is 5 minutes.
C) The flow time for a unit through the entire process is 33 minutes.
D) The flow rate through the entire process is 160 units per hour.
7) Consider the system composed of four processes linked by a conveyor belt. There is no
storage between these processes pictured below and market demand of 50 units per hour drives
the conveyor belt. Assume that no defective units are made. Which statement is best?
A) There are about 18 units in the process at any given time.
B) There is more actual time spent in Process 2 and Process 3 combined than in Process 1 and
Process 4 combined.
C) The flow rate through Process 1 is the highest.
D) The flow rate through Process 4 is the highest.
8) Students arrive at a professor’s office every 20 minutes during final exam week according to a
Poisson distribution. What is the probability that the professor’s one hour afternoon nap will not
be disrupted by any student arrivals?
A) 0.00
B) 0.05
C) 0.15
D) 0.45
9) Wally’s Filling Station is manned by one capable attendant that can fill your tank and check
your tires, oil, and water in 5 minutes. If four customers arrive each hour, and the service and
arrival rates are governed by the Poisson distribution, what is the utilization of the attendant?
A) 0.33
B) 0.50
C) 0.66
D) 0.80
10) Customers arrive at Rent a Wreck and hope to score an inexpensive and unsightly vehicle to
use for what typically is a short period of time. About twenty customers show up in any hour of
the day and it takes the customer service representative about two minutes to photocopy their
driver’s license and insurance card and take an impression of a credit card. Assume that the
service and arrival rates are governed by the Poisson distribution; how long does it take for the
average customer to clear the system?
A) 10 minutes
B) 6 minutes
C) 3.33 minutes
D) 3 minutes
11) Business at the Kwik-E-Mart is brisk, with one customer arriving at a rate of six per hour on
average. Ringing up purchases is an easy matter for owner/operator Apu; he can usually do so in
2 minutes. If both arrival and service rates are Poisson distributed, how many customers are in
the store on average?
A) 0.05
B) 0.16
C) 0.25
D) 0.50
12) The average waiting time on a Thursday night for a table at a popular Chinese restaurant is
30 minutes. If customers arrive at the rate of four per hour and both the service and arrival rates
are Poisson distributed, what is the average service time?
A) greater than 3 but less than 4 per hour
B) greater than 4 but less than 5 per hour
C) greater than 5 but less than 6 per hour
D) cannot be determined from the information provided.
13) The process step that limits throughput for the entire process chain is the ________.
14) In waiting line theory, a customer service attendant is a(n) ________.
15) A steady stream of eager fresh-faced students waits in line to register for spring semester
classes. Students arrive at the rate of 100 per hour and it takes the registrar 30 seconds to check
their schedule and verify they have paid in full. What is the average time waiting in line and the
average number of people in line? How busy is the registrar?
16) Customers arrive at Rent a Wreck and hope to score an inexpensive and unsightly vehicle to
use for what typically is a short period of time. About twenty customers show up in any hour of
the day and it takes the customer service representative about two minutes to photocopy their
driver’s license and insurance card and take an impression of a credit card. Assume that the
service and arrival rates are governed by the Poisson distribution. Calculate the system’s vital
statistics.