PRACTICE EXAM
1. Economies of scale hold when
a) construction costs do not increase linearly with output levels
b) production efficiency increases as workers gain experience
c) quantity discounts are available for material purchases
d) all of the above
(Answer: d)
{Text on page 395: Economies of scale hold when fixed costs can be
spread over a larger number of units, when construction costs do not increase
linearly with output levels, when quantity discounts are available for
materials and when production efficiency increases are workers gain experience.}
2. Which of the following companies follows a pure chase strategy of aggregate
planning?
a) Hershey’s
b) Nordstrom’s
c) Ford
d) Mars Inc.
(Answer: a)
{Text on page 402: Hershey’s is a good example of a situation where
a chase strategy fits well with the needs of the workforce. Hershey’s hires
idle farmers in the winter months when demand is high and then lets them
return to farming full time in the summer months when demand for chocolate
is low.}
3. A chase demand strategy should be followed when
a) worker skill qualifications are high
b) unemployment rates are low
c) inventory costs are high
d) all of the above
(Answer: c)
{Text on page 398 in the section on Adjusting Capacity to Meet Demand
and the Lecture in the section on Strategies for Meeting Demand:
A chase strategy should not be pursued when worker skill qualifications
are high because hiring and firing workers will soon make them difficult
to find. Similarly, hiring and firing workers is not a good strategy when
workers are scarce because of low unemployment rates. However, a chase
strategy is a very good strategy when inventory costs are high since this
strategy minimizes inventory levels.}
4. Which of the following aggregate planning techniques guarantees an optimal
solution?
a) linear programming
b) search decision rule
c) trial and error with a spreadsheet
d) management coefficients model
(Answer: a)
{Text on pages 405 through 408 and the lecture in the section on General
Linear Programming Model. The linear programming method guarantees
an optimal solution to the problem provided the assumptions of the method
are satisfied. The search decision rule searches for a good solution but
cannot guarantee that it has found the best one. The quality of the solution
using a trial and error approach depends on the quality of the alternatives
tested by the managers and certainly cannot guarantee the best solution.
The management coefficients method simply represents a regression model
of past decisions and therefore cannot guarantee the optimum solution.}
5. All of the following statements concerning the characteristics of aggregate
planning for services is true except
a) most services cannot be inventoried
b) demand is difficult to predict
c) capacity is easy to predict
d) labor is the most constraining resource
e) all of the above statements are true
(Answer: c)
{Text on pages 416-417 in the section on Aggregate Planning for
Services and the Lecture in the section on Aggregate Planning for
Services: It is true that most services cannot be inventoried which
removes one of the possible options in aggregate planning. It is also true
that demand is often difficult to predict in services because demand variations
occur frequently and are often severe. It is also true that labor is the
most constraining resource in services because services tend to be labor
intensive. However, it is not easy to predict capacity requirements in
services because of the variety of services offered and the individualized
nature of many of these services.}
6. All of the following statements concerning level production are true
except
a) level production strategy sets production at a fixed rate
b) the main costs of level production involve hiring and firing
c) level production strategy uses inventory to absorb variations in
demand
d) all of the above statements are true
(Answer: b)
{Text on page 398 in the section on Adjusting Capacity to Meet Demand
and the Lecture in the section on Strategies for Meeting Demand:
The level production strategy produces at a constant rate by definition.
This strategy also uses inventory to absorb variations in demand. However,
since production is at a fixed rate, hiring and firing are not necessary
and so these costs are not involved.}
| Quarter |
Forecast |
|
1
|
80,000
|
|
2
|
120,000
|
|
3
|
90,000
|
|
4
|
100,000
|
Hiring Cost $100 per worker
Firing Cost $150 per worker
Inventory Carrying Cost $5 per unit
Production Per Employee 1000 units per/qtr
Beginning Work Force 100 workers
7. Using the data above, which of the following statements is true if the
company maintains a level production strategy?
a) the total number of units inventoried for the 4 quarters
is 40,000 units
b) the cost of the level production plan is $18,000
c) there are 12,500 units inventoried in quarter 3
d) a work force of 14 workers is maintained during the 4th quarter
period
e) more than one statement above is true
(Answer: a)
{Text on pages 403–404 in the section on APP Using Pure
Strategies and Mixed Strategies and the lecture in the section on Aggregate
Production Planning by Trial and Error: Given the forecasts and
a total of 100 workers initially the following situation results
|
Forecast
|
Production |
Workers |
Hiring |
Firing |
Inventory |
| Qtr 1 |
80,000
|
100,000
|
100
|
0
|
0
|
20,000
|
| Qtr 2 |
110,000
|
100,000
|
100
|
0
|
0
|
10,000
|
| Qtr 3 |
100,000
|
100,000
|
100
|
0
|
0
|
10,000
|
| Qtr 4 |
110,000
|
100,000
|
100
|
0
|
0
|
0
|
The total cost of this plan is $200,000 so that option b is false.
There are only 10,000 units inventories in quarter 3 so that option c is
false and there are 100 workers in the 4th quarter making option
d false. The only true statement is a in that there are a total of 40,000
units inventoried over the four quarters.}
| Quarter |
Forecast |
| 1 |
7,000
|
| 2 |
15,000
|
| 3 |
40,000
|
| 4 |
380,000
|
Hiring Cost $200 per worker
Firing Cost $350 per worker
Inventory Carrying Cost $0.30 per unit
Production Per Employee 500 units per/qtr
Beginning Work Force 50 workers
8. A company wishes to develop a linear programming model that will satisfy
demand at a minimum cost. Using the data above, which of the following
statements contains the correct formulation of the workforce constraint
for quarter 4 for this problem?
a) W4 - W3 + H4 - F3
= 0
b) W4 - W3 - H3 - F3 =
0
c) W4 - W3 + H3 + F3 =
0
d) W4 - W3 - H4 + F4 =
0
e) none of the above
(Answer: d)
{Text on pages 405 – 408 in the section on General Linear
Programming Model and the Lecture in the section on General Linear
Programming Model: The workforce constraint for each quarter is
that the total number of workers in that quarter must be equal to the number
of workers in the previous quarter plus the number of workers hired minus
the number of workers fired. In the fourth quarter:
W4 = W3 + H4 – F4
Or
W4 - W3 - H4 + F4 = 0}
9. In production planning, the level of detail from highest to lowest is
a) master production schedule, aggregate plan, material requirements
plan
b) aggregate plan, material requirements plan, master production schedule
c) aggregate plan, master production schedule, material requirements
plan
d) material requirements plan, master production schedule, aggregate
plan
(Answer: c)
{Text on page pages 414-415 in the section on Hierarchical Planning
Process and the lecture in the section on Hierarchical Planning
Process: The correct order is from the aggregate plan which is then
disaggregated into specific products as part of the master production scheduling
process. The master production schedules then determine the requirements
for materials and drive the material requirements planning process.}
10. The linear decision rule for aggregate planning is based on the assumption
that production costs are linear.
a) True
b) False
(Answer: b)
{Text on page 412 in the section on Other Quantitative Techniques:
The linear decision rule soles a set of four quadratic questions that describe
the major decisions involved in the aggregate planning problem. The cost
functions are quadratic rather than linear.}
11. Some industries maintain a negative capacity cushion.
a) True
b) False
(Answer: a)
{Text on page 394: Some industries such as the airlines practice overbooking
which is essentially a negative capacity cushion}
12. The capacity lag strategy is the most moderate of the strategies and
the least conservative.
a) True
b) False
(Answer: b)
{Text on page 393 and the lecture in the section on Capacity Planning:
The capacity lag strategy increases capacity only after an increase in
demand has been documented. This conservative strategy produces a higher
return on investment but may lose customers in the process. It is used
in industries with standard products and cost-based or weak competition.
The strategy assumes that lost customers will return from competitors after
capacity has expanded.}
13. The costs involved in using a chase strategy are mainly in holding
inventory, including the cost of obsolete or perishable items that may
have to be discarded.
a) True
b) False
(Answer: b)
{Text on page 397-401 and the lecture in the section on Strategies
for Meeting Demand: The chase strategy attempts to track demand exactly
so that inventories are minimized. If executed properly there will be no
inventory at all.}
14. The aggregate planning problem is purely a manufacturing problem and
should be solved by manufacturing personnel.
a) True
b) False
(Answer: b)
{Text on page 396-397: The aggregate production plan should not be
determined by manufacturing personnel alone; rather it should be agreed
upon by top management from all the functional areas of the firm.}
15. Diseconomies of scale occur when a company has too little capacity.
a) True
b) False
(Answer: b)
{Text on page 395 and the lecture in the section on Capacity Planning:
Diseconomies of scale occur when volumes become so large that coordination
and management activities become difficult.}
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