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PRINCIPLES OF OPERATIONS MANAGEMENT

STUDY GUIDE FOR EXAM III


CHAPTERS 7, 7S, 8
CHAPTER 7
1.

A firm's process strategy is its approach to transforming resources into goods and services.
TRUE
FALSE

2.

Harley-Davidson, because it has so many possible combinations of products, utilizes the process strategy
of mass customization.
TRUE
FALSE

3.

A job shop is an example of a(n):


A) repetitive process.
B) continuous process.
C) line process.
D) intermittent process.
E) specialized process.

4.

Which one of the following products is most likely made in a job shop environment?
A) rolls of newsprint
B) paper forms
C) television sets
D) cigarettes
E) canned vegetables

5.

One of the similarities between process focus and mass-customization is:


A) the volume of outputs.
B) the use of modules.
C) many departments and many routings.
D) the variety of outputs.
E) All of the above are similarities.

6.

Align Technology uses a ________ approach to produce clear plastic removable aligners.
A) mass customization
B) product focus
C) process focus
D) repetitive focus
E) crossover

7.

The crossover point is that production quantity where:


A) variable costs of one process equal the variable costs of another process.
B) fixed costs of a process are equal to its variable costs.
C) total costs equal total revenues for a process.
D) total costs for one process equal total costs for another process.
E) the process no longer loses money.

8.

Karla's candle factory is considering two different manufacturing options. Option A is highly automated
with fixed costs of $25,000 and variable costs of $.1/candle. Option B uses hand labor with fixed costs of
$10,000 and variable costs of $.5/candle. If demand for Karla's candles is 25,000, which option should
she pick? PLEASE USE FORMULAS AND SHOW ALL THE CALCULATIONS.

9.

Kirstin is thinking about opening a Chinese restaurant and needs to buy a rice cooker. Machine A has
fixed costs of $100 and variable costs of $1/pound. Machine B has fixed costs of $500 and variable costs
of $.1/pound. If Kirstin plans to sell 100 pounds of rice, which machine should she choose? What is the
cross-over point? PLEASE USE FORMULAS AND SHOW ALL THE CALCULATIONS.

10. The local convenience store makes personal pan pizzas. Currently, its process makes complete pizzas,
fully cooked, for the customer. This process has a fixed cost of $20,000, and a variable cost of $1.75 per
pizza. The owner is considering a different process that can make pizzas in two ways: completely cooked
(as before), or partially cooked and then flash frozen for the customer to finish heating at home. This
alternate process has a fixed cost of $24,000, but a lower variable cost (because much less energy is used
in baking) of $1.25 per pizza.
a.
What is the crossover point between the existing process and the proposed process?
b.
If the owner expects to sell 9,000 pizzas, should he get the new oven?
PLEASE USE FORMULAS AND SHOW ALL THE CALCULATIONS.
11. Which of the following is true regarding the concept of flexibility?
A) It is the ability to respond with little penalty in time, cost, or customer value.
B) It may be accomplished with digitally controlled equipment.
C) It may involve modular or movable equipment.
D) All of the above are true.
E) None of the above is true.
12. Value-stream mapping:
A) is a variation of time-function mapping.
B) examines the supply chain to determine where value is added.
C) extends time function mapping back to the supplier.
D) starts with the customer and works backwards.
E) All of the above are true.
13. A(n) ________ uses symbols to analyze the movement of people or material.
14. Which of the following are all strategies for improving productivity in services?
A) separation, self-service, automation, and scheduling
B) lean production, strategy-driven investments, automation, and process focus
C) reduce inventory, reduce waste, reduce inspection, and reduce rework
D) high interaction, mass customization, service factory, and just-in-time
E) process focus, repetitive focus, product focus, and mass customization focus
15. Which of the following is not one of the strategies for improving service productivity?
A) self-service
B) automation
C) scheduling
D) separation
E) mass customization

16. Which of the following is TRUE regarding vision systems?


A) They are consistently accurate.
B) They are modest in cost.
C) They do not become bored.
D) All of the above are true.
E) None of the above is true.
17. Computer-integrated manufacturing (CIM) includes manufacturing systems that have:
A) computer-aided design, a flexible manufacturing system, inventory control, warehousing and
shipping integrated.
B) transaction processing, management information systems, and decision support systems integrated.
C) automated guided vehicles, robots, and process control integrated.
D) robots, automated guided vehicles, and transfer equipment integrated.
E) all of their computers integrated with the marketing department.
18. "Operators simply load new programs, as necessary, to produce different products" describes:
A) CAD.
B) automated guided vehicles.
C) flexible manufacturing systems.
D) vision systems.
E) process control.
19. Advances in technology:
A) have impacted the manufacturing sector only.
B) have had only a limited impact on services.
C) have failed to change the level of customer interaction with an organization.
D) have had a dramatic impact on customer interaction with services and with products.
E) have dramatically changed health care, but have not changed retailing.
20. Process redesign:
A) is the fundamental rethinking of business processes.
B) is sometimes called process reengineering.
C) tries to bring about dramatic improvements in performance.
D) often focuses on activities that cross functional lines.
E) all of the above

Chapter 7 Supplement
1.

Utilization is the number of units a facility can hold, receive, store, or produce in a period of time.
TRUE
FALSE

2.

Effective capacity is the:


A) maximum output of a system in a given period.
B) capacity a firm expects to achieve given the current operating constraints.
C) average output that can be achieved under ideal conditions.
D) minimum usable capacity of a particular facility.
E) sum of all of the organization's inputs.

3.

The Academic Computing Center has five trainers available in its computer labs to provide training
sessions to students. Assume that the design capacity of the system is 1900 students per semester and
that effective capacity equals 90% of design capacity. If the number of students who actually got their
orientation session is 1500, what is the efficiency of the system?
A) 1350 students
B) 1710 students
C) 78.9%
D) 87.7%
E) 90%
PLEASE USE FORMULAS AND SHOW ALL THE CALCULATIONS.

4.

Christopher's Cranks uses a machine that can produce 100 cranks per hour. The firm operates 12 hours
per day, five days per week. Due to regularly scheduled preventive maintenance, the firm expects the
machine to be running during approximately 95% of the available time. Based on experience with other
products, the firm expects to achieve an efficiency level for the cranks of 85%. What is the expected
weekly output of cranks for this company?
A) 5100
B) 5700
C) 4845
D) 969
E) 6783
PLEASE USE FORMULAS AND SHOW ALL THE CALCULATIONS.

5.

The staff training center at a large regional hospital provides training sessions in CPR to all employees.
Assume that the capacity of this training system was designed to be 1200 employees per year. Since the
training center was first put into use, the program has become more complex, so that 1050 now
represents the most employees that can be trained per year. In the past year, 950 employees were trained.
The efficiency of this system is approximately ________ and its utilization is approximately ________.
A) 79.2 percent; 90.5 percent
B) 90.5 percent; 79.2 percent
C) 87.5 percent; 950 employees
D) 950 employees; 1050 employees
E) 110.5 percent; 114.3 percent
PLEASE USE FORMULAS AND SHOW ALL THE CALCULATIONS

6.

Which of the following represents a common way to manage capacity in the service sector?
A) appointments
B) reservations
C) changes in staffing levels
D) first-come, first-served service rule
E) "early bird" specials in restaurants

7.

An organization whose capacity is on that portion of the average unit cost curve that falls as output rises:
A) has a facility that is below optimum operating level and should build a larger facility.
B) has a facility that is above optimum operating level and should reduce facility size.
C) is suffering from diseconomies of scale.
D) has utilization higher than efficiency.
E) has expected output higher than rated capacity.

8.

________ is actual output as a percent of design capacity.

9.

In the service sector, scheduling customers is a type of ________ management, while scheduling the
workforce is a type of ________.

10. An executive conference center has the physical ability to handle 1,100 participants. However, conference
management personnel believe that only 1,000 participants can be handled effectively for most events.
The last event, although forecasted to have 1,000 participants, resulted in the attendance of only 950
participants. What are the utilization and efficiency of the conference facility?
PLEASE USE FORMULAS AND SHOW ALL THE CALCULATIONS.
11. The efficiency of a factory is 75% and its utilization 50%. If effective capacity is 1000 find design capacity.
PLEASE USE FORMULAS AND SHOW ALL THE CALCULATIONS.
12. The theory of constraints is a body of knowledge that deals with anything that limits an organization's
ability to achieve its goals.
TRUE
FALSE
13. Consider a production line with five stations. Station 1 can produce a unit in 9 minutes. Station 2 can
produce a unit in 10 minutes. Station 3 has two identical machines, each of which can process a unit in
12 minutes (each unit only needs to be processed on one of the two machines. Station 4 can produce a
unit in 5 minutes. Station 5 can produce a unit in 8 minutes. Which station is the bottleneck station?
A) Station 1
B) Station 2
C) Station 3
D) Station 4
E) Station 5
PLEASE USE FORMULAS AND SHOW ALL THE CALCULATIONS.
14. A work system has five stations that have process times of 5, 9, 4, 9, and 8. What is the throughput time
of the system?
A) 4
B) 9
C) 18
D) 35
PLEASE USE FORMULAS AND SHOW ALL THE CALCULATIONS.
15. An assembly line has 10 stations with times of 1, 2, 3, 4, , 10, respectively. What is the bottleneck time?
A) 18.18% of the throughput time
B) 100% of the throughput time
C) 550% of the throughput time
D) 50% of the throughput time
E) 1.82% of the throughput time
PLEASE USE FORMULAS AND SHOW ALL THE CALCULATIONS.
16. TOC strives to reduce the effect of constraints by:
A) offloading work from constrained workstations.
B) increasing constrained workstation capability.
C) changing workstation order to reduce throughput time.
D) A and B

E) A, B, and C

17. Fixed costs are those costs that continue even if no units are produced.
TRUE
FALSE
18. Which of the following costs would be incurred even if no units were produced?
A) raw material costs
B) direct labor costs
C) transportation costs
D) building rental costs
E) purchasing costs
19. Basic break-even analysis typically assumes that:
A) revenues increase in direct proportion to the volume of production, while costs increase at a
decreasing rate as production volume increases.
B) variable costs and revenues increase in direct proportion to the volume of production.
C) both costs and revenues are made up of fixed and variable portions.
D) costs increase in direct proportion to the volume of production, while revenues increase at a
decreasing rate as production volume increases because of the need to give quantity discounts.
E) All of the above are assumptions in the basic break-even model.
20. Fabricators, Inc. wants to increase capacity by adding a new machine. The fixed costs for machine A are
$90,000, and its variable cost is $15 per unit. The revenue is $21 per unit. What is the break-even point for
machine A?
A) $90,000 dollars
B) 90,000 units
C) $15,000 dollars
D) 15,000 units
E) 4,286 units
PLEASE USE FORMULAS AND SHOW ALL THE CALCULATIONS.
21. A firm produces three products in a repetitive process facility. Product A sells for $60; its variable costs
are $20. Product B sells for $200; its variable costs are $80. Product C sells for $25; its variable costs are
$15. The firm has annual fixed costs of $320,000. Last year, the firm sold 1000 units of A, 2000 units of B,
and 10,000 units of C. Calculate the break-even point of the firm. The firm has some idle capacity at these
volumes, and chooses to cut the selling price of A from $60 to $45, believing that its sales volume will
rise from 1000 units to 2500 units. What is the revised break-even point?
PLEASE USE FORMULAS AND SHOW ALL THE CALCULATIONS.
22. Of the four approaches to capacity expansion, the approach that "straddles" demand:
A) uses incremental expansion.
B) uses one-step expansion.
C) at some times leads demand, and at other times lags.
D) works best when demand is not growing but is stable.
E) Choices A and C are both correct.
23. What is a common method used to increase capacity with a lag strategy?
A) overtime
B) subcontracting
C) new facilities

D) new machinery
E) A and B

24. The net present value of $10,000 to be received in exactly three years is considerably greater than
$10,000.
TRUE
FALSE

Chapter 8
1.

FedEx chose Memphis, Tennessee, as its U.S. hub because:


A) the city is in the center of the United States, geographically.
B) the airport has relatively few hours of bad weather closures.
C) it needed a means to reach cities to which it did not have direct flights.
D) the firm believed that a hub system was superior to traditional city-to-city flight scheduling.
E) All of the above are true.

2.

Industrial location analysis typically attempts to:


A) minimize costs.
B) maximize sales.
C) focus more on human resources.
D) avoid countries with strict environmental regulations.
E) ignore exchange rates and currency risks.

3.

A location decision for an appliance manufacturer would tend to have what type of focus?
A) cost focus
B) focus on finding very highly skilled technicians
C) revenue focus
D) environmental focus
E) education focus

4.

The ratio of labor cost per day to productivity, in units per day, is the labor cost per unit.
TRUE
FALSE

5.

Why is Northern Mexico used as a cluster for electronics firms?


A) high traffic flows
B) venture capitalists located nearby
C) natural resources of land and climate
D) NAFTA
E) high per capita GDP

6.

Among the following choices, an operations manager might best evaluate political risk of a country by
looking at which type of country ranking?
A) based on competitiveness
B) based on cost of doing business
C) based on corruption
D) based on magnitude of government social programs
E) based on average duration between presidential/prime minister elections

7.

Which of the following workers is the most productive?


A) $50 wages, 10 parts produced
B) $10 wages, 1 part produced
C) $30 wages, 5 parts produced
D) $100 wages, 21 parts produced
E) $500 wages, 100 parts produced
PLEASE USE FORMULAS AND SHOW ALL THE CALCULATIONS.

8.

Globalization of the location decision is the result of all EXCEPT which of the following?
A) market economics
B) higher quality of labor overseas
C) ease of capital flow between countries
D) high differences in labor costs
E) more rapid, reliable travel and shipping

9.

When making a location decision at the country level, which of these would be considered?
A) corporate desires
B) land/construction costs
C) air, rail, highway, waterway systems
D) zoning restrictions
E) location of markets

10. Which of these factors would be considered when making a location decision at the site level?
A) government rules, attitudes, stability, incentives
B) cultural and economic issues
C) zoning regulations
D) cost and availability of utilities
E) proximity to raw materials and customers
11. Which of the following statements regarding "proximity" in the location decision is FALSE?
A) Service organizations find that proximity to market is the most critical primary location factor.
B) Manufacturers want to be near customers when their product is bulky, heavy, or fragile.
C) Perishability of raw materials is a good reason for manufacturers to locate near the supplier, not the
customer.
D) Reduction in bulk is a good reason for a manufacturer to locate near the supplier.
E) Clustering among fast food chains occurs because they need to be near their labor supply.
12. ________ costs are readily identifiable and can be measured with precision.
13. The factor-rating method can consider both tangible and intangible costs.
TRUE
FALSE
14. Which of the following statements regarding the center-of-gravity method is FALSE?
A) It is designed to minimize the maximum possible travel distance to any of the locations.
B) The optimal x- and y-coordinates are calculated separately.
C) The optimal solution is unconstrained, so it could suggest a location in the middle of a body of water.

D) The weights used are the quantity of goods moved to or from each location.
E) The origin of the coordinate system and the scale used are arbitrary, just as long as the relative
distances are correctly represented.

15. Which of the following methods best considers intangible costs related to a location decision?
A) crossover methods
B) locational cost-volume analysis
C) factor-rating method
D) the transportation method
E) center-of-gravity method
16. A clothing chain is considering two different locations for a new retail outlet. They have identified the
four factors listed in the following table as the basis for evaluation, and have assigned weights as shown.
The manager has rated each location on each factor, on a 100-point basis, as shown under the respective
columns for Barclay and Chester.

Factor

3
4

Factor
Description
Average
community
income
Community
growth
potential
Availability of
public
transportation
Labor cost

Weight

Barclay

Chester

.40

30

20

.25

40

30

.15
.20

20
10

20
30

What is the score for Chester?


A) 10.00
B) 24.50
C) 25.75
D) 27.00
E) 100.00
PLEASE USE FORMULAS AND SHOW ALL THE CALCULATIONS.
17. On the crossover chart where the costs of two or more location alternatives have been plotted, the
quantity at which two cost curves cross is the quantity at which:
A) fixed costs are equal for two alternative locations.
B) variable costs are equal for two alternative locations.
C) total costs are equal for all alternative locations.
D) fixed costs equal variable costs for one location.
E) total costs are equal for two alternative locations.
18. A full-service restaurant is considering opening a new facility in a specific city. The table below shows its
ratings of four factors at each of two potential sites.

Factor
Affluence of local population
Traffic flow
Parking availability
Growth potential

Weight
.20
.40
.20
.20

Gary Mall
30
50
30
10

Belt Line
30
20
40
30

The score for Gary Mall is ________ and the score for Belt Line is ________.
A) 120; 120
B) 22; 24
C) 18; 120
D) 34; 28
E) none of the above
PLEASE USE FORMULAS AND SHOW ALL THE CALCULATIONS.
19. East Texas Seasonings is preparing to build one processing center to serve its four sources of seasonings.
The four source locations are at coordinates shown below. Also, the volume from each source is
provided. What is the center of gravity?

Athens, Texas
Beaumont, Texas
Carthage, Texas
Denton, Texas

X-coordinate
30
20
10
50

Y-coordinate
30
10
70
50

Volume
150
350
100
200

A) X = 28.125; Y = 31.25
B) X = 22000; Y = 24000
C) X = 27.5; Y = 40
D) center of gravity = 28
E) X = 25; Y = 40
PLEASE USE FORMULAS AND SHOW ALL THE CALCULATIONS.
20. The location decisions of goods-producing firms will generally pay more attention to parking, access,
and traffic counts than will service location decisions.
TRUE
FALSE
21. La Quinta Inns has a competitive edge over its rivals because it:
A) uses regression analysis to determine which variables most influence profitability.
B) has better television advertisements.
C) picks larger locations than its rivals.
D) builds only along interstate highways.
E) consistently receives four-star ratings for its inns.
22. Which of the following is a location analysis technique typically employed by a service organization?
A) purchasing power analysis
B) linear programming
C) queuing theory
D) transportation method
E) locational cost-volume analysis
23. Which of the following assumptions is NOT associated with strategies for goods-producing location

decisions?
A) Most major costs can be identified explicitly for each site.
B) Focus on identifiable costs.
C) High customer-contact issues are critical.
D) Intangible costs can be evaluated.
E) Location is a major determinant of cost.