Krajewski TIF Chapter 7

Chapter 7 Constraint Management
Chapter
Constraint Management
TRUE/FALSE
1. Capacity is the maximum rate of output of a process.
Answer: True
Reference: Introduction
Difficulty: Easy
Keywords: capacity, maximum, output
2. Capacity can be expressed by output or input measures.
Answer: True
Reference: The Theory of Constraints
Difficulty: Moderate
Keywords: capacity, input, output
3. Input measures of capacity are inherently more accurate than output measures of capacity.
Answer: False
Keywords: input, output, measure, capacity
4. Utilization is the degree to which equipment, space, or labor is currently being used.
Answer: True
Difficulty: Easy
Keywords: utilization, degree, used
5. Operating processes close to their capacity can result in low customer satisfaction and even losing
money despite high sales levels.
Answer: True
Keywords: capacity, satisfaction
6. A bottleneck is an operation that has the lowest effective capacity of any operation in the process.
Answer: True
Keywords: bottleneck, effective, capacity
153
7. The Theory of Constraints method is also referred to as the drum-beater-rope method.

Answer: False
Difficulty: Easy
Keywords: TOC, theory, constraints, drum, buffer, rope
8. Any work center or machine that has less capacity than other work centers in the same plant is
referred to as a bottleneck.
Answer: True
Keywords: bottleneck, capacity
9. A business school with plenty of classroom space that hires adjunct faculty for a semester to meet
unusually high student demand for courses is an example of elevating a bottleneck.
Answer: True
Keywords: elevate, bottleneck, TOC
10. A bottleneck process has the lowest capacity and the longest total time from the start to the finish.
Answer: True
Reference: Identification and Management of Bottlenecks
Keywords: bottleneck, process, capacity
11. Takt time is the time required to change or readjust a process or operation from making one service or
product to making another.
Answer: False
Keywords: setup, process, takt
12. A competent operations manager should first eliminate all of the bottlenecks from the process.
Answer: False
Keywords: bottleneck, process
13. Short term capacity planning should be driven by identification and management of bottlenecks
Answer: True
Reference: Capacity Planning Over Longer Time Horizons
Keywords: capacity, bottleneck
154
14. One reason economies of scale drive down cost is the spreading of fixed costs.
Answer: True
Keywords: economies, scale, fixed, cost
15. A capacity cushion is the amount of inventory that a firm maintains to handle sudden increases in
demand or temporary loss of production capacity.
Answer: False
Reference: Capacity Timing and Sizing Strategies
Keywords: capacity, cushion
16. Capacity decisions should be made separate from strategic decisions.
Answer: False
Reference: Managing Constraints Across the Organization
Keywords: capacity, decision, strategy
17. A processs capacity requirement is what the process capacity should be for some future time period
to meet customer demand, allowing for the desired capacity cushion.
Answer: True
Reference: A Systematic Approach to Long-Term Capacity Decisions
Keywords: capacity, requirement, customer, demand
18. Cash flow is the difference between the flows of funds into and out of an organization over a period
of time.
Answer: True
Keywords: cash, flow, time
19. Waiting line models are often used for capacity planning.
Answer: True
Reference: Tools for Capacity Planning
Keywords: waiting, line, capacity
20. A planning horizon is defined as the period beyond which the company does not have customer
orders.
Answer: False
Reference: A Systematic Approach to Long-term Capacity Decisions
Keywords: time, horizon
155
MULTIPLE CHOICE
21. Long-term capacity plans deal with:
a. investments in new facilities.
b. workforce size.
c. inventories.
d. overtime budgets.
Answer: a
Keywords: long-term, capacity
22. Short-term capacity decisions that confront managers include production factors such as:
a. capital equipment.
b. additional land.
c. buildings.
d. workforce size.
Answer: d
Keywords: short-term, capacity
23. When a firm provides a relatively small number of standardized products and services:
a. capacity cannot be determined reliably.
b. input measures are typically used.
c. output measures are typically used.
d. utilization becomes equal to capacity.
Answer: c
Keywords: output, measure, capacity
24. Input measures include such metrics as:
a. the number of customers served per hour.
b. the number of trucks produced per day.
c. the number of machine hours available.
d. the number of bills processed in a week.
Answer: c
Keywords: input, measure, capacity
156
25. The degree to which equipment, space, or labor is being used is commonly referred to as:
a. capacity.
b. output.
c. utilization.
d. cushion.
Answer: c
Keywords: utilization, capacity
26. A rendering plant is capable of producing 10 tons of product per day if run for three shifts with no
breakdowns and plenty of raw materials. Over the past week, the plant has rendered an average of 7.3
tons per day because the third shift has devoted much of their time to preventive maintenance. What
is the utilization of the plant?
a. 10 tons/day
b. 7.3 tons/day
c. 73%
d. 137%
Answer: c
27. A rendering plant is capable of producing 10 tons of product per day if run for three shifts with no
breakdowns and plenty of raw materials. Over the past week, the plant has rendered an average of 7.3
tons per day since the third shift has devoted much of their time to preventive maintenance. What is
the capacity of the plant?
a. 10 tons/day
b. 7.3 tons/day
c. 73%
d. 137%
Answer: a
28. A lumber mill is capable of producing 10,000 board feet of lumber per day if run for ten hours with
minimal breaks. Over the past year, forestry legislation has reduced the availability of raw materials,
so the mill has produced an average of 4,575 board feet per day. What is the capacity of the plant?
a. 4,575 board feet/day
b. 10,000 board feet/day
c. 45.75%
d. 219%
Answer: b
157
29. A lumber mill is capable of producing 10,000 board feet of lumber per day if run for ten hours with
minimal breaks. Over the past year, forestry legislation has reduced the availability of raw materials,
so the mill has produced an average of 4,575 board feet per day. What is the utilization of the plant?
a. 4,575 board feet/day
b. 10,000 board feet/day
c. 219%
d. 45.75%
Answer: d
30. The focus for a process improvement exercise should be on balancing:
a. flow.
b. capacity.
c. workload.
d. time.
Answer: a
Keywords: TOC, theory, constraints, flow
31. Consider consecutive processes ABC, where process A has a capacity of 20 units per hour, process B
has a capacity of 25 units per hour, and process C has a capacity of 30 units per hour. Where would
an operations manager NOT want any inventory?
a. in front of process A.
b. in front of process B.
c. in front of an assembly process.
d. in front of a shipping point.
Answer: b
Keywords: TOC, theory, constraints, inventory
32. Use the process flow diagram to determine which of these events has the greatest net benefit.
Station A
1 worker
8 minutes
a.
b.
c.
d.
Station B
1 worker
7 units/hr
Station C
1 worker
6 units/hr
reducing the flow time at Station A from 8 to 7 minutes.

increasing the capacity at Station B to 8 units per hour.
increasing the capacity at Station C to 7 units per hour.
reducing the flow time at Station D from 9 to 8 minutes.
Answer: c
Keywords: TOC, theory, constraints
158
Station D
1 worker
9 minutes
Station A
1 worker
10 minutes
a.
b.
c.
d.
Station B
1 worker
10 units/hr
Station C
1 worker
8 units/hr
Station D
1 worker
12 minutes

Answer: d
Station A
1 worker
8 minutes
a.
b.
c.
d.
Station B
1 worker
10 units/hr
Station C
1 worker
8 units/hr

Answer: a
35. Work should be released into the system:

a. when a customer order is received.
b. when the first step in the process is idle.
c. when a customer order is completed.
d. when the bottlenecks need work.
Answer: d
Difficulty: Easy
Keywords: TOC, theory, constraints, bottleneck
159
Station D
1 worker
6 minutes
36. The second step in Theory of Constraints application, exploit the bottleneck(s), means that:
a. the analyst should create a schedule that maximizes the throughput of the bottlenecks.
b. the analyst should repeat the analysis process to look for other bottlenecks.
c. the analyst should consider increasing capacity of the bottleneck.
d. the analyst should schedule non-bottleneck resources to support the bottleneck.
Answer: a
Keywords: bottleneck, TOC, theory, constraints
37. The third step in Theory of Constraints application, subordinate all other decisions to Step 2, means
that:
a. the analyst should wait for authorization before proceeding with any system-wide changes.
b. the analyst should schedule non-bottleneck processes to support the bottleneck schedule.
c. the analyst should seek to increase capacity of only the bottleneck resources.
d. the analyst should seek to increase capacity of both the bottleneck and non-bottleneck resources.
Answer: b
38. The fourth step in Theory of Constraints application, elevate the bottleneck(s), means that:
Answer: c
39. The fifth step in Theory of Constraints application, do not let inertia set in, means that:
Answer: b
160
40. Bal Seal discovered that it was okay for some workers to have nothing to do at times. The reason for
this is that:
a. these workers were pure production workers.
b. these workers worked at bottleneck processes.
c. these workers were analyzing processes.
d. these workers worked at non-bottleneck processes.
Answer: d
41. There are three consecutive steps in a customer service process. The first two steps are each capable
of serving 25 customers per hour while the third step can process only 20 customers per hour. Which
of the following statements regarding this system is true?
a. The entire system is capable of processing 25 customers per hour.
b. There are floating bottlenecks in the system.
c. If the first two steps are run at full capacity, then the third step has a waiting line.
d. The first and second steps are bottlenecks for the system.
Answer: c
Keywords: capacity, expansionist, strategy
42. The time required to change a machine from making one product or service to the next is called:
a. takt time.
b. setup time.
c. queue time.
d. hold time.
Answer: b
Keywords: setup
43. Which of the following statements regarding setups is TRUE?
a. Unusually high setup times result in higher utilization.
b. Processes are generating output throughout the entire setup process.
c. A machine used in a line process would probably have fewer setups than a batch process.
d. A TOC analyst would not be concerned with setup times on non-bottleneck machines.
Answer: d
Keywords: setup, TOC, bottleneck
161
44. A company makes four products that have the following characteristics: Product A sells for $50 but
needs $20 of materials and $20 of labor to produce; Product B sells for $75 but needs $40 of
materials and $20 of labor to produce; Product C sells for $100 but needs $50 of materials and $30 of
labor to produce; Product D sells for $150 but needs $75 of materials and $40 of labor to produce.
The processing requirements for each product on each of the four machines are shown in the table.
Work
Center
W
X
Y
Z
A
6
9
4
10
Processing Time (min/unit)

B
C
1
10
3
0
3
4
12
7
D
12
8
9
11
Work centers W, X, Y, and Z are available for 40 hours per week and have no setup time when
switching between products. If market demand for each product is 80 units per week, which work
center is of greatest concern to the operations manager?
a. Work center W.
b. Work center X
c. Work center Y
d. Work center Z
Answer: b
Keywords: TOC, bottleneck
Work
Center
W
X
Y
Z
A
6
9
4
10

B
C
1
10
3
0
3
4
12
7
D
12
8
9
11
switching between products. If market demand for each product is 80 units per week, which product
should be scheduled first?
a. Product A.
b. Product B.
c. Product C.
d. Product D.
Answer: c
Difficulty: Hard
162
Work
Center
W
X
Y
Z
A
6
9
4
10

B
C
1
10
3
0
3
4
12
7
D
12
8
9
11
switching between products. If market demand for each product is 80 units per week, in what
sequence should products be scheduled for production?
a. D. C. B. A
b. D, C, A, B
c. C, D, A, B
d. C, D, B, A
Answer: d
Difficulty: Hard
Keywords: TOC, bottleneck, sequence
Work
Center
W
X
Y
Z
A
6
9
4
10

B
C
1
10
3
0
3
4
12
7
D
12
8
9
11
switching between products. If market demand for each product is 80 units per week, what is the
optimal product mix?
a. 71 A, 80B, 80C, 80 D
b. 80A, 72B, 80C, 80D
c. 80A, 80B, 60C, 80D
d. 80A, 80B, 80C, 70D
Answer: a
Difficulty: Hard
Keywords: TOC, bottleneck, mix
163
Work
Center
W
X
Y
Z
A
8
12
8
10

B
C
4
9
12
9
12
10
14
5
D
10
6
5
5
switching between products. Market demand is 50 As, 60 Bs, 70 Cs, and 80 Ds per week. Which
work center is of greatest concern to the operations manager?
a. Work center W
b. Work center X
c. Work center Y
d. Work center Z
Answer: c
Work
Center
W
X
Y
Z
A
8
12
8
10

B
C
4
9
12
9
12
10
14
5
D
10
6
5
5
switching between products. Market demand is 50 As, 60 Bs, 70Cs, and 80Ds per week. Which
product should be scheduled first?
a. Product A.
b. Product B.
c. Product C.
d. Product D.
Answer: a
164
Work
Center
W
X
Y
Z
A
8
12
8
10

B
C
4
9
12
9
12
10
14
5
D
10
6
5
5
switching between products. Market demand is 50 As, 60 Bs, 70 Cs, and 80 Ds per week. In what
sequence should products be scheduled for production?
a. A, D, C, B
b. A, D, B, C
c. D, A, B, C
d. D, A, C, B
Answer: a
Difficulty: Hard
Keywords: TOC, bottleneck, sequence
Work
Center
W
X
Y
Z
A
8
12
8
10

B
C
4
9
12
9
12
10
14
5
D
10
6
5
5
switching between products. Market demand is 50 As, 60 Bs, 70 Cs, and 80 Ds per week. What is the
optimal product mix?
a. 37 A, 60 B, 70 C, 80 D
b. 50 A, 51 B, 70 C, 80 D
c. 50 A, 60 B, 62 C, 80 D
d. 50 A, 60 B, 70 C, 60 D
Answer: b
Difficulty: Hard
Keywords: TOC, bottleneck, mix
165
52. The transition from economies of scale to diseconomies of scale:

a. is more likely to occur in a service operation.
b. is more likely to occur in a manufacturing operation.
c. is more likely to occur when utilization is low.
d. contains the point at which average unit costs are at their lowest.
Answer: d
Keywords: economies, diseconomies, scale
53. At higher output rates, processes tend to:
a. reduce bottlenecks, which results in cost savings.
b. increase bottlenecks, which results in cost savings.
c. shift to line processes, which results in cost savings.
d. shift to batch processes, which results in cost savings.
Answer: c
Keywords: process, output, cost, savings
54. Large, infrequent jumps in capacity are characteristic of companies that:
a. have an expansionist strategy.
b. have a wait-and-see strategy.
c. have low utilization.
d. have high utilization.
Answer: a
Keywords: expansionist, capacity, strategy
55. Which one of the following factors usually motivates a smaller capacity cushion?
a. Unevenly distributed demands
b. High capital intensity
c. High penalty costs for overtime usage
d. Requests for quick customer services
Answer: b
Keywords: capacity, cushion, intensity
56. Which one of the following factors usually calls for a larger capacity cushion?
a. Uncertain demand
b. High capital intensity
c. More reliable equipment
d. High worker flexibility
Answer: a
166
57. Which one of the following statements about capacity is best?

a. Companies with flexible flow processes tend to have small-capacity cushions.
b. Companies with high capital costs tend to have large-capacity cushions.
c. Companies that have considerable customization tend to have larger-capacity cushions.
d. Constant demand rates require larger-capacity cushions.
Answer: c
Keywords: capacity, capital, cushion
58. Which one of the following statements concerning capacity cushions is best?
a. Large-capacity cushions are used more often when future demand is level and known.
b. Small-capacity cushions are used extensively in capital-intensive firms.
c. Capacity cushions are used primarily in manufacturing organizations, not in service organizations.
d. Small cushions are used in organizations where the products and services produced often change.
Answer: b
Keywords: capacity, cushion, capital, intensity
59. If a system is well balanced, which one of the following changes usually calls for a larger-capacity
cushion?
a. Higher capital intensity
b. Higher worker flexibility
c. Higher inventories
d. Requests for fast delivery times
Answer: d
Keywords: system, balanced, cushion, capacity
60. If a system is well balanced, which one of the following changes usually calls for a smaller-capacity
cushion?
a. Higher customization
b. More of a flexible-flow strategy
c. Higher yield losses
d. Higher capital intensity
Answer: d
Keywords: capacity, cushion, capital, intensity
167
61. The single milling machine at Stout Manufacturing was severely overloaded last year. The plant
operates eight hours per day, five days per week, and 50 weeks per year. Management prefers a
capacity cushion of 15 percent. Two major types of products are routed through the milling machine.
The annual demand for product A is 3000 units and 2000 units for product B. The batch size for A is
20 units and 40 units for B. The standard processing time for A is 0.5 hours/unit and 0.8 for B. The
standard setup time for product A is 2 hours and 8 hours for product B. How many new milling
machines are required if Stout does not resort to any short-term capacity options?
a. No new machines
b. 1 or 2 new machines
c. 3 or 4 new machines
d. More than 4 new machines
Answer: c
Keywords: capacity, requirement
Table 7.1
The Union Manufacturing Company is producing two types of products: A and B. The
demand forecasts, batch size, and time standards follow:
Both products are produced on the same machine, called Mark I.

62. Using Table 7.1, what is the total number of hours required of Mark I equipment for the next year?
a. Fewer than 29,000 hours
b. Between 29,000 and 30,000 hours
c. Between 30,000 and 31,000 hours
d. More than 31,000 hours
Answer: b
168
63. Use the information in Table 7.1. The company works 250 days per year and operates two shifts, each
covering 8 hours. If a 15 percent capacity cushion is maintained, how many hours of capacity can the
company expect from each of its Mark I machines?
a. Fewer than 3000
b. Between 3000 and 3500
c. Between 3501 and 4000
d. More than 4000
Answer: b
64. The Southeast Manufacturing Company is producing two types of products: A and B. Demand
forecasts for next year and other production-related information are provided in the following table:
Both of these products are produced at the same workstation, called the Automatic Lathe.
Currently, the company has 12 automatic lathes, and financial constraints prevent any expansion
for the next year. It works 250 days per year with two 8-hour shifts and desires a 25 percent
capacity cushion. Which one of the following alternatives will allow next years demand to be
fully covered?
a. Do nothing.
b. Increase the capacity cushion to 30 percent.
c. Increase the batch size of product B to 300 units.
d. Decrease the capacity cushion by 1 percent.
Answer: c
Keywords: capacity, requirement, option
169
65. Up, Up & Away is a producer of kites and windsocks. Relevant data concerning their production for
the upcoming fiscal year are as follows:
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
years demand using the minimum number of machines?
a. Add six additional machines.
b. Add five additional machines.
c. Add four additional machines.
d. Add three additional machines.
Answer: b
170
66. The lock box department at Bank 21 handles the processing of monthly loan payments to the bank,
monthly and quarterly premium payments to a local insurance company, and bill payments for 85 of
the banks largest commercial customers. The payments are processed by machine operators, with
one operator per machine. An operator can process one payment in 0.25 minute. Setup times are
negligible in this situation. A capacity cushion of 20 percent is needed for the operation. The average
monthly (not annual) volume of payments processed through the department currently is 400,000.
However, it is expected to increase by 20 percent. The department operates eight hours per shift, two
shifts per day, 260 days per year. How many machines (not operators) are needed to satisfy the new
total processing volume? (Round up to the next whole integer.)
a. Fewer than 7
b. 7
c. 8
d. More than 8
Answer: c
Difficulty: Hard
Table 7.2
High Tech, Inc. is producing two types of products: A and B. Both are produced at the same
sawing 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.
Product
A
B
Time Standard
Processing
Setup
.20
2.0
.15
3.0
Batch Size
40
50
Demand Forecasts (000 units/yr)

Pessimistic
Expected
Optimistic
200
240
300
160
180
200
The sawing machines operate on two 8-hour shifts, 5 days per week, and 50 weeks per year.
The manager wants to maintain a 10 percent capacity cushion.
67. Using the information from Table 7.2, what is the minimum total number of hours required of sawing
equipment for the next year?
a. Fewer than 85,000 hours
b. More than 85,000 but fewer than 95,000
c. More than 95,000 but fewer than 105,000
d. More than 105,000 hours
Answer: a
Difficulty: Hard
171
68. Using the information from Table 7.2, how many hours of capacity can the company expect from
each of its sawing machines?
a. Fewer than 3500 hours
b. More than 3500 hours but fewer than 3700 hours
c. More than 3700 hours but fewer than 3900 hours
d. More than 3900 hours
Answer: b
Difficulty: Hard
69. Using the information from Table 7.2, what is the minimum number of machines needed (assuming
no reliance on short-term options)?
a. Fewer than or equal to 22
b. More than 22 but fewer than or equal to 25
c. More than 25 but fewer than or equal to 28
d. More than 28
Answer: b
Difficulty: Hard
70. Using the information from Table 7.2, what is the maximum number of machines needed (assuming
no reliance on short-term option)?
d. More than 31
Answer: d
Difficulty: Hard
71. Using the information from Table 7.2, if the operation currently has 18 machines and the manager is
willing to expand capacity by 20 percent through short-term options, what is the capacity gap (in
terms of number of machines) if you assume the optimistic demand forecasts?
d. More than 14
Answer: a
Difficulty: Hard
172
72. A companys production facility, consisting of two identical machines, currently caters only to
product A. The annual demand for the product is 4000 units. Management has now decided to
introduce another product, B, which uses the same facilities as that of product A. Product B has an
annual demand of 2000 units. In view of the uncertainties involved in producing two products,
management desires to have an overall 10 percent capacity cushion. Given the following additional
information, how many more machines are required? (Assume 8 hours/shift, 2 shifts/day, 250
days/year, and that no overtime is allowed).
a. No additional machines are necessary.

b. One additional machine is necessary.
c. Two additional machines are necessary.
d. More than two additional machines are necessary.
Answer: c
73. The Northern Manufacturing Company is producing products A and B, using the same machine
called MASAC27A. Demand forecasts for next year and other production-related information are
provided in the following table.
The company works 250 days per year and operates 2 shifts each day, each shift covering 8
hours. If 25 percent of capacity cushion is maintained throughout the year, how many machines
(MASAC27A) does the company need next year to meet the demand? (Round your answer up to
the next whole machine.)
a. Fewer than 11 machines
b. 11 machines
c. 12 machines
d. More than 12 machines
Answer: c
173
Table 7.3
The North Bend Manufacturing Company is producing two types of products, A and B. Demand
forecasts for next year and other production-related information are provided in the following
table:
Product A
Product B
Demand forecast (units/year)
4,000
12,000
Batch size (units/batch)
80
150
Standard processing time (hr/unit)
2.5
2
Standard setup time (hr/batch)
18
24
Both products A and B are produced at the same operation called MASAC27A.
74. Using the information in Table 7.3, what is the total number of hours required for MASAC27A
equipment for the next year?
a. 34,000 hours
b. 34,285 hours
c. 36,820 hours
d. 312,000 hours
Answer: c
75. Use the information in Table 7.3 to help answer this question. Additionally, the company works 250
days every year and operates 2 shifts, each of which covers 8 hours. If a 25 percent capacity cushion
is maintained, how many machines does the company need next year to fully cover the demand?
a. Fewer than 13 machines
b. 13 machines
c. 14 machines
d. More than 14 machines
Answer: b
76. Use the information in Table 7.3 to help answer this question. Currently, the company has 12
MASAC27A machines, and financial constraints prevent any expansion for the next year. Which one
of the following alternatives will allow next years demand to be fully covered?
a. Do nothing.
b. Increase the capacity cushion to 30 percent.
c. Increase the batch size of product B to 300 units.
d. Decrease the capacity cushion by 1 percent.
Answer: c
174
77. 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 ($000) sales per quarter, for next year (year 2) are:
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?
a. Less than $28,000
b. More than $28,000 but less than $32,000
c. More than $32,000 but less than $36,000
d. More than $36,000
Answer: b
Keywords: capacity, profit
175
78. 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 beforetax profits that the expansion will produce. Using the following information, how much more beforetax cash flow would be realized just in year 10 alone?
a. Less than or equal to $20,000

b. Greater than $20,000 but less than or equal to $25,000
c. Greater than $25,000 but less than or equal to $30,000
d. Greater than 30,000
Answer: a
Keywords: cash, flow
79. 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 in the following table. 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?
a. Less than or equal to $40 million

b. More than $40 million but less than or equal to $70 million
c. More than $70 million but less than or equal to $100 million
d. More than $100 million
Answer: c
176
80. John Owen owns a drugstore that is experiencing significant growth. Owen is trying to decide
whether to expand its capacity, which currently is $200,000 in sales per quarter. Sales are seasonal.
Forecasts of capacity requirements, expressed in sales per quarter for the next year, follow.
Owen is considering expanding capacity to the $250,000 level in sales per quarter. The before-tax
profit margin from additional sales is 15 percent. How much would before-tax profits increase
next year because of this expansion?
Answer: c
Table 7.4
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.
177
81. Using the information in Table 7.4, if Lee expands the capacity to an equivalent of $360,000 sales
now (year 0), how much would pretax cash flow in year 1 increase because of this expansion?
a. Less than $3000
b. More than $3000 but less than $5000
c. More than $5000 but less than $7000
d. More than $7000
Answer: a
now (year 0), how much would pretax cash flow in year 5 increase because of this expansion?
a. Less than $7000
b. More than $7000 but less than $10,000
Answer: c
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)?
Answer: c
84. When future demand is uncertain and sequential decisions are involved in capacity planning, a
manager should use a:
a. waiting line model.
b. cash flow analysis.
c. decision tree.
d. gap analysis.
Answer: c
Keywords: decision, tree, capacity
178
85. Which of the following descriptions about waiting line models is best?
a. They account for major events such as competitor actions.
b. They account for the random, independent behavior of many customers.
c. They assume that each branch can give the highest expected payoff.
d. They deal with the certainty and stability in demand.
Answer: b
Keywords: waiting, line, model
86. What information would managers use to choose the best cost-effective capacity to balance customer
service with the cost of adding capacity?
a. Decision trees
b. Economies of scale
c. Capacity cushion
d. Waiting line models
Answer: d
FILL IN THE BLANK

87. ____________ is the maximum rate of output for a process.
Answer: Capacity
Difficulty: Easy
Keywords: capacity, maximum, output
88. ____________ is the degree to which equipment, space, or labor is currently being used.
Answer: Utilization
Difficulty: Easy
Keywords: utilization, degree, use
89. ____________ capacity is the maximum output that a process or facility can achieve under ideal
conditions.
Answer: Peak
Keywords: peak, capacity, maximum, output
90. A(n) ____________ is an operation that has the lowest effective capacity of any operation in the
process, and thus limits the systems output.
Answer: bottleneck
Difficulty: moderate
Keywords: bottleneck, TOC, output
179
91. ____________ is the total time taken from the start to the finish of a process.
Answer: Throughput time
Difficulty: Easy
Keywords: throughput, time
92. Variability of a firms workload may create ____________.
Answer: floating bottlenecks
Difficulty: Hard
Keywords: workload, variability, floating, bottleneck
93. With TOC, ____________ are scheduled to maximize their throughput of products while adhering to
promised completion dates.
Answer: bottlenecks
94. Instead of producing products with the highest profit margins, operations managers should focus on
the ____________ generated at the ____________ .
Answer: profit (margin), bottleneck
Keywords: TOC, bottleneck, profit
95. Capacity decisions should be linked closely to ____________ and ____________ throughout the
organization.
Answer: processes, value chains
Keywords: capacity, decision, strategy, process
96. ____________ is the amount of reserve capacity that a firm maintains to handle a sudden increase in
demand or temporary losses of production capacity.
Answer: Capacity cushion
Keywords: capacity, cushion, reserve
97. If demand is increasing, and you also prefer to increase the time between capacity increments, then
the size of increments should ____________.
Answer: increase
Keywords: increase, time, capacity, increments
180
98. A processs ____________ is what its capacity should be for some future time period to meet the
demand of its customers, allowing for the desired capacity cushion.
Answer: capacity requirement
SHORT ANSWERS
99. Explain why a bottleneck limits system output.
Answer: A bottleneck, by definition, is a process that has less capacity than all other processes in
the system. Just as a chain is as strong as its weakest link, the rest of a production system can
produce only as much as the slowest process. The bottleneck limits capacity by serving to slow
the rest of the system down. Running all other processes at their maximum capacity will result in
inventory buildup in front of the bottleneck.
Keywords: bottleneck, output, TOC
100.
Define utilization and give a service process example of it.

Answer: Utilization is expressed as a percent and is the degree to which equipment, space, or
labor is currently being used. Examples will vary.
Difficulty: Easy
101.
Describe a process from your own personal experience at home or work that suffers from a lack
of sufficient throughput. Apply the first four TOC steps to address the situation, assuming you have
complete authority to do so.
Answer: Examples will vary. The steps of TOC are (1) identify the system bottleneck(s); (2)
exploit the bottlenecks; (3) subordinate all other decisions to step 2; (4) elevate the bottleneck(s);
and (5) do not let inertia set in.
Keywords: TOC, steps
102.
Discuss the relationship between setup time and utilization.

Answer: Setup time is the time required to adjust a process when switching from making one
product to another and is unproductive time in the sense that no product is being built during the
setup. Utilization is the ratio of the average output rate to the maximum capacity. As output rate
increases, the resource is more productive and utilization rises. Setups enable output but do not
create it, so the faster a setup can be performed, the more of the total time is productive, thus
increasing utilization.
Difficulty: Easy
Keywords: setup, utilization
181
103.
Give four principal reasons economies of scale can occur when output increases.
Answer: The four reasons are spreading fixed costs, reducing construction costs, cutting costs of
purchased materials, and finding process advantages.
Keywords: economies, scale, output
104.
What factors should be considered when selecting the appropriate capacity cushion? How does
the choice of capacity cushion relate to other decisions in operations management? To other
functional areas?
Answer: The appropriate size of the capacity cushion varies by industry. Large cushions are
necessary when future demand is uncertain, resource flexibility is low, product mix changes,
uncertainty exists regarding suppliers, and employee absenteeism and penalty costs for overtime
and subcontracting exist. Small-capacity cushions reduce costs and expose problems in the
system. Capacity cushions are linked to competitive priorities, quality management, capital
intensity, resource flexibility, inventory, scheduling, and location. Obviously, many of these
decisions cut across functional boundaries.
Difficulty: Hard
105.
What are the four steps involved in making capacity decisions?

Answer: The steps are estimate future capacity requirements, identify gaps by comparing
requirements with alternatives, develop alternative plans for filling the gaps, and evaluate
alternatives, both qualitatively and quantitatively, and make a final choice.
Keywords: capacity, decision, steps
106.
Define each of the following capacity strategies: expansionist, wait-and-see, and follow-theleader.
Answer: Expansionist means large, infrequent jumps in capacity. Wait-and-see means smaller
and more frequent jumps. Follow-the-leader means to expand when others do.
Keywords: capacity, strategy, wait, follow
107.
What is a waiting line model, and what information can it provide?

Answer: Waiting line models use probability distributions to estimate delay times, line length,
and utilization.
Keywords: waiting, line, model, capacity
182
PROBLEMS
108.
Lucys Pancake House, a no-frills diner along a major interstate, has discovered that if precious
employee time is not wasted on frivolous duties such as cleaning work surfaces, properly storing
ingredients, and pest control, they can achieve an average output rate of 25 customers per hour. If the
diner was designed to accommodate a maximum of 30 customers per hour, what is the utilization?
Answer:
Average Output Rate

100%
Maximum capacity
25
Utilization
100% 83.3%
30
Utilization

Difficulty: Easy
109.
Schmidt Industries makes four different snake traps; the Harlan, the Gaylen, the Leah and the
Matthew. The Harlan sells for $200 and has $40 in parts and $40 in labor; the Gaylen sells for $150
and requires $30 in parts and $30 in labor; the Leah sells for $100 and has $20 in parts and $20 in
labor; and the Matthew sells for $75 but requires only $10 of parts and $10 of labor. Schmidt
Industries has four machines (well call them A, B, C, and D for convenience) that are used in the
production of each of these products. Each of these machines is available for 40 hours a week and
there is no setup time required when shifting from the production of one product to any other. The
processing requirements to make one unit of each product are shown in the table.
Processing Time on Each Machine in Minutes
Model
Machine A Machine B Machine C Machine D
Harlan
10
15
15
5
Gaylen
10
10
10
10
Leah
5
10
15
10
Matthew
5
5
5
10
Schmidt Industries has monthly fixed costs of $5000 and has a demand forecast of 80 Harlans, 60
Gaylens, 40 Leahs and 20 Matthews for the coming month. How many of each of the four models
should Susan, the operations manager, schedule for production this month?
183
Answer:
The processing requirements for the demand forecast result in a need for:
Machine A : 80 10 60 10 40 5 20 5 1700 2400

Machine B : 80 15 60 10 40 10 20 10 2300 2400
Machine C : 80 15 60 10 40 15 20 10 2500 2400 Bottleneck
Machine D : 80 5 60 10 40 10 20 10 1600 2400
The contribution margin per bottleneck minute is:
Harlan : (200 - 40 - 40)/15 = $8/min

Gaylen : (150 - 30 - 30)/10 = $9/min
Leah : (100 - 20 - 20)/15 = $4/min
Matthew : (75 - 10 - 10)/5 = $11/min
Products should be produced in Matthew, Gaylen, Harlan, and Leah order. The product mix is 20
Matthews (using 100 minutes of Machine C); 60 Gaylens (using 600 minutes of Machine C); 80
Harlans (using 1200 minutes of Machine C); and 33 Leahs (using up the remaining 500 minutes
of Machine C time)
Difficulty: Hard
110.
The single milling machine at Freds Manufacturing was severely overloaded last year. The
plant operates 8 hours per day, 5 days per week, and 50 weeks per year. Management prefers a
capacity cushion of 20 percent. Two major types of products are routed through the milling machine.
The annual demand for product A is 4000 units and 3000 units for product B. The batch size for A is
20 units and 30 units for B. The standard processing time for A is 0.5 hours/unit and 0.8 for B. The
standard setup time for product A is 2 hours and 8 hours for product B. How many new milling
machines are required if Freds does not resort to any short-term capacity options?
Answer:
Dp ( D / Q)s product 1 Dp ( D / Q)s product 2
M
N 1 (C /100)
where M = number of machines required, D = number of units forecast per year, p = processing
time in hours per unit, N = total number of hours per year that the process operates, C = desired
capacity cushion, Q = number of units in each batch, and s = setup time.
M
4000(.5) (4000 / 20)2product A 3000(.8) (3000 / 30)8product B

2000 1 (20 /100)

184
3.5 4 machines.
111.
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:
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?
Answer:
Dp ( D / Q)s product1 Dp ( D / Q)s product 2
M
N 1 (C /100)
where M = number of machines required, D = number of units forecast per year, p = processing
time (in hours per unit), N = total number of hours per year that the process operates, C = desired
capacity cushion, Q = number of units in each batch, and s = setup time.
1000(3.2) (1000 / 20)10product A 4000(4.5) (4000 /10)20product B
M
9.28 10 machines.
4000 1 (20 /100)
185
112.
Larrys 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.
Product
A
B
Time Standard
Processing
Setup
.30
1.0
.25
2.0
Batch Size
200
100
Demand Forecasts (000 units/yr)

Pessimistic Expected
Optimistic
100
120
150
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)?
186
Answer:
Inputs
SolverCapacity Requirements
Enter data in gray shaded areas.
Shifts/Day
Hours/Shift
Days/Week
Weeks/Year
Cushion (as %)
Current Capacity
Components
A
B
Productive hours from
one capacity unit for a year
2
8
5
50
20%
Processing
(hr/unit)
0.30
0.25
Components
More Components
Fewer Components
Setup
Lot Size
Demand Forecasts
(hr/lot) (units/lot) Pessimistic Expected
Optimistic
1.0
200
100,000
120,000
150,000
2.0
100
190,000
210,000
230,000
3,200
Pessimistic
Process
30,000
47,500
77,500
A
B
Total hours required
Setup
500.0
3,800.0
4,300.0
81,800.0
Expected
Process
36,000
52,500
88,500
Setup
Process
600.0
45,000
4,200.0
57,500
4,800.0
102,500
93,300.0
Total capacity requirements (M)

25.56
Rounded
26
Scenarios that can be met with current systems/capacity:
a, 81,800 hours
b. 3,200 hours
c. 26 machines
d. 34 machines
Difficulty: Hard
Keywords: capacity, cushion, requirement
187
Optimistic
29.16
30
Setup
750.0
4,600.0
5,350.0
107,850.0
33.70
34

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Chapter 7 Constraint Management

Chapter 7 Constraint Management

7. The Theory of Constraints method is also referred to as the drum-beater-rope method.

Chapter 7 Constraint Management

Chapter 7 Constraint Management

Chapter 7 Constraint Management

Chapter 7 Constraint Management

reducing the flow time at Station A from 8 to 7 minutes.

Chapter 7 Constraint Management

reducing the flow time at Station A from 10 to 8 minutes.

reducing the flow time at Station A from 8 to 7 minutes.

35. Work should be released into the system:

Chapter 7 Constraint Management

Chapter 7 Constraint Management

Chapter 7 Constraint Management

Processing Time (min/unit)

Processing Time (min/unit)

Chapter 7 Constraint Management

Processing Time (min/unit)

Processing Time (min/unit)

Chapter 7 Constraint Management

Processing Time (min/unit)

Processing Time (min/unit)

Chapter 7 Constraint Management

Processing Time (min/unit)

Processing Time (min/unit)

Chapter 7 Constraint Management

52. The transition from economies of scale to diseconomies of scale:

Chapter 7 Constraint Management

57. Which one of the following statements about capacity is best?

Chapter 7 Constraint Management

Both products are produced on the same machine, called Mark I.

Chapter 7 Constraint Management

Chapter 7 Constraint Management

Assume: 1 shift/day, 8 hours/shift, 5 days/week, and 50 weeks/year

Chapter 7 Constraint Management

Demand Forecasts (000 units/yr)

Chapter 7 Constraint Management

Chapter 7 Constraint Management

a. No additional machines are necessary.

Chapter 7 Constraint Management

Chapter 7 Constraint Management

Chapter 7 Constraint Management

a. Less than or equal to $20,000

a. Less than or equal to $40 million

Chapter 7 Constraint Management

Chapter 7 Constraint Management

Chapter 7 Constraint Management

FILL IN THE BLANK

Chapter 7 Constraint Management

Chapter 7 Constraint Management

Define utilization and give a service process example of it.

Discuss the relationship between setup time and utilization.

Chapter 7 Constraint Management

What are the four steps involved in making capacity decisions?

What is a waiting line model, and what information can it provide?

Chapter 7 Constraint Management

Average Output Rate

Reference: The Theory of Constraints

Chapter 7 Constraint Management

Machine A : 80 10 60 10 40 5 20 5 1700 2400

Harlan : (200 - 40 - 40)/15 = $8/min

4000(.5) (4000 / 20)2product A 3000(.8) (3000 / 30)8product B

Reference: A Systematic Approach to Long-Term Capacity Decisions