Ch14 Sales And Operations Planning Complete Test Bank - Operations Management Canadian 1e Complete Test Bank by Roberta S. Russell. DOCX document preview.
CHAPTER 14
THE SALES AND OPERATIONS PLANNING PROCESS
CHAPTER LEARNING OBJECTIVES
1. Provide an overview of the sales and operations planning process. Sales and operations planning (S&OP) is a structured collaborative process for matching supply and demand. The sales plan and operations plan are expressed in aggregate terms, hence the name aggregate planning . The objectives of S&OP are to establish a company-wide game plan for allocating resources and to develop an economic strategy for meeting demand. S&OP should take into
account demand forecasts, company policies, strategic objectives, financial constraints, and capacity constraints.
2. Explain the hierarchy of production and capacity planning, including tools for planning in an e-business environment. Production and capacity plans are developed at several levels of detail. The process of deriving more detailed production and capacity plans from the aggregate plan is called disaggregation. Collaborative planning sets production plans in concert with suppliers and trading partners. Available-to-promise often involves collaboration along a supply chain.
Levels of production planning: sales and operations plan → master production plan → materials requirements plan → shop floor schedule
Levels of capacity planning: resource requirements plan → rough-cut capacity plan → capacity requirements plan → input/output control
3. Describe strategies companies can use to manage capacity to satisfy fluctuating demand. When demand fluctuates, companies can use the following strategies to manage capacity:
1. Produce at a constant rate and use inventory to absorb fluctuations in demand (level production)
2. Hire and fire workers to match demand (chase demand)
3. Maintain resources for high-demand levels (peak demand)
4. Increase or decrease working hours (overtime and undertime)
5. Subcontract work to other firms
6. Use part-time workers
7. Provide the service or product at a later time period (backorder)
When one of these strategies is selected, a company is said to have a pure strategy for meeting demand. When two or more are selected, a company has a mixed strategy.
4. Describe proactive strategies companies can use to manage demand. Companies can use the following strategies to manage demand:
1. Shift demand into other time periods with incentives, sales promotions, and advertising campaigns.
2. Offer products or services with countercyclical demand patterns.
3. Partner with suppliers to reduce information distortion along the supply chain.
5. Use quantitative techniques to develop an aggregate production plan. There are several quantitative techniques for aggregate planning, including the linear programming model, the transportation method, the linear decision rule, the search decision rule, and the management coefficient model.
6. Describe the issues related to aggregate planning for services and calculate single order quantities. Aggregate planning for services is somewhat different from that for manufacturing because services cannot be inventoried and demand and capacity for services is difficult to predict. The variation in demand is usually more severe and occurs over shorter time frames. Fortunately, the constraining resource in most services is labour, which is quite flexible. Services use part-time workers, overtime, and undertime. Revenue management is a special aggregate planning tool for industries with time-sensitive products and segmented customer classes.
TRUE-FALSE STATEMENTS
1. Sales and operations planning is an aggregate planning process that determines the capacity needed to meet immediate demand.
Answer: False
Difficulty: Medium
Learning Objective: Provide an overview of the sales and operations planning process.
Section Reference: 14.1 The Sales and Operations Planning Process
2. An aggregate operations plan specifies the production quantities for an entire product family or product line.
Answer: True
Difficulty: Medium
Learning Objective: Provide an overview of the sales and operations planning process.
Section Reference: 14.1 The Sales and Operations Planning Process
3. One objective of sales and operations planning is to develop a companywide game plan to satisfy production.
Answer: False
Difficulty: Medium
Learning Objective: Provide an overview of the sales and operations planning process.
Section Reference: 14.1 The Sales and Operations Planning Process
4. An operations plan is an input into the sales and operations planning process.
Answer: True
Difficulty: Medium
Learning Objective: Provide an overview of the sales and operations planning process.
Section Reference: 14.1 The Sales and Operations Planning Process
5. Financial constraints are one of the major inputs of the sales and operations planning process.
Answer: True
Difficulty: Medium
Learning Objective: Provide an overview of the sales and operations planning process.
Section Reference: 14.1 The Sales and Operations Planning Process
6. Implementing a companywide game plan for allocating resources addresses the long-standing battle between operations and marketing.
Answer: True
Difficulty: Hard
Learning Objective: Provide an overview of the sales and operations planning process.
Section Reference: 14.1 The Sales and Operations Planning Process
7. An economic strategy for adjusting demand can include adjusting capacity or managing demand.
Answer: True
Difficulty: Medium
Learning Objective: Provide an overview of the sales and operations planning process.
Section Reference: 14.1 The Sales and Operations Planning Process
8. Reconciliation of the sales plan and the operations plan may include adjusting capacity and/or managing demand.
Answer: True
Difficulty: Medium
Learning Objective: Provide an overview of the sales and operations planning process.
Section Reference: 14.1 The Sales and Operations Planning Process
9. Disaggregation is the process of breaking a sales and operations plan into more detailed plans.
Answer: True
Difficulty: Medium
Learning Objective: Explain the hierarchy of production and capacity planning, including tools for planning in an e-business environment.
Section Reference: 14.2 The Hierarchical Nature of Planning
10. Sharing information and synchronizing production across the supply chain is known as disaggregation.
Answer: False
Difficulty: Medium
Learning Objective: Explain the hierarchy of production and capacity planning, including tools for planning in an e-business environment.
Section Reference: 14.2 The Hierarchical Nature of Planning
11. Adjusting capacity and managing demand are two economic strategies for meeting demand.
Answer: True
Difficulty: Medium
Learning Objective: Describe strategies companies can use to manage capacity to satisfy fluctuating demand.
Section Reference: 14.3 Strategies for Managing Capacity
12. Overtime and undertime are common strategies for adjusting demand.
Answer: False
Difficulty: Easy
Learning Objective: Describe strategies companies can use to manage capacity to satisfy fluctuating demand.
Section Reference: 14.3 Strategies for Managing Capacity
13. A chase demand strategy is one of several alternatives available for managing demand.
Answer: False
Difficulty: Medium
Learning Objective: Describe strategies companies can use to manage capacity to satisfy fluctuating demand.
Section Reference: 14.3 Strategies for Managing Capacity
14. Inventory holding costs are an important consideration for the level production strategy.
Answer: True
Difficulty: Medium
Learning Objective: Describe strategies companies can use to manage capacity to satisfy fluctuating demand.
Section Reference: 14.3 Strategies for Managing Capacity
15. When demand fluctuations are extreme, using overtime and undertime is a feasible strategy for adjusting capacity.
Answer: False
Difficulty: Medium
Learning Objective: Describe strategies companies can use to manage capacity to satisfy fluctuating demand.
Section Reference: 14.3 Strategies for Managing Capacity
16. Subcontracting is a feasible alternative for adjusting capacity provided the supplier can reliably meet quality and time requirements.
Answer: True
Difficulty: Medium
Learning Objective: Describe strategies companies can use to manage capacity to satisfy fluctuating demand.
Section Reference: 14.3 Strategies for Managing Capacity
17. One of several strategies for managing demand is to shift it into other time periods using incentives, sales promotions, and advertising.
Answer: True
Difficulty: Medium
Learning Objective: Describe strategies companies can use to manage capacity to satisfy fluctuating demand.
Section Reference: 14.3 Strategies for Managing Capacity
18. A mixed strategy for adjusting capacity is simpler and easier to implement than any pure strategy.
Answer: False
Difficulty: Medium
Learning Objective: Describe strategies companies can use to manage capacity to satisfy fluctuating demand.
Section Reference: 14.3 Strategies for Managing Capacity
19. Most companies use mixed strategies for managing demand.
Answer: True
Difficulty: Medium
Learning Objective: Describe strategies companies can use to manage capacity to satisfy fluctuating demand.
Section Reference: 14.3 Strategies for Managing Capacity
20. The level strategy for adjusting capacity is only appropriate when there is no variation in demand.
Answer: False
Difficulty: Medium
Learning Objective: Describe strategies companies can use to manage capacity to satisfy fluctuating demand.
Section Reference: 14.3 Strategies for Managing Capacity
21. A chase strategy involves hiring and firing workers so that production matches demand.
Answer: True
Difficulty: Medium
Learning Objective: Describe strategies companies can use to manage capacity to satisfy fluctuating demand.
Section Reference: 14.3 Strategies for Managing Capacity
22. The transportation method is used for aggregate planning when the strategy for adjusting capacity is hiring and firing workers.
Answer: False
Difficulty: Medium
Learning Objective: Use quantitative techniques to develop an aggregate production plan.
Section Reference: 14.5 Quantitative Techniques for Aggregate Planning
23. Yield management seeks to maximize profit from time-sensitive products and services.
Answer: True
Difficulty: Hard
Learning Objective: Describe the issues related to aggregate planning for services and calculate single order quantities.
Section Reference: 14.6 Aggregate Planning for Services
MULTIPLE CHOICE QUESTIONS
24. All of the following are inputs to the aggregate production planning process except
a) demand forecasts.
b) financial constraints.
c) sales plans.
d) capacity constraints.
Answer: c
Difficulty: Medium
Learning Objective: Provide an overview of the sales and operations planning process.
Section Reference: 14.1 The Sales and Operations Planning Process
25. Strategies for proactive demand management would not include
a) shifting demand into other time periods.
b) offering products or services with countercyclical demand patterns.
c) partnering with suppliers to reduce information distortion along the supply chain.
d) using subcontracting to meet unexpected high demand levels.
Answer: d
Difficulty: Medium
Learning Objective: Provide an overview of the sales and operations planning process.
Section Reference: 14.1 The Sales and Operations Planning Process
26. The most effective aggregate planning strategy depends on
a) the demand distribution.
b) the competitive position.
c) the firm’s cost structure.
d) all of the above.
Answer: d
Difficulty: Medium
Learning Objective: Provide an overview of the sales and operations planning process.
Section Reference: 14.1 The Sales and Operations Planning Process
27. The process of breaking an aggregate plan into more detailed plans is referred to as
a) collaborative planning.
b) hierarchical planning.
c) disaggregation.
d) rough-cut planning.
Answer: a
Difficulty: Hard
Learning Objective: Explain the hierarchy of production and capacity planning, including tools for planning in an e-business environment.
Section Reference: 14.2 The Hierarchical Nature of Planning
28. The difference between planned production and customer orders is known as
a) the master production schedule.
b) available-to-promise.
c) capable-to-promise.
d) the disaggregate plan.
Answer: b
Difficulty: Medium
Learning Objective: Explain the hierarchy of production and capacity planning, including tools for planning in an e-business environment.
Section Reference: 14.2 The Hierarchical Nature of Planning
29. In capacity planning, the feasibility of the sales and operations production plan is verified by a
a) resource requirements plan.
b) rough-cut capacity plan.
c) capacity requirements plan.
d) master production schedule.
Answer: a
Difficulty: Medium
Learning Objective: Explain the hierarchy of production and capacity planning, including tools for planning in an e-business environment.
Section Reference: 14.2 The Hierarchical Nature of Planning
30. Given the information below, the number of available-to-promise units in period 2 is
Period | ||||||
On Hand = 100 | 1 | 2 | 3 | 4 | 5 | 6 |
Forecast | 200 | 250 | 200 | 300 | 200 | 200 |
Customer Orders | 150 | 125 | 100 | 250 | 150 | 250 |
Master Production Schedule | 400 | 400 | 400 | |||
Available-to-Promise | ||||||
a) 400
b) 150
c) 50
d) 0
Answer: d
Difficulty: Medium
Learning Objective: Explain the hierarchy of production and capacity planning, including tools for planning in an e-business environment.
Section Reference: 14.2 The Hierarchical Nature of Planning
31. Given the information below, the number of available-to-promise units in period 4 is
Period | ||||||
On Hand = 100 | 1 | 2 | 3 | 4 | 5 | 6 |
Forecast | 200 | 250 | 200 | 300 | 200 | 200 |
Customer Orders | 150 | 125 | 100 | 250 | 150 | 250 |
Master Production Schedule | 400 | 400 | 400 | |||
Available-to-Promise | ||||||
a) 400
b) 150
c) 50
d) 0
Answer: d
Difficulty: Medium
Learning Objective: Explain the hierarchy of production and capacity planning, including tools for planning in an e-business environment.
Section Reference: 14.2 The Hierarchical Nature of Planning
32. Given the information below, the number of available-to-promise units in period 6 is
Period | ||||||
On Hand = 100 | 1 | 2 | 3 | 4 | 5 | 6 |
Forecast | 200 | 250 | 200 | 300 | 200 | 200 |
Customer Orders | 150 | 125 | 100 | 250 | 150 | 250 |
Master Production Schedule | 400 | 400 | 400 | |||
Available-to-Promise | ||||||
a) 400
b) 150
c) 50
d) 0
Answer: d
Difficulty: Medium
Learning Objective: Explain the hierarchy of production and capacity planning, including tools for planning in an e-business environment.
Section Reference: 14.2 The Hierarchical Nature of Planning
33. Given the information below, the number of available-to-promise units in period 4 is
Period | ||||||
On Hand = 200 | 1 | 2 | 3 | 4 | 5 | 6 |
Forecast | 300 | 250 | 300 | 300 | 200 | 200 |
Customer Orders | 250 | 200 | 250 | 200 | 150 | 250 |
Master Production Schedule | 500 | 700 | ||||
Available-to-Promise | ||||||
a) 500
b) 100
c) 200
d) 350
Answer: b
Difficulty: Medium
Learning Objective: Explain the hierarchy of production and capacity planning, including tools for planning in an e-business environment.
Section Reference: 14.2 The Hierarchical Nature of Planning
34. Given the information below, the number of available-to-promise units in period 1 is
Period | ||||||
On Hand = 200 | 1 | 2 | 3 | 4 | 5 | 6 |
Forecast | 300 | 250 | 300 | 300 | 200 | 200 |
Customer Orders | 250 | 200 | 250 | 200 | 150 | 250 |
Master Production Schedule | 500 | 700 | ||||
Available-to-Promise | ||||||
a) 700
b) 500
c) 250
d) 0
Answer: d
Difficulty: Medium
Learning Objective: Explain the hierarchy of production and capacity planning, including tools for planning in an e-business environment.
Section Reference: 14.2 The Hierarchical Nature of Planning
35. Adjusting available capacity by hiring and firing workers to match demand is an example of a(n) ___ strategy.
a) level production
b) chase demand
c) mixed production
d) optimal production
Answer: b
Difficulty: Easy
Learning Objective: Describe strategies companies can use to manage capacity to satisfy fluctuating demand.
Section Reference: 14.3 Strategies for Managing Capacity
36. The primary cost associated with the level production strategy is the cost of
a) holding inventory.
b) hiring and firing workers.
c) overtime.
d) outsourcing (subcontracting).
Answer: a
Difficulty: Medium
Learning Objective: Describe strategies companies can use to manage capacity to satisfy fluctuating demand.
Section Reference: 14.3 Strategies for Managing Capacity
37. Problems associated with using a part-time workers strategy for adjusting capacity include all of the following except
a) high turnover.
b) accelerated training requirements.
c) scheduling difficulties.
d) high retirement costs.
Answer: d
Difficulty: Easy
Learning Objective: Describe strategies companies can use to manage capacity to satisfy fluctuating demand.
Section Reference: 14.3 Strategies for Managing Capacity
38. An optimizing technique originally developed for aggregate planning in the paint factory is the
a) linear decision rule.
b) search decision rule.
c) management coefficients model.
d) transportation technique.
Answer: a
Difficulty: Medium
Learning Objective: Use quantitative techniques to develop an aggregate production plan.
Section Reference: 14.5 Quantitative Techniques for Aggregate Planning
39. The search decision rule (SDR) is an algorithm that
a) solves a set of four quadratic equations.
b) finds the minimum cost for combinations of different workforce levels and production rates.
c) uses regression analysis to improve the consistency of production planning decisions.
d) requires that a linear cost function be used.
Answer: b
Difficulty: Medium
Learning Objective: Use quantitative techniques to develop an aggregate production plan.
Section Reference: 14.5 Quantitative Techniques for Aggregate Planning
40. The following information relates to a company’s aggregate production planning activities:
Quarter | Demand Forecast |
1 | 75,000 |
2 | 100,000 |
3 | 75,000 |
4 | 125,000 |
Beginning Workforce = 35 workers
Production per Employee = 1,250 units per quarter
Hiring Cost = $500 per worker
Firing Cost = $1,000 per worker
Inventory Carrying Cost = $20 per unit per quarter
If a chase demand strategy is used then the number of workers hired at the start of quarter 2 is
a) 10.
b) 20.
c) 35.
d) 80.
Answer: b
Difficulty: Medium
Learning Objective: Use quantitative techniques to develop an aggregate production plan.
Section Reference: 14.5 Quantitative Techniques for Aggregate Planning
41. The following information relates to a company’s aggregate production planning activities:
Quarter | Demand Forecast |
1 | 75,000 |
2 | 100,000 |
3 | 75,000 |
4 | 125,000 |
Beginning Workforce = 35 workers
Production per Employee = 1,250 units per quarter
Hiring Cost = $500 per worker
Firing Cost = $1,000 per worker
Inventory Carrying Cost = $20 per unit per quarter
If a chase demand strategy is used then the total firing cost for the plan is
a) $10,000.
b) $15,000.
c) $20,000.
d) $25,000.
Answer: c
Difficulty: Medium
Learning Objective: Use quantitative techniques to develop an aggregate production plan.
Section Reference: 14.5 Quantitative Techniques for Aggregate Planning
42. The following information relates to a company’s aggregate production planning activities:
Quarter | Demand Forecast |
1 | 75,000 |
2 | 100,000 |
3 | 75,000 |
4 | 125,000 |
Beginning Workforce = 35 workers
Production per Employee = 1,250 units per quarter
Hiring Cost = $500 per worker
Firing Cost = $1,000 per worker
Inventory Carrying Cost = $20 per unit per quarter
If a level production strategy is used then the required quarterly output is
a) 75,000.
b) 87,350.
c) 93,750.
d) 125,000.
Answer: c
Difficulty: Medium
Learning Objective: Use quantitative techniques to develop an aggregate production plan.
Section Reference: 14.5 Quantitative Techniques for Aggregate Planning
43. The following information relates to a company’s aggregate production planning activities:
Quarter | Demand Forecast |
1 | 75,000 |
2 | 100,000 |
3 | 75,000 |
4 | 125,000 |
Beginning Workforce = 35 workers
Production per Employee = 1,250 units per quarter
Hiring Cost = $500 per worker
Firing Cost = $1,000 per worker
Inventory Carrying Cost = $20 per unit per quarter
If a level production strategy is used then the number of workers required for the plan is
a) 35.
b) 75.
c) 100.
d) 125.
Answer: b
Difficulty: Medium
Learning Objective: Use quantitative techniques to develop an aggregate production plan.
Section Reference: 14.5 Quantitative Techniques for Aggregate Planning
44. The following information relates to a company’s aggregate production planning activities:
Quarter | Demand Forecast |
1 | 75,000 |
2 | 100,000 |
3 | 75,000 |
4 | 125,000 |
Beginning Workforce = 35 workers
Production per Employee = 1,250 units per quarter
Hiring Cost = $500 per worker
Firing Cost = $1,000 per worker
Inventory Carrying Cost = $20 per unit per quarter
If a level production strategy is used then the inventory at the end of quarter 3 is
a) 18,750 units.
b) 12,500 units.
c) 25,650 units.
d) 31,250 units.
Answer: d
Difficulty: Medium
Learning Objective: Use quantitative techniques to develop an aggregate production plan.
Section Reference: 14.5 Quantitative Techniques for Aggregate Planning
45. The following information relates to a company’s aggregate production planning activities:
Quarter | Demand Forecast |
1 | 75,000 |
2 | 100,000 |
3 | 75,000 |
4 | 125,000 |
Beginning Workforce = 35 workers
Production per Employee = 1,250 units per quarter
Hiring Cost = $500 per worker
Firing Cost = $1,000 per worker
Inventory Carrying Cost = $20 per unit per quarter
If a level production strategy is used then the cost of the level production plan (inventory costs plus hiring and firing costs) is
a) $20,000.
b) $645,000.
c) $1,250,000.
d) $1,270,000.
Answer: d
Difficulty: Medium
Learning Objective: Use quantitative techniques to develop an aggregate production plan.
Section Reference: 14.5 Quantitative Techniques for Aggregate Planning
46. A company is developing a linear programming model for its aggregate production plan. If It = units in inventory at the end of period t, Pt = units produced in period t, and Dt = demand in period t, then the company’s demand constraint to ensure that demand is met in quarter 3 is
a) D3 = I2 – I3 + P3.
b) D3 = I3 + P3.
c) D3 = I3 – I2 + P3.
d) D3 = I2 – I3 + P2.
Answer: a
Difficulty: Hard
Learning Objective: Use quantitative techniques to develop an aggregate production plan.
Section Reference: 14.5 Quantitative Techniques for Aggregate Planning
47. A company is developing a linear programming model for its aggregate production plan. If Wt = workforce size for period t, Ht = number of workers hired for period t, and Ft = number of workers fired for period t, then the company’s workforce constraint for period 2 is
a) W2 = W1 + F2 – H2.
b) W2 = H2 – F2.
c) W2 = W1 + H2 – F2.
d) W2 = H2 – F2 – W1.
Answer: c
Difficulty: Medium
Learning Objective: Use quantitative techniques to develop an aggregate production plan.
Section Reference: 14.5 Quantitative Techniques for Aggregate Planning
48. A company is developing a linear programming model for its aggregate production plan. If It = units in inventory at the end of period t, Pt = units produced in period t, and Dt = demand in period t, then the company’s demand constraint to ensure that demand is met in quarter 2 is
a) D2 = I2 – I1 + P2.
b) D2 = I1 + P2.
c) D2 = I2 + I1 + P2.
d) D2 = I1 + P2 – I2.
Answer: d
Difficulty: Medium
Learning Objective: Use quantitative techniques to develop an aggregate production plan.
Section Reference: 14.5 Quantitative Techniques for Aggregate Planning
49. A company is developing a linear programming model for its aggregate production plan. If Wt = workforce size for period t, Ht = number of workers hired for period t, and Ft = number of workers fired for period t, then the company’s workforce constraint for period 4 is
a) W4 = W3 – H4 + F4.
b) W4 = W3 + H4 – F4.
c) W4 = W3 + H3 – F3.
d) W4 = W3 + H4.
Answer: b
Difficulty: Medium
Learning Objective: Use quantitative techniques to develop an aggregate production plan.
Section Reference: 14.5 Quantitative Techniques for Aggregate Planning
50. A company is developing a linear programming model for its aggregate production plan. Each worker can produce 500 units per quarter. If Wt = workforce size in period t and Pt = number of units produced in period t, then the production constraint for period 3 is
a) W3 = 500P3.
b) P3 = W3 – 500.
c) P3 = 500W3.
d) P3 = W3/500.
Answer: c
Difficulty: Medium
Learning Objective: Use quantitative techniques to develop an aggregate production plan.
Section Reference: 14.5 Quantitative Techniques for Aggregate Planning
51. The following information relates to a company’s aggregate production planning activities:
Quarter | Demand Forecast |
1 | 25,000 |
2 | 50,000 |
3 | 35,000 |
4 | 60,000 |
Beginning Workforce = 50 workers
Production per Employee = 250 units per quarter
Hiring Cost = $1000 per worker
Firing Cost = $1,500 per worker
Inventory Carrying Cost = $15 per unit per quarter
If a chase demand strategy is used then the number of workers hired at the start of quarter 2 is
a) 0.
b) 50.
c) 100.
d) 200.
Answer: c
Difficulty: Medium
Learning Objective: Use quantitative techniques to develop an aggregate production plan.
Section Reference: 14.5 Quantitative Techniques for Aggregate Planning
52. The following information relates to a company’s aggregate production planning activities:
Quarter | Demand Forecast |
1 | 25,000 |
2 | 50,000 |
3 | 35,000 |
4 | 60,000 |
Beginning Workforce = 50 workers
Production per Employee = 250 units per quarter
Hiring Cost = $1000 per worker
Firing Cost = $1,500 per worker
Inventory Carrying Cost = $15 per unit per quarter
If a chase demand strategy is used then the number of workers fired at the start of quarter 3 is
a) 0.
b) 50.
c) 60.
d) 100.
Answer: c
Difficulty: Medium
Learning Objective: Use quantitative techniques to develop an aggregate production plan.
Section Reference: 14.5 Quantitative Techniques for Aggregate Planning
53. The following information relates to a company’s aggregate production planning activities:
Quarter | Demand Forecast |
1 | 25,000 |
2 | 50,000 |
3 | 35,000 |
4 | 60,000 |
Beginning Workforce = 50 workers
Production per Employee = 250 units per quarter
Hiring Cost = $1000 per worker
Firing Cost = $1,500 per worker
Inventory Carrying Cost = $15 per unit per quarter
If a chase demand strategy is used then the total hiring and firing cost of the plan is
a) $340,000.
b) $250,000.
c) $125,000.
d) $90,000.
Answer: a
Difficulty: Medium
Learning Objective: Use quantitative techniques to develop an aggregate production plan.
Section Reference: 14.5 Quantitative Techniques for Aggregate Planning
54. The following information relates to a company’s aggregate production planning activities:
Quarter | Demand Forecast |
1 | 25,000 |
2 | 50,000 |
3 | 35,000 |
4 | 60,000 |
Beginning Workforce = 50 workers
Production per Employee = 250 units per quarter
Hiring Cost = $1000 per worker
Firing Cost = $1,500 per worker
Inventory Carrying Cost = $15 per unit per quarter
If a level production strategy is used then the required output per quarter is
a) 60,000 units.
b) 42,500 units.
c) 35,000 units.
d) 25,000 units.
Answer: b
Difficulty: Medium
Learning Objective: Use quantitative techniques to develop an aggregate production plan.
Section Reference: 14.5 Quantitative Techniques for Aggregate Planning
55. The following information relates to a company’s aggregate production planning activities:
Quarter | Demand Forecast |
1 | 25,000 |
2 | 50,000 |
3 | 35,000 |
4 | 60,000 |
Beginning Workforce = 50 workers
Production per Employee = 250 units per quarter
Hiring Cost = $1000 per worker
Firing Cost = $1,500 per worker
Inventory Carrying Cost = $15 per unit per quarter
If a level production strategy is used then the inventory at the end of quarter 3 is
a) 0.
b) 5,000.
c) 10,000.
d) 17,500.
Answer: d
Difficulty: Medium
Learning Objective: Use quantitative techniques to develop an aggregate production plan.
Section Reference: 14.5 Quantitative Techniques for Aggregate Planning
56. The following information relates to a company’s aggregate production planning activities:
Quarter | Demand Forecast |
1 | 25,000 |
2 | 50,000 |
3 | 35,000 |
4 | 60,000 |
Beginning Workforce = 50 workers
Production per Employee = 250 units per quarter
Hiring Cost = $1000 per worker
Firing Cost = $1,500 per worker
Inventory Carrying Cost = $15 per unit per quarter
If a level production strategy is used then the number of workers required is
a) 125.
b) 170.
c) 250.
d) 325.
Answer: b
Difficulty: Medium
Learning Objective: Use quantitative techniques to develop an aggregate production plan.
Section Reference: 14.5 Quantitative Techniques for Aggregate Planning
57. The following information relates to a company’s aggregate production planning activities:
Quarter | Demand Forecast |
1 | 25,000 |
2 | 50,000 |
3 | 35,000 |
4 | 60,000 |
Beginning Workforce = 50 workers
Production per Employee = 250 units per quarter
Hiring Cost = $1000 per worker
Firing Cost = $1,500 per worker
Inventory Carrying Cost = $15 per unit per quarter
If a level production strategy is used then the total cost of the plan (hiring cost, firing cost and inventory carrying cost) is
a) $120,000.
b) $377,500.
c) $675,000.
d) $795,000.
Answer: d
Difficulty: Medium
Learning Objective: Use quantitative techniques to develop an aggregate production plan.
Section Reference: 14.5 Quantitative Techniques for Aggregate Planning
58. The following information relates to a company’s aggregate production planning activities:
Quarter | Demand Forecast |
1 | 37,500 |
2 | 45,000 |
3 | 25,000 |
4 | 62,500 |
Beginning Workforce = 125 workers
Production per Employee = 500 units per quarter
Hiring Cost = $750 per worker
Firing Cost = $1,500 per worker
Inventory Carrying Cost = $10 per unit per quarter
If a chase demand strategy is used then the number of workers hired in quarter 4 is
a) 0.
b) 15.
c) 75.
d) 125.
Answer: c
Difficulty: Medium
Learning Objective: Use quantitative techniques to develop an aggregate production plan.
Section Reference: 14.5 Quantitative Techniques for Aggregate Planning
59. The following information relates to a company’s aggregate production planning activities:
Quarter | Demand Forecast |
1 | 37,500 |
2 | 45,000 |
3 | 25,000 |
4 | 62,500 |
Beginning Workforce = 125 workers
Production per Employee = 500 units per quarter
Hiring Cost = $750 per worker
Firing Cost = $1,500 per worker
Inventory Carrying Cost = $10 per unit per quarter
If a chase demand strategy is used the number of workers fired in quarter 3 is
a) 0.
b) 40.
c) 50.
d) 75.
Answer: b
Difficulty: Medium
Learning Objective: Use quantitative techniques to develop an aggregate production plan.
Section Reference: 14.5 Quantitative Techniques for Aggregate Planning
60. The following information relates to a company’s aggregate production planning activities:
Quarter | Demand Forecast |
1 | 37,500 |
2 | 45,000 |
3 | 25,000 |
4 | 62,500 |
Beginning Workforce = 125 workers
Production per Employee = 500 units per quarter
Hiring Cost = $750 per worker
Firing Cost = $1,500 per worker
Inventory Carrying Cost = $10 per unit per quarter
If a chase demand strategy is used the total hiring and firing costs for the production plan is
a) $67,500.
b) $135,000.
c) $202,500.
d) $337,500.
Answer: c
Difficulty: Medium
Learning Objective: Use quantitative techniques to develop an aggregate production plan.
Section Reference: 14.5 Quantitative Techniques for Aggregate Planning
61. The following information relates to a company’s aggregate production planning activities:
Quarter | Demand Forecast |
1 | 37,500 |
2 | 45,000 |
3 | 25,000 |
4 | 62,500 |
Beginning Workforce = 125 workers
Production per Employee = 500 units per quarter
Hiring Cost = $750 per worker
Firing Cost = $1,500 per worker
Inventory Carrying Cost = $10 per unit per quarter
If a level production strategy is used the number of units to produce each quarter is
a) 42,500.
b) 85,000.
c) 62,500.
d) 37,500.
Answer: a
Difficulty: Medium
Learning Objective: Use quantitative techniques to develop an aggregate production plan.
Section Reference: 14.5 Quantitative Techniques for Aggregate Planning
62. The following information relates to a company’s aggregate production planning activities:
Quarter | Demand Forecast |
1 | 37,500 |
2 | 45,000 |
3 | 25,000 |
4 | 62,500 |
Beginning Workforce = 125 workers
Production per Employee = 500 units per quarter
Hiring Cost = $750 per worker
Firing Cost = $1,500 per worker
Inventory Carrying Cost = $10 per unit per quarter
If a level production strategy is used the number of workers required each quarter is
a) 50.
b) 75.
c) 85.
d) 125.
Answer: c
Difficulty: Medium
Learning Objective: Use quantitative techniques to develop an aggregate production plan.
Section Reference: 14.5 Quantitative Techniques for Aggregate Planning
63. The following information relates to a company’s aggregate production planning activities:
Quarter | Demand Forecast |
1 | 37,500 |
2 | 45,000 |
3 | 25,000 |
4 | 62,500 |
Beginning Workforce = 125 workers
Production per Employee = 500 units per quarter
Hiring Cost = $750 per worker
Firing Cost = $1,500 per worker
Inventory Carrying Cost = $10 per unit per quarter
If a level production strategy is used the number of units in inventory at the end of quarter 3 is
a) 0.
b) 2,500.
c) 5,000.
d) 20,000.
Answer: d
Difficulty: Medium
Learning Objective: Use quantitative techniques to develop an aggregate production plan.
Section Reference: 14.5 Quantitative Techniques for Aggregate Planning
64. The following information relates to a company’s aggregate production planning activities:
Quarter | Demand Forecast |
1 | 37,500 |
2 | 45,000 |
3 | 25,000 |
4 | 62,500 |
Beginning Workforce = 125 workers
Production per Employee = 500 units per quarter
Hiring Cost = $750 per worker
Firing Cost = $1,500 per worker
Inventory Carrying Cost = $10 per unit per quarter
If a level production strategy is used the total cost of the production plan (hiring cost, firing cost, and inventory cost) is
a) $60,000.
b) $275,000.
c) $335,000.
d) $610,000.
Answer: c
Difficulty: Medium
Learning Objective: Use quantitative techniques to develop an aggregate production plan.
Section Reference: 14.5 Quantitative Techniques for Aggregate Planning
65. A bagel company bakes a specialty bagel that it sells by the dozen every day. These specialty bagels can only be baked early in the morning before the store opens for business. The company estimates that the daily demand (in dozens) for its specialty bagel is distributed as follows:
Demand (dozens) | Probability |
1 | 0.10 |
2 | 0.20 |
3 | 0.15 |
4 | 0.25 |
5 | 0.30 |
Specialty bagels are sold by the dozen only at a cost of $9.00 per dozen. The cost to make one bagel is $0.50. Leftover specialty bagels are sold by the dozen the next day for a 50% discount. The bagel company’s cost of overestimating demand, Co, is
a) $1.50.
b) $3.00.
c) $4.50.
d) $6.00.
Answer: a
Difficulty: Medium
Learning Objective: Use quantitative techniques to develop an aggregate production plan.
Section Reference: 14.5 Quantitative Techniques for Aggregate Planning
Learning Objective: Describe the issues related to aggregate planning for services and calculate single order quantities.
Section Reference: 14.6 Aggregate Planning for Services
66. A bagel company bakes a specialty bagel that it sells by the dozen every day. These specialty bagels can only be baked early in the morning before the store opens for business. The company estimates that the daily demand (in dozens) for its specialty bagel is distributed as follows:
Demand (dozens) | Probability |
1 | 0.10 |
2 | 0.20 |
3 | 0.15 |
4 | 0.25 |
5 | 0.30 |
Specialty bagels are sold by the dozen only at a cost of $9.00 per dozen. The cost to make one bagel is $0.50. Leftover specialty bagels are sold by the dozen the next day for a 50% discount. The optimal number of specialty bagels that should be baked tomorrow (in dozens) is
a) 5 dozen.
b) 4 dozen.
c) 3 dozen.
d) 2 dozen.
Answer: b
Difficulty: Medium
Learning Objective: Use quantitative techniques to develop an aggregate production plan.
Section Reference: 14.5 Quantitative Techniques for Aggregate Planning
Learning Objective: Describe the issues related to aggregate planning for services and calculate single order quantities.
Section Reference: 14.6 Aggregate Planning for Services
67. A hot dog vendor must decide on Monday how many hot dogs to have available for the coming Saturday’s football game. Each hot dog costs the vendor $3.00 and is sold for $5.00. After the game any unsold hot dogs are discounted and sold to the university cafeteria for $1.75. The vendor believes that the demand for hot dogs follows the probability distribution shown below:
Demand for Hot Dogs | Probability |
1000 | 0.30 |
1500 | 0.20 |
2000 | 0.30 |
2500 | 0.15 |
3000 | 0.05 |
The vendor’s cost of underestimating demand, Cu, is
a) $3.00.
b) $1.75.
c) $2.00.
d) $3.25.
Answer: c
Difficulty: Medium
Learning Objective: Describe the issues related to aggregate planning for services and calculate single order quantities.
Section Reference: 14.6 Aggregate Planning for Services
68. A hot dog vendor must decide on Monday how many hot dogs to have available for the coming Saturday’s football game. Each hot dog costs the vendor $3.00 and is sold for $5.00. After the game any unsold hot dogs are discounted and sold to the university cafeteria for $1.75. The vendor believes that the demand for hot dogs follows the probability distribution shown below:
Demand for Hot Dogs | Probability |
1000 | 0.30 |
1500 | 0.20 |
2000 | 0.30 |
2500 | 0.15 |
3000 | 0.05 |
The vendor’s cost of overestimating demand, Co, is
a) $5.00.
b) $3.00.
c) $1.75.
d) $1.25.
Answer: d
Difficulty: Medium
Learning Objective: Describe the issues related to aggregate planning for services and calculate single order quantities.
Section Reference: 14.6 Aggregate Planning for Services
69. A hot dog vendor must decide on Monday how many hot dogs to have available for the coming Saturday’s football game. Each hot dog costs the vendor $3.00 and is sold for $5.00. After the game any unsold hot dogs are discounted and sold to the university cafeteria for $1.75. The vendor believes that the demand for hot dogs follows the probability distribution shown below:
Demand for Hot Dogs | Probability |
1000 | 0.30 |
1500 | 0.20 |
2000 | 0.30 |
2500 | 0.15 |
3000 | 0.05 |
The optimal number of hot dogs the vendor should order for next Saturday’s game is
a) 1000.
b) 1500.
c) 2000.
d) 3000.
Answer: c
Difficulty: Medium
Learning Objective: Describe the issues related to aggregate planning for services and calculate single order quantities.
Section Reference: 14.6 Aggregate Planning for Services
70. A hotel manager must decide how many rooms to overbook. Room rates are $125 per night and each room costs $45 to maintain. A bumped customer is sent to another hotel at a cost of $75. Given the distribution of no-shows below, how many rooms should the manager overbook?
No-Shows | Probability |
7 | 0.15 |
8 | 0.20 |
9 | 0.15 |
10 | 0.15 |
11 | 0.10 |
12 | 0.10 |
13 | 0.05 |
14 | 0.05 |
15 | 0.05 |
a) Overbook 9 rooms.
b) Overbook 10 rooms.
c) Overbook 11 rooms.
d) Overbook 12 rooms.
Answer: b
Difficulty: Medium
Learning Objective: Describe the issues related to aggregate planning for services and calculate single order quantities.
Section Reference: 14.6 Aggregate Planning for Services
71. Which of the following is not a characteristic of aggregate planning for services?
a) Labour is usually the most constraining resource for services.
b) Service capacity must be provided at the appropriate place and time.
c) Demand for services is easy to predict.
d) Capacity for services is difficult to predict.
Answer: c
Difficulty: Medium
Learning Objective: Describe the issues related to aggregate planning for services and calculate single order quantities.
Section Reference: 14.6 Aggregate Planning for Services
72. Yield management can be used to address all of the following problems except
a) overbooking.
b) portioning demand into fare classes.
c) single order quantities.
d) backorders.
Answer: d
Difficulty: Easy
Learning Objective: Describe the issues related to aggregate planning for services and calculate single order quantities.
Section Reference: 14.6 Aggregate Planning for Services
73. A bagel company bakes a specialty bagel that it sells by the dozen every day. These specialty bagels can only be baked early in the morning before the store opens for business. The company estimates that the daily demand (in dozens) for its specialty bagel is distributed as follows:
Demand (dozens) | Probability |
1 | 0.10 |
2 | 0.20 |
3 | 0.15 |
4 | 0.25 |
5 | 0.30 |
Specialty bagels are sold by the dozen only at a cost of $9.00 per dozen. The cost to bake each bagel is $0.50. Leftover specialty bagels are sold by the dozen the next day for a 50% discount. The bagel company’s cost of underestimating demand, Cu, is
a) $9.00.
b) $6.00.
c) $4.50.
d) $3.00.
Answer: d
Difficulty: Medium
Learning Objective: Describe the issues related to aggregate planning for services and calculate single order quantities.
Section Reference: 14.6 Aggregate Planning for Services
SHORT-ANSWER ESSAY QUESTIONS
74. What is aggregate planning and what alternatives are generally feasible when developing the aggregate production plans?
Answer: Aggregate planning determines the resource capacity a firm will need to meet its demand over an intermediate time horizon—6 to 12 months in the future. The term aggregate is used because the plans are developed for product lines or product families, rather than individual products. Within this time frame it is usually not feasible to increase capacity by building new facilities or purchasing new equipment; however, it is feasible to hire or lay off workers, increase or deduce the workweek, add an extra shift, subcontract out work, use overtime, or build up and deplete inventory levels.
Difficulty: Medium
Learning Objective: Provide an overview of the sales and operations planning process.
Section Reference: 14.1 The Sales and Operations Planning Process
75. Briefly discuss the two primary objectives of aggregate planning.
Answer: There are two objectives to aggregate planning: (1) to establish a companywide game plan for allocating resources, and (2) to develop an economic strategy for meeting demand. The first objective refers to the long-standing battle between the firm’s marketing and production functions. Marketing will sometimes make unrealistic sales projections that production is expected to meet. Production employees who are evaluated on keeping manufacturing costs down may be reluctant to accept orders that incur higher processing costs. The job of aggregate planning is to match forecasted demand with available capacity. If capacity is inadequate it can sometimes be expanded, but at a cost. An analysis of whether the extra revenue is worth the extra cost must be performed.
Difficulty: Medium
Learning Objective: Provide an overview of the sales and operations planning process.
Section Reference: 14.1 The Sales and Operations Planning Process
76. What are the outputs of aggregate planning?
Answer: The outputs of aggregate planning include production per month or quarter by product or service family, the size of the workforce, and the amount of regular, overtime, and subcontracted production required. Inventory and backlog levels are projected, along with the number of units or dollars to be backordered or lost. For companies that outsource most of their production, the aggregate plan also includes where the production will take place. For services, the aggregate plan outlines how much work can be completed (or new work accepted) in a specified time period.
Difficulty: Medium
Learning Objective: Provide an overview of the sales and operations planning process.
Section Reference: 14.1 The Sales and Operations Planning Process
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