Ch14 Test Bank + Answers + The Sales And Operations Planning

File: ch14, Chapter 14: The Sales and Operations Planning Process

True/False

1. Which of the following is best defined as a process for coordinating supply and demand?
   1. demand planning
   2. sales management
   3. supply planning
   4. sales and operations planning
2. Implementing a companywide game plan for allocating resources addresses the long-standing battle between operations and finance.

Difficulty: Hard

Learning Objective: LO 1

1. An economic strategy for adjusting demand can include adjusting capacity or managing demand.

Difficulty: Moderate

Learning Objective: LO 1

1. An aggregate operations plan specifies the production quantities for
   1. an entire product family or product line.
   2. component parts
   3. labor
   4. individual products
2. One objective of sales and operations planning is to develop a companywide game plan to satisfy production.

Difficulty: Moderate

Learning Objective: LO 1

1. An input into sales and operations planning is the
   1. sales plan.
   2. operations plan.
   3. demand forecasts.
   4. inventory levels.
2. Financial constraints are one of the major inputs of the sales and operations planning process.

Difficulty: Moderate

Learning Objective: LO 1

1. Overtime and undertime are common strategies for adjusting demand.

Difficulty: Easy

Learning Objective: LO 2

1. The level strategy for adjusting capacity is only appropriate when there is no variation in demand.

Difficulty: Moderate

Learning Objective: LO 2

1. A chase strategy involves hiring and firing workers so that
   1. production trails demand.
   2. production matches demand.
   3. production exceeds demand.
   4. None of these answer choices are correct.
2. Inventory holding costs are an important consideration for the level production strategy.

Difficulty: Moderate

Learning Objective: LO 2

1. When demand fluctuations are extreme using overtime and undertime is a feasible strategy for adjusting capacity.

Difficulty: Moderate

Learning Objective: LO 2

1. Subcontracting is a feasible alternative for adjusting capacity provided the supplier can reliably meet quality and time requirements.

Difficulty: Moderate

Learning Objective: LO 2

1. A chase demand strategy is one of several alternatives available for managing demand.

Difficulty: Moderate

Learning Objective: LO 2

1. One of several strategies for managing demand is to shift it into other time periods using
   1. incentives.
   2. sales promotions.
   3. advertising.
   4. All of the choices are correct.
2. A mixed strategy for adjusting capacity is simpler and easier to implement than any pure strategy.

Difficulty: Moderate

Learning Objective: LO 3

1. Which of the following is best defined as staffing for high levels of customer service?
   1. peak
   2. overtime
   3. chase
   4. level
2. The transportation method is used for aggregate planning when the strategy for adjusting capacity is hiring and firing workers.

Difficulty: Moderate

Learning Objective: LO 4

1. Aggregate planning involves the process of determining the timing and quantity of production for an individual item over an intermediate time frame.

Difficulty: Easy

Learning Objective: LO 4

1. With a pure strategy for aggregate planning only one capacity variable is changed.

Difficulty: Easy
Learning Objective: LO 4

1. Most companies use mixed strategies for production planning.

Difficulty: Easy

Learning Objective: LO 4

1. _____________ is the process of breaking a sales and operations plan into more detailed plans.
   1. Collaborative planning
   2. Capacity planning
   3. Production planning
   4. Disaggregation
2. Sharing information and synchronizing production across the supply chain is known as
   1. collaborative planning.
   2. capacity planning.
   3. production planning.
   4. demand planning.
3. Which of the following is a strategy of revenue management?
   1. multiple order quantities
   2. restrict demand
   3. fare classes
   4. underbooking
4. Which of the following is best defined as the quantity of items that can be produced and made available at a later date?
   1. available-to-promise
   2. capable-to-promise
   3. make-to-order
   4. make-to-stock

Multiple Choice

1. All of the following are inputs to the aggregate production planning process except
2. demand forecasts.
3. financial constraints.
4. sales plans.
5. capacity constraints.

Difficulty: Moderate

Learning Objective: LO 1

1. Which of the following is an output of sales and operations planning?
2. company policies
3. demand forecasts
4. operations plans
5. capacity constraints

Difficulty: Easy

Learning Objective: LO 1

1. Sales and operations planning is an aggregate planning process for a(n)______________ time horizon.
2. short-term
3. intermediate
4. long-term
5. infinite

Difficulty: Easy

Learning Objective: LO 1

1. The term aggregate planning reflects the fact that plans are developed for ___________, rather than _____________.
2. product families, individual products
3. product lines, product families
4. competitor products, product families
5. competitor products, individual products

Difficulty: Easy

Learning Objective: LO 1

1. Strategies for proactive demand management would not include
2. shifting demand into other time periods.
3. offering products or services with countercyclical demand patterns.
4. partnering with suppliers to reduce information distortion along the supply chain.
5. using subcontracting to meet unexpected high demand levels.

Difficulty: Moderate

Learning Objective: LO 1

1. Which of the following is an objective to sales and operations planning?
2. Develop an economic strategy for meeting demand.
3. Develop a marketing strategy for meeting demand.
4. Develop an operations strategy for meeting demand.
5. None of these answer choices is correct.

Difficulty: Easy

Learning Objective: LO 1

1. The most effective aggregate planning strategy depends on
2. the demand distribution
3. the competitive position
4. the firm’s cost structure
5. All of these answer choices are correct.

Difficulty: Moderate

Learning Objective: LO 1

1. Adjusting available capacity by hiring and firing workers to match demand is an example of a(n) ________ strategy.
2. level production
3. chase demand
4. mixed production.
5. optimal production.

Difficulty: Easy

Learning Objective: LO 2

1. The primary cost associated with the level production strategy is the cost of
2. holding inventory.
3. hiring and firing workers.
4. overtime.
5. outsourcing (subcontracting).

Difficulty: Moderate

Learning Objective: LO 2

1. Problems associated with using a part-time workers strategy for adjusting capacity include all of the following except
2. high turnover.
3. accelerated training requirements.
4. scheduling difficulties.
5. high retirement costs.

Difficulty: Easy

Learning Objective: LO 2

1. Which of the following is not a strategy for adjusting capacity?
2. level production
3. subcontracting
4. backordering
5. product substitution

Difficulty: Easy

Learning Objective: LO 2

1. Which of the following is not a strategy for managing demand?
2. Shifting demand into other time periods.
3. Create demand for idle resources.
4. Redirecting demand to a competitor.
5. Partnering with suppliers to minimize information distortion.

Difficulty: Easy

Learning Objective: LO 3

1. Shifting demand into other time periods can be accomplished through
2. Advertising
3. Sales promotions
4. Incentives
5. All of these answer choices are correct.

Difficulty: Easy

Learning Objective: LO 3

1. The following information relates to a company’s aggregate production planning activities:

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

1. 10
2. 20
3. 35
4. 80

Difficulty: Moderate

Learning Objective: LO 4

Solution: Number of workers hired at start of quarter 2 = (100,000 − 75,000)/1,250 = 20 workers

1. The following information relates to a company’s aggregate production planning activities:

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 at the start of quarter 4 is

1. 0
2. 15
3. 75
4. 125

Difficulty: Moderate

Learning Objective: LO 4

Solution: Number of workers hired at the start of quarter 4 = (62,500 − 25,000)/500 = 75 workers

1. The following information relates to a company’s aggregate production planning activities:

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 at the start of quarter 3 is

1. 0
2. 40
3. 50
4. 75

Difficulty: Moderate

Learning Objective: LO 4

Solution: Number of workers fired at start of period 3 = (25,000 − 45,000)/500 = −40 workers

1. The following information relates to a company’s aggregate production planning activities:

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

1. $67,500
2. $135,000
3. $202,500
4. $337,500

Difficulty: Moderate

Learning Objective: LO 4

Solution: Total hiring and firing cost for the production plan = 50($1500) + 15($750) + 40($500) + 75($750) = $202,500

1. The following information relates to a company’s aggregate production planning activities:

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

1. 42,500
2. 85,000
3. 62,500
4. 37,500

Difficulty: Moderate

Learning Objective: LO 4

Solution: Production each quarter = (37,500 + 45,000 + 25,000 + 62,500)/4 = 42,500 units

1. The following information relates to a company’s aggregate production planning activities:

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

1. 50
2. 75
3. 85
4. 125

Difficulty: Moderate

Learning Objective: LO 4

Solution: Number of workers each quarter = 42,500/500 = 85 workers

1. The following information relates to a company’s aggregate production planning activities:

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

1. 0
2. 2,500
3. 5,000
4. 20,000

Difficulty: Moderate

Learning Objective: LO 4

Solution: Number of units in inventory at the end of quarter 3 = 3(42,500) − 37,500 − 45,000 − 25,000 = 20,000 units

1. The following information relates to a company’s aggregate production planning activities:

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

1. $60,000
2. $275,000
3. $335,000
4. $610,000

Difficulty: Moderate

Learning Objective: LO 4

Solution: 40($1,500) + 5000($10) + 2500($10) + 20,000($10) = $335,000

1. The following information relates to a company’s aggregate production planning activities:

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

1. 0
2. 50
3. 100
4. 200

Difficulty: Moderate

Learning Objective: LO 4

Solution: Number of workers hired at start of period 2 = 25,000/250 = 100 workers

1. The following information relates to a company’s aggregate production planning activities:

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

1. 0
2. 50
3. 60
4. 100

Difficulty: Moderate

Learning Objective: LO 4

Solution: Number of workers fired at the start of period 3 = 200 − 140 = 60 workers

1. The following information relates to a company’s aggregate production planning activities:

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

1. $340,000
2. $250,000
3. $125,000
4. $90,000

Difficulty: Moderate

Learning Objective: LO 4

Solution: Total hiring and firing cost = 50($1000) + 100($1000) + 60($1500) + 100($1000) = $340,000

1. The following information relates to a company’s aggregate production planning activities:

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

1. 60,000 units.
2. 42,500 units.
3. 35,000 units.
4. 25,000 units.

Difficulty: Moderate

Learning Objective: LO 4

Solution: (60,000 + 42,500 + 35,500 + 25,000)/4 = 42,500 units

1. The following information relates to a company’s aggregate production planning activities:

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

1. 0
2. 5,000
3. 10,000
4. 17,500

Difficulty: Moderate

Learning Objective: LO 4

Solution: Inventory at the end of quarter 3 = 42,500 − 25,000 + 42,500 − 50,000 + 42,500 − 35,000 = 17,500 units

1. The following information relates to a company’s aggregate production planning activities:

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

• 1. 125
  2. 170
  3. 250
  4. 325

Difficulty: Moderate

Learning Objective: LO 4

Solution: Number of workers required = 42,500/250 = 170 workers

1. The following information relates to a company’s aggregate production planning activities:

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

1. $120,000
2. $377,500
3. $675,000
4. $795,000

Difficulty: Moderate

Learning Objective: LO 4

Solution: Total cost of the plan = 50($1000) + 100($1000) + 60($1500) + 100($1000) + 17,500($15) + 
10,000($15) + 17,500($15) = $795,000

1. The following information relates to a company’s aggregate production planning activities:

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

1. $10,000
2. $15,000
3. $20,000
4. $25,000

Difficulty: Moderate

Learning Objective: LO 4

Solution: The firing cost of the plan = 20($1000) = $20,000

1. The following information relates to a company’s aggregate production planning activities:

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

1. 75,000
2. 87,350
3. 93,750
4. 125,000

Difficulty: Moderate

Learning Objective: LO 4

Solution: The required units per quarter = (75,000 + 100,000 + 75,000 + 125,000)/4 = 93,750 units

1. The following information relates to a company’s aggregate production planning activities:

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

1. 35
2. 75
3. 100
4. 125

Difficulty: Moderate

Learning Objective: LO 4

Solution: Number of workers required = 93,750/1250 = 75 workers

1. The following information relates to a company’s aggregate production planning activities:

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

1. 18,750
2. 12,500
3. 25,650
4. 31,250

Difficulty: Moderate

Learning Objective: LO 4

Solution: Inventory at the end of period 3 = 93,750 − 75,000 + 93,750 − 100,000 + 93,750 − 75,000 = 31,250 units

1. The following information relates to a company’s aggregate production planning activities:

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

1. $20,000
2. $645,000
3. $1,250,000
4. $1,270,000

Difficulty: Moderate

Learning Objective: LO 4

Solution: The total cost of the level plan = 40($500) + 18,750($20) + 12,500($20) + 31,750($20) = $1,270,000

1. A company is developing a linear programming model for its aggregate production plan. If I_t = units in inventory at the end of period t, P_t = units produced in period t, and D_t = demand in period t, then the company’s demand constraint to ensure that demand is met in quarter 3 is
2. D₃ = I₂ – I₃ + P₃
3. D₃ = I₃ + P₃
4. D₃ = I₃ – I₂ + P₃
5. D₃ = I₂ – I₃ + P₂

Difficulty: Hard

Learning Objective: LO 4

1. A company is developing a linear programming model for its aggregate production plan. If W_t = workforce size for period t, H_t = number of workers hired for period t, and F_t = number of workers fired for period t, then the company’s workforce constraint for period 2 is
2. W₂ = W₁ + F₂ – H₂
3. W₂ = H₂ – F₂
4. W₂ = W₁ + H₂ – F₂
5. W₂ = H₂ – F₂ – W₁

Difficulty: Moderate

Learning Objective: LO 4

1. A company is developing a linear programming model for its aggregate production plan. If I_t = units in inventory at the end of period t, P_t = units produced in period t, and D_t = demand in period t, then the company’s demand constraint to ensure that demand is met in quarter 2 is
2. D₂ = I₂ – I₁ + P₂
3. D₂ = I₁ + P₂
4. D₂ = I₂ + I₁ + P₂
5. D₂ = I₁ + P₂ – I₂

Difficulty: Moderate

Learning Objective: LO 4

1. A company is developing a linear programming model for its aggregate production plan. If W_t = workforce size for period t, H_t = number of workers hired for period t, and F_t = number of workers fired for period t, then the company’s workforce constraint for period 4 is
2. W₄ = W₃ – H₄ + F₄
3. W₄ = W₃ + H₄ – F₄
4. W₄ = W₃ + H₃ – F₃
5. W₄ = W₃ + H₄

Difficulty: Moderate

Learning Objective: LO 4

1. A company is developing a linear programming model for its aggregate production plan. Each worker can produce 500 units per quarter. If W_t = workforce size in period t and P_t = number of units produced in period t, then the production constraint for period 3 is
2. W₃ = 500P₃
3. P₃ = W₃ − 500
4. P₃ = 500W₃
5. P₃ = W₃/500

Difficulty: Moderate

Learning Objective: LO 4

1. An optimizing technique originally developed for aggregate planning in the paint factory is the
2. linear decision rule.
3. search decision rule.
4. management coefficients model.
5. transportation technique.

Difficulty: Moderate

Learning Objective: LO 4

1. The search decision rule (SDR) is an algorithm that
2. solves a set of four quadratic equations.
3. finds the minimum cost for combinations of different workforce levels and production rates.
4. uses regression analysis to improve the consistency of production planning decisions.
5. requires that a linear cost function be used.

Difficulty: Moderate

Learning Objective: LO 4

1. The process of breaking an aggregate plan into more detailed plans is referred to as
2. collaborative planning.
3. hierarchical planning.
4. disaggregation.
5. rough-cut planning.

Difficulty: Hard

Learning Objective: LO 5

1. Given the information below, the number of available-to-promise units in period 2 is

1. 400
2. 150
3. 50
4. 0

Difficulty: Moderate

Learning Objective: LO 5

1. Given the information below, the number of available-to-promise units in period 4 is

1. 400
2. 150
3. 50
4. 0

Difficulty: Moderate

Learning Objective: LO 5

1. Given the information below, the number of available-to-promise units in period 6 is

1. 400
2. 150
3. 50
4. 0

Difficulty: Moderate

Learning Objective: LO 5

1. Given the information below, the number of available-to-promise units in period 4 is

1. 500
2. 100
3. 200
4. 350

Difficulty: Moderate

Learning Objective: LO 5

1. Given the information below, the number of available-to-promise units in period 1 is

1. 700
2. 500
3. 250
4. 0

Difficulty: Moderate

Learning Objective: LO 5

1. In capacity planning, the feasibility of the sales and operations production plan is verified by a
2. resource requirements plan.
3. rough-cut capacity plan.
4. capacity requirements plan.
5. master production schedule.

Difficulty: Moderate

Learning Objective: LO 5

1. The difference between planned production and customer orders is known as
2. the master production schedule.
3. available-to-promise.
4. capable-to-promise.
5. the disaggregate plan.

Difficulty: Moderate

Learning Objective: LO 5

1. Which of the following is not a characteristic of aggregate planning for services?
2. labor is usually the most constraining resource for services
3. service capacity must be provided at the appropriate place and time
4. demand for services is easy to predict
5. capacity for services is difficult to predict

Difficulty: Moderate

Learning Objective: LO 6

1. Yield management can be used to address all of the following problems except
2. overbooking.
3. portioning demand into fare classes.
4. single order quantities.
5. backorders.

Difficulty: Easy

Learning Objective: LO 6

1. 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:

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, C_u, is

1. $9.00
2. $6.00
3. $4.50
4. $3.00

Difficulty: Moderate

Solution: C_u = $3.00

Learning Objective: LO 6

1. 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:

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

1. $1.50
2. $3.00
3. $4.50
4. $6.00

Difficulty: Moderate

Solution: C_o = $1.50

Learning Objective: LO 6

1. 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:

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

1. 5 dozen.
2. 4 dozen.
3. 3 dozen.
4. 2 dozen.

Difficulty: Moderate

Learning Objective: LO 6

1. 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:

The vendor’s cost of underestimating demand, C_u, is

1. $3.00
2. $1.75
3. $2.00
4. $3.25

Difficulty: Moderate

Solution: C_u = $2.00

Learning Objective: LO 6

1. 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:

The vendor’s cost of overestimating demand, C_o, is

1. $5.00
2. $3.00
3. $1.75
4. $1.25

Difficulty: Moderate

Solution: C_o = $1.25

Learning Objective: LO 6

1. 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:

The optimal number of hot dogs the vendor should order for next Saturday’s game is

1. 1000
2. 1500
3. 2000
4. 3000

Difficulty: Moderate

Learning Objective: LO 6

1. 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?

1. 9 rooms.
2. 10 rooms.
3. 11 rooms.
4. 12 rooms.

Difficulty: Moderate

Learning Objective: LO 6

Short Answer Questions

82. What is aggregate planning and what alternatives are generally feasible when developing the aggregate production plans?

Difficulty: Moderate

Learning Objective: LO 1

83. Briefly discuss the two primary objectives of aggregate planning.

Difficulty: Moderate

Learning Objective: LO 1

84. What are the outputs of aggregate planning?

Difficulty: Moderate

Learning Objective: LO 1

85. Your company makes a product for which quarterly demand is shown in the following table:

If the company uses level production strategy, the number of workers needed each quarter is __________.

a) 155

b) 154

c) 153

d) 152

Difficulty: Moderate,

Learning Objective: LO4,

Bloom: Application

AACSB: Reflective thinking

86. Your company makes a product for which quarterly demand is shown in the following table:

If the company uses level production strategy, the inventory at the end of fall is __________ units.

a) 4,000

b) 3,750

c) 3,000

d) 2,750

Difficulty: Moderate,

Learning Objective: LO4,

Bloom: Application

AACSB: Reflective thinking

87. Your company makes a product for which quarterly demand is shown in the following table:

If the company uses level production strategy, the total cost of production is __________.

a) $136,620

b) $136,500

c) $134,620

d) $134,500

Difficulty: Moderate,

Learning Objective: LO4,

Bloom: Application

AACSB: Reflective thinking

88. Your company makes a product for which quarterly demand is shown in the following table:

If the company uses chase demand strategy, the number of workers required for fall is __________.

a) 144

b) 164

c) 174

d) 176

Difficulty: Moderate,

Learning Objective: LO4,

Bloom: Application

AACSB: Reflective thinking

89. Your company makes a product for which quarterly demand is shown in the following table:

If the company uses chase demand strategy, at the end of summer, __________.

a) 12 workers need to be hired

b) 20 workers need to be hired

c) 12 workers need to be fired

d) 20 workers need to be fired

Difficulty: Moderate,

Learning Objective: LO4,

Bloom: Application

AACSB: Reflective thinking

90. Your company makes a product for which quarterly demand is shown in the following table:

If the company uses chase demand strategy, the total hiring cost is __________.

a) $2,160

b) $3,960

c) $7,920

d) $8,020

Difficulty: Moderate

Learning Objective: LO4

Bloom: Application

AACSB: Reflective thinking

91. Your company makes a product for which quarterly demand is shown in the following table:

If the company uses chase demand strategy, the total cost of production is __________.

a) $134,500

b) $134,620

c) $136,500

d) $136,620

Difficulty: Moderate,

Learning Objective: LO4

Bloom: Application

AACSB: Reflective thinking

92. Your company makes a product for which quarterly demand is shown in the following table:

Determine whether level production or chase demand would more economically meet the demand. The best strategy between level production and chase demand is __________.

a) level production with a total production cost of $2,533,125

b) chase demand with a total production cost of $2,533,125

c) level production with a total production cost of $2,494,580

d) chase demand with a total production cost of $2,494,580

Difficulty: Hard,

Learning Objective: LO4,

Bloom: Evaluation

AACSB: Reflective thinking

93. Your company makes a product for which quarterly demand is shown in the following table:

How high would firing cost (per employee) need to be for the company to be indifferent between level production and chase demand strategies?

a) $2,563.75

b) $2,635.75

c) $2,653.75

d) $2,663.75

Difficulty: Hard,

Learning Objective: LO4,

Bloom: Evaluation

AACSB: Reflective thinking

94. Your company makes a product for which quarterly demand is shown in the following table:

What is the maximum per-unit inventory carrying cost that would make the company choose the level production strategy?

a) $0.60

b) $0.57

c) $0.54

d) $0.50

Difficulty: Hard,

Learning Objective: LO4,

Bloom: Evaluation

AACSB: Reflective thinking