2. Just-In-Caseinventorymanagementisatraditionalinventorymodelbasedonawait-Until-Neededdemand

CHAPTER 20: INVENTORY MANAGEMENT: ECONOMIC ORDER QUANTITY, JIT, AND THE THEORY OF CONSTRAINTS

1. Effectiveinventorymanagementconservesinvestmentcapitalandfacilitatesresponsetocustomerdemands. a. True b. False

ANSWER: True

2. Just-in-caseinventorymanagementisatraditionalinventorymodelbasedonawait-until-neededdemand. a. True b. False

ANSWER: False

3. Orderingcostsarecostsofplacingandreceivinganorderandsetupcostsarethecostsofgettingequipmentandfacilitiestop roduceproducts. a. True b. False

ANSWER: True

4. Effectiveinventorymanagementdoesnotconsiderinventory-relatedcosts. a. True b. False

ANSWER: False

5. CompetitivepressureshaveledmanycompaniestofavortheJITinventoryapproach. a. True b. False

ANSWER: True

6. Firmsfacelimitedresourcesandlimiteddemandfortheirproductscalledconstraints. a. True b. False

ANSWER: True

7. JITisamanufacturingapproachfocusedonpresentdemandratherthananticipateddemand. a. True b. False

ANSWER: True Full file at http://testbankeasy.eu/Test-bank-for-Cornerstones-of-Cost-Management,-3r d-Edition---Don-R.-Hansen

8. JITinventorymanagementoffersalternativesolutionsthatrequirehigherinventories. a. True b. False

ANSWER: False

9. JITuseslong-termcontracts,continuousrefilling,andelectronicdatainterchangestoreduceoreliminateorderingcosts. a. True b. False

ANSWER: True

10. Reducingorderingandsetupcostsinterferewiththereductionofinventorycosts. a. True b. False

ANSWER: False

11. TheKanbansystemisaninformationsystemwhichensuresthatpartsormaterialsareavailablewhenneeded. a. True b. False

ANSWER: True

12. Externalconstraintsareimposedonafirmfromwithinandinternalconstraintsareimposedelectronically. a. True b. False

ANSWER: False

13. Whenaproductmixdoesnotutilizefullyitsconstraints,theyarecalledlooseconstraints,whenusedcompletely,theyarecal ledbindingconstraints. a. True b. False

ANSWER: True

14. Whenonlyonebindingconstraintexists,theproductwiththesmallestcontributionmarginwillbefocusedon. a. True b. False

ANSWER: False

download full file at http://testbankeasy.com Full file at http://testbankeasy.eu/Test-bank-for-Cornerstones-of-Cost-Management,-3r d-Edition---Don-R.-Hansen

15. Withmultipleinternalbindingconstraints,theoptimalmixisdeterminedbyagraphicalapproachorthesimplexmethod. a. True b. False

ANSWER: True

16. Thegoalofthetheoryofconstraintsistomakemoneyinthefuturebymanagingconstraints. a. True b. False

ANSWER: False

17. Thetheoryofconstraintsidentifiesacompany’sconstraintsandexploitsthem. a. True b. False

ANSWER: True

18. Throughputistherateatwhichanorganizationgeneratesmoneythroughsales. a. True b. False

ANSWER: True

19. Thetheoryofconstraintsfocusesontwooperationalmeasuresofsystemperformance:inventoryexpensesandoperati ngexpenses. a. True b. False

ANSWER: False

20. Themajorbindingconstraintinanorganizationisdefinedasthedrummer,whichsetstheproductionrateforthewholepla nt. a. True b. False

ANSWER: True

21. Thecostsofholdinginventoryarecalled costs.

ANSWER: carrying

22. Thetraditionalinventorymodelbasedonanticipateddemandiscalledthe inventorymanagement.

ANSWER: just-in-case

23. Theinventorymanagementsystemwhichrepresentsthecontinuousgoalofeliminatingwasteiscalledthe inventorymanagement.

ANSWER: just-in-time 24. Theprocessofcontinuousreplacementofinventoryhasbeenmadeeasierbytheuseof interchanges. ANSWER: electronicdata

25. ThemanufacturingmodelwhichsharesthesamepracticesasaJITmanufacturingsystemiscalled manufacturing. ANSWER: lean

26. Thesystemthatensuresthatpartsormaterialsareavailablewhenneedediscalledthe system.

ANSWER: Kanban

27. Theoptimalmixchosenwhichmaximizesthetotalcontributionmargingiventheconstraintsfacebyafirmiscalled ______.

ANSWER: constraintoptimization

28. Themodelwhichexpressesaconstrainedoptimizationproblemasalinearobjectivefunctioniscalledthe ______model.

ANSWER: linearprogramming

29. Thefocusonthegoalofmakingmoneynowandinthefuturebymanagingconstraintsiscalledthe .

ANSWER: theoryofconstraints

30. The istheamountofinventoryneededtokeeptheconstrainedresourcebusyforaspecifiedtimeinterval. ANSWER: timebuffer

31. WhichofthefollowingisNOTanexampleofanorderingcost? a. receivingcosts b. salespeople’ssalariescosts c. clericalcostsofpreparingdocuments d. insurancecostsonshipment

ANSWER: b

32. WhichofthefollowingisNOTacostreadilyidentifiedwithinventorymanagement? a. costofsellinginventory b. costofnothavingstockonhand c. costofholdinginventory d. costofacquiringinventory

ANSWER: a

33. Thecostofacquiringinventoryincludes a. setupcostsforgoodsproducedinternally. b. costofinsuranceonthewarehouseforinventory. c. costofnothavingaproductwhenacustomerwantsone. d. costofobsolescence.

ANSWER: a

34. WhichofthefollowingisNOTconsideredacarryingcost? a. insuranceontheinventory b. theopportunitycostoffundsinvestedininventory c. storagecosts d. receivingcosts

ANSWER: d

35. Thecostofholdinginventoryisknownas a. orderingcost. b. setupcost. c. stock-outcost. d. carryingcost.

ANSWER: d

36. Thecostofpreparingequipmentandfacilitiessotheycanbeusedtoproduceaparticularproductorcomponentisknownas a. orderingcosts. b. setupcosts. c. carryingcosts. d. inventorycosts.

ANSWER: b

37. WhichofthefollowingisNOTanopportunitycostassociatedwithinventorymanagement? a. lostsalestocustomers b. useofcapitaltiedupininventoryinvestment c. costofexpediting d. allareopportunitycosts

ANSWER: c

38. WhichofthefollowingcostsareconsideredintheEOQmodel? a. orderingcosts b. sellingcosts c. carryingcosts d. bothaandc

ANSWER: d

39. Inventorymanagementidentifiesaneconomicorderquantitythat a. minimizesthetotalcostsoforderingandcarryinginventory. b. maximizesthestockoutcosts. c. minimizesthecostsofordering. d. maximizesthecostofcarryinginventory.

ANSWER: a

40. Theorderingofsmall,frequentorders a. minimizesstockoutcosts. b. minimizesorderingcosts. c. minimizescarryingcosts. d. minimizesallthree.

ANSWER: c

41. Safetystockis a. thecostofholdinginventory. b. anon-valueactivityandshouldneverbeconsidered. c. notconsideredwhencalculatingthereorderpoint. d. extrainventorycarriedtoserveasinsuranceagainstfluctuationsindemand.

ANSWER: d

42. AeroboatsFrameCorporationincreasedthesizeofseveralinventoryorderquantitiesthathadpreviouslybeendetermined usingtheEOQmodel.Whatistheimpactonthetotalannualorderingcosts? a. increase b. decrease c. nochange d. cannotbedetermined

ANSWER: b

43. Ifinventoryconsistsofgoodsproducedinternally,theinventory-relatedcostsare a. orderingandcarryingcosts. b. setupcostsandcarryingcosts. c. orderingandsetupcosts. d. bothaandc.

ANSWER: b

44. Whichofthefollowingequationsdeterminesthetotalannualorderingcosts? a. Costofplacinganordertimestheorderquantity. b. Costofplacinganordertimesthenumberofordersperyear. c. Costofplacinganordertimesone-halfoftheorderquantity. d. Unitcarryingcostsperyeartimestheorderquantity.

ANSWER: b

45. Ifinventoryconsistsofgoodspurchasedfromanoutsidesupplier,theinventory-relatedcostsare a. orderingandcarryingcosts. b. setupcostsandcarryingcosts. c. orderingandsetupcosts. d. bothaandc.

ANSWER: a

46. ComfyWheelsBusCompanyproducesbuses.Inordertoproducetheseatsforthebuses,specialequipmentmustbesetup. Thesetupcostperframeis$35.Thecostofcarryingseatsininventoryis$6perseatperyear.Thecompanyproduces90,000b usesperyear.

Thenumberofseatsthatshouldbeproducedpersetupinordertominimizethetotalsetupandcarryingcostsis a. 933seats. b. 2,050seats. c. 1,025seats. d. 513seats.

ANSWER: c RATIONALE:SUPPORTINGCALCULATIONS:

=1,025seats

Totalcarryingcosts(roundedtothenearestdollar)associatedwiththeeconomicorderquantityarea.$3,07 5. b.$3,750. c.$502.d. $328. ANSWER: a RATIONALE:SUPPORTINGCALCULATIONS: = 1,025 seats Total carrying costs = ($6)  (1,025/2) = $3,075

Totalsetupcostsassociatedwiththeeconomicorderquantityarea.$4, 610. b.$3,073. c.$3,750. d.$1,537.

ANSWER: b RATIONALE:SUPPORTINGCALCULATIONS:

= 1,025 seats Total setup costs = $35  (90,000/1,025) = $3,073

download full file at http://testbankeasy.com Full file at http://testbankeasy.eu/Test-bank-for-Cornerstones-of-Cost-Management,-3r d-Edition---Don-R.-Hansen 49. SouthwesternSupplyCompanyhasaneconomicorderquantityforitemAof200units.Theannualdemandfortheproductis 5,000units,andthecostofplacinganorderis$8.Thecarryingcostperunitis a.$6.00. b.$2.00. c.$4.00.d. $141.00. ANSWER: b RATIONALE:SUPPORTINGCALCULATIONS: =200units 80,000/X=40,000X=$2.00

50. SouthwesternSupplyCompanyhasaneconomicorderquantityforitemAof200units.Theannualdemandfortheproductis 5,000units,andthecostofplacinganorderis$8.Ifthecompanyoperates200daysayearandtheleadtimefortheitemisfiveda ys,whatisthereorderpointifasafetystockof50unitsismaintained? a. 4days b. 50units c. 25units d. 175units

ANSWER: d RATIONALE:SUPPORTINGCALCULATIONS:[(5,000/200)×5]+50=175units Figure20-1

Moriah’sCandleCompanymanufacturescandles.Thecompanybuyswaxin45Kilogramcontainersthatcost$17each.Thec ompanyuses25,000containersperyear,andusageoccursevenlythroughouttheyear.Theaveragecosttocarrya45-Kilogr amcontainerininventoryperyearis$3,andthecosttoplaceanorderis$9.Thecompanyworks250daysperyear.

51. RefertoFigure20-1.Theeconomicorderquantity(rounded)is a. 1,000containers. b. 750containers. c. 45containers. d. 387containers.

ANSWER: d RATIONALE:SUPPORTINGCALCULATIONS: /$3=387.3containers

52. RefertoFigure20-1.Theleadtimeis4workingdaysandtheaveragerateofusageis60containersperday.Whatisthereorderp oint? a. 240containers b. 260containers c. 220containers d. 200containers

ANSWER: a RATIONALE:SUPPORTINGCALCULATIONS:Reorderpoint=60×4days=240containers

53. RefertoFigure20-1.Theleadtimeis4workingdays,theaveragerateofusageis60containersperday,andthecompanycarrie sasafetystockof25containers.Whatisthereorderpoint? a. 285containers b. 245containers c. 265containers d. 225containers

ANSWER: c RATIONALE:SUPPORTINGCALCULATIONS:Reorderpoint=(60×4)+25=265containers

54. AlbuquerqueCompanyhasthefollowinginformationavailableconcerningoneofitsinventoryitems:

Costofplacinganorder $50.00 Unitcarryingcostperyear $2.00 Annualunitdemand 3,200 Safetystock 80 Averagedailydemand 10 Normalleadtimeindays 12 Theeconomicorderquantityforthisitemis a.16units. b.160,000units. c.500units. d.400units.

ANSWER: d RATIONALE:SUPPORTINGCALCULATIONS: =400units

Costofplacinganorder $50.00 Unitcarryingcostperyear $2.00 Annualunitdemand 3,200 Safetystock 80 Averagedailydemand 10 Normalleadtimeindays 12 Thereorderpointfortheinventoryitemis a.500units. b.970units. c.320units. d.200units.

ANSWER: d RATIONALE:SUPPORTINGCALCULATIONS:(10×12)+80=200units

Costofplacinganorder $50.00 Unitcarryingcostperyear $2.00 Annualunitdemand 3,200 Safetystock 80 Averagedailydemand 10 Normalleadtimeindays 12

Ifthereisadelayinshippingtheitem,approximatelyhowmanydayscanbecoveredbythesafetystock? a. 0.83days b. 8.00days c. 6.67days d. 40.00days

ANSWER: b RATIONALE:SUPPORTINGCALCULATIONS:80/10=8days

57. DryCreekCompanydecreasedthesizeofinventoryorderquantitiesthathadpreviouslybeendeterminedusingtheEOQmod el.Ifdemandremainsthesame,whatistheimpactonthenumberofordersmadeduringtheyear? a. nochange b. increase c. decrease d. cannotbedetermined

ANSWER: b download full file at http://testbankeasy.com Full file at http://testbankeasy.eu/Test-bank-for-Cornerstones-of-Cost-Management,-3r d-Edition---Don-R.-Hansen

58. DryCreekCompanydecreasedthesizeofinventoryorderquantitiesthathadpreviouslybeendeterminedusingtheEOQmod el.Whatistheimpactonthetotalamountofannualcarryingandorderingcosts? a. nochange b. decrease c. increase d. cannotbedetermined

ANSWER: c

59. Theeconomicorderquantityistheorderquantitythatresultsin a. theminimumtotalannualinventorycosts. b. themaximumtotalannualinventorycosts. c. noinventoryshortages. d. minimumorderingcosts.

ANSWER: a

60. TheorderquantityusedintheEOQmodelisthequantityofinventoryordered a. duringoneyear. b. foronejob. c. foronedepartment. d. atonetime.

ANSWER: d

61. Intheeconomicorderquantityequation,thenumeratorunderthesquarerootincludes a. annualdemandandcostofplacinganorder. b. annualdemandandunitcarryingcost. c. unitcarryingcostandcostofplacinganorder. d. orderquantityandcostofplacinganorder.

ANSWER: a

62. AlabasterManufacturingCompanyincreasedthesizeofseveralinventoryorderquantitiesthathadpreviouslybeendetermi nedusingtheEOQmodel.Whatistheimpactonthetotalamountofannualcarryingandorderingcosts? a. nochange b. increase c. decrease d. cannotbedetermined

ANSWER: b

63. OlgaCompanyhasaneconomicorderquantityforitemBof100units.Theannualdemandfortheproductis1,400units,andth eunitcarryingcostperyearis$7.Whatisthecostofplacinganorder? a.$25 b.$8 c.$200 d.$2

ANSWER: a RATIONALE:SUPPORTINGCALCULATIONS: =100 10,000=(2×1,400)(P)/7 70,000=2,800(P) $25=P

64. OlgaCompanyhasaneconomicorderquantityforitemBof100units.Theannualdemandfortheproductis1,400units,andth eunitcarryingcostperyearis$7.Thecompanyoperates200daysayear,theleadtimefortheitemistendays,andthesafetyst ockis100units.

Whatisthereorderpoint? a. 70units b. 100units c. 1000units d. 170units

ANSWER: d RATIONALE:SUPPORTINGCALCULATIONS:{[(1,400/200)×10]+100}=170units

download full file at http://testbankeasy.com Full file at http://testbankeasy.eu/Test-bank-for-Cornerstones-of-Cost-Managem ent,-3rd-Edition---Don-R.-Hansen 65. Whichofthefollowingequationsdeterminesthetotalannualcarryingcostswhennosafetystockiskept? a. Costofplacinganorder× Orderquantity b. Costofplacinganorder×Numberofordersperyear c. Costofplacinganorder× One-halfoftheorderquantity d. Unitcarryingcostsperyear× One-halfoftheorderquantity

ANSWER: d

66. ThereorderpointintheEOQmodelis a. thedayofthemonthforreordering. b. whenalloftheinventoryhasbeenused. c. whentheinventorylevelisbelowtheorderquantity. d. theinventorylevelatwhichanorderforadditionalunitsisplaced.

ANSWER: d

67. Whichofthefollowingelementscouldbedeterminedbyusingtheeconomicorderquantityformula? a. theoptimumsizeofproductionrun b. reorderpoint c. safetystock d. annualdemand

ANSWER: a

Figure20-2

WalrusCompanyhasthefollowinginformationavailableconcerningoneofitsinventoryitems:

Costofplacinganorder $30.00 Unitcarryingcostperyear $3.00 Annualunitdemand 6,625 Safetystock 125 Averagedailydemand 25 Normalleadtimeindays 10 68. RefertoFigure20-2.Theeconomicorderquantityforthisitemis a. 1,500units. b. 364units. c. 140units. d. 725units.

ANSWER: b RATIONALE:SUPPORTINGCALCULATIONS: =364units

download full file at http://testbankeasy.com Full file at http://testbankeasy.eu/Test-bank-for-Cornerstones-of-Cost-Management,-3r d-Edition---Don-R.-Hansen 69. RefertoFigure20-2.Thereorderpointfortheinventoryitemis a. 275units. b. 375units. c. 625units. d. 1,525units.

ANSWER: b RATIONALE:SUPPORTINGCALCULATIONS:(25×10)+125=375units

70. RefertoFigure20-2.Ifthereisadelayinshippingtheitem,approximatelyhowmanydayscanbecoveredbythesafetystock? a. 5days b. 31days c. 26days d. 110days

ANSWER: a RATIONALE:SUPPORTINGCALCULATIONS:125/25=5days

71. JITreducesleadtimestomeetdeliverydatesby a. reducingsetuptimes. b. expeditingdeliverytocustomers. c. havingmoreinventoryavailable. d. workingovertimetofillorders.

ANSWER: a

72. StrategicobjectivesofJITinclude a. increasingprofits. b. improvingafirm'scompetitiveposition. c. increasinginventory. d. bothaandb.

ANSWER: d

73. TheJITapproachtoinventorymanagement a. allowsgreaterflexibilityastowhenproductscanbemanufactured. b. resultsinhigherinventorylevelsbutreducesorderingandsetupcosts. c. resultsinlowerinventorycarryingcosts. d. noneofthese.

ANSWER: c

download full file at http://testbankeasy.com Full file at http://testbankeasy.eu/Test-bank-for-Cornerstones-of-Cost-Management,-3r d-Edition---Don-R.-Hansen 74. TheobjectivesofJITareachievedby a. controllingcosts. b. improvingdeliveryperformance. c. improvingquality. d. allofthese.

ANSWER: d

75. Oneofthetraditionalreasonsforholdinginventoryistominimizetotalcarryingcostsandsetupcosts.TheJITsolutionist o a. reducesetupcosts. b. reduceleadtime. c. usetotalpreventivemaintenance. d. usetotalqualitycontrol.

ANSWER: a

76. JITpurchasingisdoneusing a. short-termcontractsemphasizingprice. b. long-termcontractsbasedonquality,reliability,andprice. c. short-termcontractsbasedonquality,reliability,andprice. d. inventorytohedgeagainststockoutsandpriceincreases.

ANSWER: b

77. JITavoidsshutdownsduetomaterialsshortageinallofthefollowingwaysEXCEPT a. usingtotalpreventivemaintenance. b. holdinginventory. c. usingtotalqualitycontroltoreducedefectivematerials. d. workingwithsupplierstoensuretheavailabilityofmaterials.

ANSWER: b

78. Oneofthetraditionalreasonsforholdinginventoryistoavoidshutdownsduetounavailabilityofmaterials.TheJITsolutionisto a. reducesetupcosts. b. reduceleadtime. c. uselong-termcontractswithsuppliers. d. usetotalpreventivemaintenance.

ANSWER: c

download full file at http://testbankeasy.com Full file at http://testbankeasy.eu/Test-bank-for-Cornerstones-of-Cost-Management,-3r d-Edition---Don-R.-Hansen 79. WhencomparingthetraditionalapproachofinventorymanagementtoJIT,whichofthefollowingstatementsistrue? a. Thetraditionalapproachacceptstheexistenceofsetupcosts,butnotcarryingcostsorinventories.JITacceptst heexistenceofsetupandcarryingcosts,butpushesforzeroinventories. b. Thetraditionalapproachacceptstheexistenceofcarryingcostsandinventories,butnotsetupcosts.JITacceptst heexistenceofsetupcostsbutnotcarryingcostsandpushesforzeroinventories. c. Thetraditionalapproachacceptstheexistenceofbothsetupcostsandcarryingcostsandattemptstofindtheorderqu antitythatbestbalancesthosecosts.JITdoesnotaccepteithersetupcostsorcarryingcostsandpushesforzeroinvent orylevels. d. Thetraditionalapproachdoesnotacceptcarryingcostsorsetupcosts.JITminimizesbothsetupandcarryingc ostsbyfindingthebestorderquantitytobalancethesecosts.

ANSWER: c

80. Oneofthetraditionalreasonsforholdinginventoryistotakeadvantageofquantitydiscountsandhedgeagainstfuturepri ceincreases.TheJITsolutionisto a. reducesetupcosts. b. reduceleadtime. c. uselong-termcontractswithsuppliers. d. usetotalqualitycontrol.

ANSWER: c

81. Oneofthetraditionalreasonsforholdinginventoryistoavoidshutdownsduetodefectiveparts.TheJITsolutionisto a. reducesetupcosts. b. reduceleadtime. c. usetotalpreventivemaintenance. d. usetotalqualitycontrol.

ANSWER: d

82. Oneofthetraditionalreasonsforholdingfinishedgoodsinventoriesistoensureafirm'sabilitytomeetdeliverydates.TheJ ITsolutionisto a. reducesetupcosts. b. reduceleadtime. c. usetotalpreventivemaintenance. d. usetotalqualitycontrol.

ANSWER: b

83. Oneofthetraditionalreasonsforholdinginventoryistoavoidashutdownduetomachinefailure.TheJITsolutionisto a. reducesetupcosts. b. reduceleadtime. c. usetotalpreventivemaintenance. d. usetotalqualitycontrol.

ANSWER: c

84. Amarkerorcardthatsignalstoasupplierthequantityofmaterialsthatneedtobedeliveredandthetimeofdeliveryisa a. productionKanban. b. vendorKanban. c. withdrawalKanban. d. depositKanban.

ANSWER: b

85. WhichofthefollowingisNOTacommonreasonforshutdowns? a. safetystockofinventory b. defectivematerialsorsubassemblies c. machinefailure d. unavailabilityofamaterialofsubassembly

ANSWER: a

86. WithJITmanufacturing,finishedgoodsinventoriesare a. kepthightoavoidstockouts. b. heldinvariouslocationsforfasterdeliverytocustomers. c. immaterial. d. kepthightoletthecompanytakeadvantageofvolumediscounts.

ANSWER: c

87. AwithdrawalKanbanspecifies a. howmuchshouldbeproducedtoreplaceinventory. b. thequantitythatasubsequentprocessshouldwithdrawfromtheprecedingprocess. c. whencustomersshouldbenotifiedtopickuporders. d. whensuppliersshouldbenotifiedtodelivermoreparts.

ANSWER: b

88. Amarkerorcardthatspecifiesthequantitythatasubsequentprocessshouldtakefromaprecedingprocessisa a. productionKanban. b. vendorKanban. c. withdrawalKanban. d. depositKanban.

ANSWER: c

89. TheKanbansystemisusedto a. ensurepartsormaterialsareavailablewhenneeded. b. signalwhenpreventivemaintenanceisneeded. c. signalwhenadefectiveunithasbeenproduced. d. ensureidletimeofworkersisnotwasted.

ANSWER: a

90. Amarkerorcardthatspecifiesthequantitythattheprecedingprocessshouldmanufactureisa a. productionKanban. b. vendorKanban. c. withdrawalKanban. d. depositKanban.

ANSWER: a

91. Iftheobjectiveistomaximizeprofitsinalinearprogrammingproblem,thecoefficientsofthevariablesintheobjectivefun ctionshouldbethe a. sellingpriceperunit. b. variablecostsperunit. c. contributionmarginperunit. d. fixedcostsperunit.

ANSWER: c

92. Looseconstraintsarebestdefinedas a. aconstraintwherethelimitingfactorismachinehoursorlaboravailability. b. aconstraintwherethelimitingfactorcouldbesomethinglikemarketdemand. c. aconstraintwhereaproductmixusesallofthelimitedresourcesoftheconstraint. d. aconstraintwhoselimitedresourcesarenotfullyusedbyaproductmix.

ANSWER: d

93. MagnitudeCompanyproducesAandBwithcontributionmarginsperunitof$40and$30,respectively.Only500laborhoursan d300machinehoursareavailableforproduction.

TimerequirementstoproduceoneunitofAandBareasfollows:

Product A Product B Laborhoursperunit 5 2 Machinehoursperunit 1 4

WhatistheconstraintonmachinehoursforMagnitudeCompany?a.1A+4 B≤300 b.5A+2B≤500c.1A+4B ≤500d.40A+30B≤500 ANSWER: a

Figure20-3

ThefollowinginformationisavailableforPullawayTrailerCompany,whichsellstwoproducts:

Trailer A Trailer B Processingtime 2hours 4hours Vinylcoverused 16sq.ft. 12sq.ft. Sellingprice $50.00 $80.00 Variablecost $35.00 $50.00 Fixedcost $10.00 $20.00

Thereare100hoursavailableintheplantand75squarefeetofvinylavailableperoperatingperiod.

94. RefertoFigure20-3.WhichofthefollowingstatementsisINCORRECT? a. ThematerialsconstraintfavorsTrailerBoverTrailerA. b. ThetimeconstraintfavorsTrailerAoverTrailerB. c. ThematerialconstraintfavorsTrailerAoverTrailerB. d. TheobjectivefunctionfavorsTrailerBoverTrailerA.

ANSWER: c

95. Thecorrectorderforthefourstepsthatmustbefollowedtosolveproblemsgraphicallyis a. Grapheachconstraint,Identifythefeasiblesetofsolutions,Identifyallthecorner-pointvaluesinthefeasibleset,Selectthe cornerpointthatyieldsthelargestvaluefortheobjectivefunction. b. Identifythefeasiblesetofsolutions,Grapheachconstraint,Identifyallthecorner-pointvaluesinthefeasibleset,Selectthe cornerpointthatyieldsthelargestvaluefortheobjectivefunction. c. Identifythefeasiblesetofsolutions,Identifyallthecorner-pointvaluesinthefeasibleset,Grapheachconstraint,Se lectthecornerpointthatyieldsthelargestvaluefortheobjectivefunction. d. Grapheachconstraint,Identifyallthecorner-pointvaluesinthefeasibleset,Identifythefeasiblesetofsolutions,Sele ctthecornerpointthatyieldsthelargestvaluefortheobjectivefunction.

ANSWER: a

96. Alinearprogrammingproblemhasanobjectivefunctionof12X+14Y.Iftheoptimalsolutionprovidedbythemodelistoprodu ceandsell500unitsofXand1,250unitsofY,theexpectedreturnis a.$1,750. b.$23,500. c.$15,000. d.$27,000. ANSWER: b RATIONALE:SUPPORTINGCALCULATIONS:(500×$12)+(1,250×$14)=$23,500

97. AlinearprogrammingmodelwouldNOTincludewhichofthefollowingitems? a. independentvariables b. networks c. dependentvariables d. objectivefunction

ANSWER: b

98. Alinearprogrammingproblemhasthefollowingobjectivefunction:20X+40Y+60Z.

Iftheoptimalsolutionprovidedbythemodelistoproduceandsell100,200,and300unitsofX,Y,andZ,respectively,whatistheex pectedreturn? a.$36,000b.$28, 000 c.$120 d.$24,000

ANSWER: b RATIONALE:SUPPORTINGCALCULATIONS:(100× $20)+(200× $40)+(300×$60)=$28,000

99. HasselbladCompanymanufacturestwodifferentproducts,XandY.Thecompanyhas100poundsofmaterialsand300directl aborhoursavailableforproduction.

Thetimerequirementsandcontributionmarginsperunitareasfollows:

Product X Product Y Contributionmarginperunit $5 $6 Materialsperunit(lbs.) 2 3 Directlaborhoursperunit 5 3

Whatistheobjectivefunctionformaximizingprofits? a. Minimize$5X+$6Y b. Maximize$2X+$3Y c. Maximize$5X+$6Y d. Maximize$5X+$3Y

ANSWER: c

100. HasselbladCompanymanufacturestwodifferentproducts,XandY.Thecompanyhas100poundsofmaterialsand300directl aborhoursavailableforproduction.

Whatistheequationfortheconstraintonmaterials? a.5X + 6Y≤300b.4X + 3Y≤100c.5X + 6Y≤10 0d.2X + 3Y≤100 ANSWER: d

101. HasselbladCompanymanufacturestwodifferentproducts,XandY.Thecompanyhas100poundsofmaterialsand300dir ectlaborhoursavailableforproduction.

Whatistheequationfortheconstraintondirectlabor? a.2X + 3Y≤300b.5 X + 3Y≤300c.5X + 6Y≤100d.5X + 3Y ≤100 ANSWER: b Figure20-4

MontgomeryCompanyproducesAandBwithcontributionmarginsperunitof$40and$30,respectively.Only500laborhoursa nd300machinehoursareavailableforproduction.

TimerequirementstoproduceoneunitofAandBareasfollows:

Product A Product B Laborhoursperunit 6 3 Machinehoursperunit 2 5

102. RefertoFigure20-4.WhatistheobjectivefunctiontomaximizeprofitsforMontgomeryCompany? a. Minimize6A+3B b. Maximize2A+5B c. Minimize40A+ 30B d. Maximize40A+30B

ANSWER: d

103. RefertoFigure20-4.WhatistheconstraintonlaborhoursforMontgomeryCompany?a.6A+3 B≤500 b.6A+2B≤500c.2A+ 5B≤300d.40A+30B≤ 500

ANSWER: a download full file at http://testbankeasy.com Full file at http://testbankeasy.eu/Test-bank-for-Cornerstones-of-Cost-Managem ent,-3rd-Edition---Don-R.-Hansen 104. RefertoFigure20-4.WhatistheconstraintonmachinehoursforMontgomeryCompany?a.2A+5 B≤500 b.2A+5B≤300c.6A+ 3B≤500d.40A+30B≤ 500

ANSWER: b

105. KnoxvilleManufacturingCompanyproducesXandYwithcontributionmarginsperunitof$10and$90,respective ly.Only200laborhoursand400machinehoursareavailableforproduction.

TimerequirementstoproduceoneunitofXandYareasfollows:

Product X Product Y Laborhoursperunit 1 2 Machinehoursperunit 5 1

WhatistheconstraintonmachinehoursforKnoxvilleManufacturingCompany? a.10X+90Y≤200b.1 X + 2Y≤400c.5X + 1 Y≤400d.1X + 2Y≤20 0

ANSWER: c

106. KnoxvilleManufacturingCompanyproducesXandYwithcontributionmarginsperunitof$10and$90,respective ly.Only200laborhoursand400machinehoursareavailableforproduction.

Product X Product Y Laborhoursperunit 1 2 Machinehoursperunit 5 1 WhatistheconstraintonlaborhoursforKnoxvilleManufacturingCompany? a.1X + 2Y≤200b.10X +90Y≤200c.1X + 2Y ≤400d.1X + 4Y≤400

ANSWER: a

download full file at http://testbankeasy.com Full file at http://testbankeasy.eu/Test-bank-for-Cornerstones-of-Cost-Managem ent,-3rd-Edition---Don-R.-Hansen 107. KnoxvilleManufacturingCompanyproducesXandYwithcontributionmarginsperunitof$10and$90,respective ly.Only200laborhoursand400machinehoursareavailableforproduction.

Product X Product Y Laborhoursperunit 1 2 Machinehoursperunit 5 1

WhatistheobjectivefunctiontomaximizeprofitsforKnoxvilleManufacturingCompany? a. Minimize10X+90Y b. Maximize10X+90Y c. Maximize1X +2Y d. Minimize1X+2Y

ANSWER: b

108. ThefollowinginformationisavailableforWoodsideFurnitureCompany,whichsellstwoproducts:

Chair X Chair Y Processingtime 4hours 6hours Metalused 30sq.ft. 18sq.ft. Sellingprice $200.00 $100.00 Variablecost $150.00 $60.00 Fixedcost $30.00 $30.00

Thereare200hoursavailableintheplantand200squarefeetofmetalavailableperoperatingperiod.

Theconstraintequationrepresentingprocessingtimeavailableisa.4X + 6Y≤200. b.4X +6Y≥200.c.30X + 18Y≤ 200.d.4X +6Y ≤400. ANSWER: a

download full file at http://testbankeasy.com Full file at http://testbankeasy.eu/Test-bank-for-Cornerstones-of-Cost-Management,-3r d-Edition---Don-R.-Hansen 109. ThefollowinginformationisavailableforWoodsideFurnitureCompany,whichsellstwoproducts:

Chair X Chair Y Processingtime 4hours 6hours Metalused 30sq.ft. 18sq.ft. Sellingprice $200.00 $100.00 Variablecost $150.00 $60.00 Fixedcost $30.00 $30.00

Thereare200hoursavailableintheplantand200squarefeetofmetalavailableperoperatingperiod.

Whatistheobjectivefunctionformaximizingsales? a. Minimize200X + 100Y b. Maximize180X+90Y c. Maximize50X+40Y d. Maximize200X+100Y

ANSWER: d Figure20-5

TheGoldenWheelsTrailerCompanyrecordedthefollowinginformationfortwooftheirtrailers: Trailer A Trailer B Processingtime 3hours 5hours Vinylcoverused 17sq.ft. 13sq.ft. Sellingprice $60.00 $90.00 Variablecost $45.00 $60.00 Fixedcost $20.00 $30.00

Thereare100hoursavailableintheplantand75squarefeetofvinylavailableperoperatingperiod.

110. RefertoFigure20-5.Whatistheobjectivefunctionformaximizingprofits? a. Minimize$15A+$30B b. Maximize$60A+$90B c. Maximize$45A+$60B d. Maximize$15A+$30B

ANSWER: d

111. RefertoFigure20-5.Theconstraintequationrepresentingthematerialsavailablefortheproductionprocessesisa.3A+5B≥ 100. b.17A + 13B=75.c.17 A+13B≤75.d.3A+5B= 200. ANSWER: c

112. RefertoFigure20-5.WhichofthefollowingstatementsisINCORRECT? a. ThematerialsconstraintfavorsTrailerBoverTrailerA. b. ThetimeconstraintfavorsTrailerAoverTrailerB. c. TheobjectivefunctionfavorsTrailerBoverTrailerA. d. ThematerialconstraintfavorsTrailerAoverTrailerB.

ANSWER: d

113. Usingthegraphicapproachtolinearprogramming,thesolutionisusually a. acornerpointwheretwoormoreconstraintsintersect. b. wherethelinesintersectfarthestfromzero. c. thepointfarthestfromtheY-axis. d. thepointfarthestfromtheX-axis.

ANSWER: a

114. Inthegraphicmethodofsolvingalinearprogrammingproblem,whichofthefollowingisdepictedonthegraph? a. coefficientofcorrelation b. constraint c. least-squareslineofbestfit d. break-evenpoint

ANSWER: b

115. Theoryofconstraintsfocusesonwhatthreeoperationmeasuresofsystemperformance? a. inventory,throughput,andlooseconstraints b. throughput,operatingexpenses,andproductmix c. throughput,inventory,andoperatingexpenses d. throughput,operatingexpensesandcontributionmargin

ANSWER: c

116. ThetheoryofconstraintsfocusesoneachofthefollowingmeasuresoforganizationalperformanceEXCEPT a. revenues. b. throughput. c. operatingexpenses.

download full file at http://testbankeasy.com Full file at http://testbankeasy.eu/Test-bank-for-Cornerstones-of-Cost-Management,-3r d-Edition---Don-R.-Hansen d. inventory.

ANSWER: a

117. WhichofthefollowingisTRUEaboutthetheoryofconstraints? a. TOCrecognizesthatEOQisimportant. b. TOCrecognizesthatloweringinventorydecreasescarryingcostsandthusdecreasesoperatingexpensesandimpro vesnetincome. c. TOCrecognizesthatlowerinventoriesmeanmoredefects. d. TOCrecognizesthatlowerinventoriesmeanslowerresponsetocustomers.

ANSWER: b

118. WhichofthefollowingisNOTastepinthemethodologyforimprovingperformanceunderthetheoryofconstraint s? a. exploitthebindingconstraints b. subordinateeverythingelsetothedecisionsmadetoexploitbindingconstraints c. elevatetheorganization’sbindingconstraints d. analyzetheproductmix

ANSWER: d

119. Thetheoryofconstraintsusesthefollowingfivestepstoachieveitsgoalofimprovingorganizationalperformance:

1. Exploitthebindingconstraints. 2. Elevatetheorganization'sbindingconstraints. 3. Identifyanorganization'sconstraints. 4. Repeattheprocessasanewconstraintemergestolimitoutput. 5. Subordinateeverythingelsetothedecisionsmadewhenexploitingthebindingconstraints.

Whatisthecorrectorderforperformingthesesteps?a.3,1, 5,2,4 b.3,5,1,2,4 c.1,3,5,2,4 d.3,1,5,4,2

ANSWER: a

120. Adrummeris(are) a. theinventoryneededtokeeptheconstrainedresourcebusyforaspecifiedtimeinterval. b. themajorbindingconstraint. c. theminorbindingconstraint. d. theactionstakentotietherateatwhichmaterialsarereleasedintotheplant(atthefirstoperation)totheproducti onrateoftheconstrainedresource.

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121. Theshadowprice a. indicatestheamountbywhichthroughputwillincreaseforoneunitofunconstrainedresource. b. isthepricepaidontheblackmarketforoneunitofscarceresource. c. isthepricepaidatnightforascarceresource. d. indicatestheamountbywhichcontributionmarginwillincreaseforoneunitofscarceresource.

ANSWER: d

122. Thedrum-buffer-ropesystemisanothernamefor a. atraditionalinventorysystem. b. aJITinventorysystem. c. aTOCinventorysystem. d. bothaandb.

ANSWER: c

123. Followingisinformationpertainingtomaterialthatisusedintheassemblyofmotorcycles:

Annualdemand 5,000units Unitcost $30 Costofplacinganorder $700 CarryingcostasapercentageofunitcostRequired: 12%

a. Calculatetotalannualcarryingcostsforanorderquantityof200unitsperorder. b. Calculatetotalannualorderingcostsforanorderquantityof200unitsperorder. c. Determinetheoptimalordersize.

ANSWER:

a. ($30× 0.12)×(200/2)=$360b. $700×(5,000/200)=$17,500 c. EOQ = = 1,394.43 units

124. HarrisburgCompanyusesquantitativemodelsforinventorycontrol.Forcannedsyrup,theannualdemandis9,000cases.Th esupplieris500milesaway,anditusuallytakes4daystogetanorderfilled.Theaverageordercosts $18toprocessandthecarryingcostpercaseis$42peryear.Thestoreisopen300daysayear.

Required:

a. Determinetheeconomicorderquantity. b. Determinethereorderpointifasafetystockof24casesisdesired.

ANSWER: a. Economic order quantity = = 88 cases b. Reorder point = [(9,000/300)  4] + 24 = = 144 cases

125. SweetToothCompanymanufacturescandy.Thecompanybuyschocolateusedinthecandyin10-poundboxesthatcost$10 each.Thecompanyuses30,000oftheboxesperyear,andusageoccursevenlythroughouttheyear.

Theaveragecosttocarrya10-poundboxininventoryperyearis$4,andthecosttoplaceanorderis$3.

Required: a. Determinetheeconomicorderquantityforthechocolateintermsof10-poundboxes. b. Ifthecompanyworks250daysperyear,ontheaverage,howmanyboxesofchocolateareusedper workingday? c. Iftheleadtimeforanorderisnormallyeightworkingdays,determinethereorderpointforchocolat e. d. If50boxesofchocolatearecarriedassafetystock,determinethereorderpointforthechocolat e.

ANSWER:

a. 212boxes EOQ= b. 120boxes 30,000/250 c. 960boxes (120x 8) d. 1,010boxes (120x8)+50

download full file at http://testbankeasy.com Full file at http://testbankeasy.eu/Test-bank-for-Cornerstones-of-Cost-Managem ent,-3rd-Edition---Don-R.-Hansen 126. HarrowingCompanyhasthefollowinginformation:

Annualdemand 3,500units Ordersize 500units Ordering costper order $400 Carryingcostsperunitforoneyear $40 Leadtime(maximum20days) 10days Maximumdailyuse 25units Work year 250days Required:

a. DeterminetheeconomicorderquantityforHarrowing. b. WhatistheannualsavingstoHarrowingCompanyifitwastochangefromanordersizeof1,000tothe economicorderquantity? c. Whatisthereorderpoint? d. Whatisthesafetystockneededtopreventstockouts?

ANSWER:

a. EOQ= =264.58units

b. Totalcosts(500units)= [$400×(3,500/500)]+[$40× (500/2)]= $12,800 Totalcosts(264.58units)= [$400× (3,500/264.58)]+($40×(264.58/2)]= 10,583 Annualsavings $ 2,217

c. Dailydemand=(3,500/250)=14unitsperday

Reorderpoint=14units× 10days=140units

d. MaximumdemandperdayMax 25units imumleadtimeMaximumleadt ×20 imedemand 500units ReorderpointwithoutsafetystockSafetyst ock 140units 360units

download full file at http://testbankeasy.com Full file at http://testbankeasy.eu/Test-bank-for-Cornerstones-of-Cost-Manageme nt,-3rd-Edition---Don-R.-Hansen 127. Answerthefollowingquestionspertainingtojust-in-timeinventorymanagement:

a. WhatarekeyelementsoftheJITphilosophy? b. WhatelementsoftheJITapproachcontributetoreducingmaterialsinventory? c. WhydoproponentsofJITbelieveinventoryisanenemy?

ANSWER:

a. KeyelementsoftheJITphilosophyincludeinventoryreduction,reducedproductiontimes,andin creasedproductqualityandemployeeinvolvement. b. TheJITapproachtoreducinginventoriesincludes(1)developinglong-termrelationshipswithalim itednumberofsuppliers,(2)selectingsuppliersonthebasisofserviceandmaterialqualityaswellas price,(3)establishingproceduresforproductionemployeestoordermaterialsforcurrentproduc tionneedsdirectlyfromapprovedsuppliers,and(4)acceptingsupplierdeliveriesdirectlytothesho pfloor. c. Proponentsarguethatinventoryisanenemybecauseitcausestheincurringofcarryingandh andlingcosts,increasesproductiontimes,andhidesqualityproblems.

128. Thefollowingreasonshavebeenofferedforholdinginventories:

1. Tobalanceorderingorsetupcostsandcarryingcosts.

2. Tosatisfycustomerdemand(e.g.,meetdeliverydates).

3. Toavoidshuttingdownmanufacturingfacilitiesbecauseof (a) machinefailure. (b) defectiveparts. (c) unavailableparts.

4. Unreliableproductionprocesses.

5. Totakeadvantageofdiscounts.

6. Tohedgeagainstfuturepriceincreas es.

Required:

a. ExplainhowtheJITapproachrespondstoeachofthesereasonsand,consequently,arguesforin significantlevelsofinventories.

b. Thetheoryofconstraints(TOC)criticizestheJITapproachtoinventorymanagement,arguingth atitfailstoprotectthroughput.ExplainwhatthismeansanddescribehowTOCaddressesthisiss ue.

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ANSWER: a. 1. JITdoesnotacceptsetup(orordering)costsasagiven;rather,JITattemptstodrivethes ecoststozerobyreducingthetimeittakestosetupandbydevelopinglong-termcontra ctswithsuppliers.Carryingcostsareminimizedbyreducinginventoriestoinsignificantl evels.

2. JITreducesleadtimes,whichincreasesafirm'sabilitytomeetrequesteddeliverydates.T hisisaccomplishedby(1)reductionofsetuptimes,(2)improvedquality,and(3)cellularma nufacturing.

3. Theproblemsthatusuallycauseshutdownsare(1)machinefailure,(2)defectivematerialorsu bassembly,and(3)unavailabilityofamaterialorsubassembly(eithernotdeliveredordelivered late).JITattemptstosolveeachofthethreeproblemsbyemphasizingtotalpreventivemainten ance,totalqualitycontrol(strivesforzerodefects),andbuildingtherightkindofrelationshipwith suppliers.

4. Unreliableproductionprocessesareaddressedbytotalqualitymanagement.Asfewerdefec tiveunitsareproduced,thereislessneedforinventorytoreplacenonconformingunits.

5. Theobjectiveoftakingadvantageofdiscountsistolowerthecostofinventory.JITaccomplish esthesameobjectivebynegotiatinglong-termcontractswithafewchosensuppliersandesta blishingmoreextensivesupplierinvolvement. 6. 7. JITemphasizeslong-termcontractsthatstipulatepricesandacceptablequalitylevels.

b. JIThasthepolicyofstoppingproductionifaproblemisdetectedsothattheproblemcanbe corrected(ofcourse,theproblemmayalsocauseproductiontostop-independentofapolicyorpracti ceofstoppingsothatthesourceoftheproblemcanbecorrected).SinceJITproducesondemand,anyi nterruptionofproductionmeansthatthroughputislost.TOCusesatimebufferlocatedinfrontofthebi ndingconstrainttoprotectthroughput.Thetimebufferisdesignedtokeeptheconstrainedresourceb usyforaspecifiedperiodoftime—atimelongenoughtoovercomemostdisruptionsinproduction.

download full file at http://testbankeasy.com Full file at http://testbankeasy.eu/Test-bank-for-Cornerstones-of-Cost-Management,-3r d-Edition---Don-R.-Hansen 129. LexamoorProductsCorporationproducestwoproducts.Themanufactureoftheseproductsispartiallyautomated.Totalav ailablelaborhoursare400,andthetotalavailablemachinehoursare600.Timerequirementsandcontributionmarginsperu nitforeachproductareasfollows:

Product X Product Y Laborhours 2 3 Machinehours 4 2 Contributionmarginperunit $5 $4

Required: a. Whatistheequationtobemaximized? b. Whataretheequationsthatexpresstheconstraints? c. WhatisthegreatestnumberofunitsofXthatcanbeproducedgiventheconstraints? d. Whatistheoptimalsolution?

ANSWER:

a. Maximize$5X+$4Y b. Laborhours: 2X+ 3Y≤400M achinehours: 4X+ 2Y≤600 c. 400/2= 200 600/4= 150

ThemachinehourconstraintlimitsproductionofXto150units.

d. X=125units,Y=50units.

130. CommonwealthDryCleanershas400hoursaweekavailabletouseindrycleaningorlaundry.Fourthousandinchesofhangin gspaceisavailable.Theaverageitemthatisdrycleanedtakessixinchesofhangingspace,whereaslaundryitemstakeuponlyt hreeinchesofhangingspace.Thecontributionmarginforlaundryitemsaverages$3.50;drycleaneditemsaverage$6.50.Fift yitemscanbewashedperhour,whereasonlytwentycanbedrycleaned.

Required: a. Determinetheobjectivefunction.Isitaminimizationormaximizationfunction? b. Setuptheconstraintequations.

ANSWER: a. Objective function: Maximize$3.50(L)+$6.50(D)

b. Hoursavailable: 0.02(L) +0.05(D) ≤400 Hangingspace: 3.00(L) +6.00(D) ≤4,000

download full file at http://testbankeasy.com Full file at http://testbankeasy.eu/Test-bank-for-Cornerstones-of-Cost-Management,-3 rd-Edition---Don-R.-Hansen 131. WoodcraftersCorporationmanufacturestwodifferentminiaturemodelsoffurniture,atableandachair.Thecomp anyhas500feetoflumber,400machinehours,and600directlaborhoursavailableforproduction.Theminiaturetabl esandchairsprovide$5and$4ofcontributionmargin,respectively.

Thetimeandlumberrequirementstobuildaminiaturetableorchairareasfollows:

Table Chair Feetoflumberperunit 5 2 Machinehoursperunit 2 3 Directlaborhoursperunit 4 2

Required: a. Whatistheobjectivefunctionbeingmaximized? b. Whataretheconstraintequations? c. Graphtheconstraintequations.Identifythefeasibleregion. d. Whatistheoptimalsolution?

ANSWER:

a. Maximize $5T+$4C

b. Lumber:5T +2C≤ 500Machineh ours:2T+3C≤400Laborhours:4T +2C≤600 c.

d. Therearethreepossiblecornersolutions:

(1) T=100,C=0 CM=$5(100)+$4(0)=$500 (2) T= 0,C = 133.333 CM=$5(0)+$4(133.333)= $533.33 (3) T = 63.64, C= 90.91 CM=$5(63.64)+$4(90.91)= $681.84

Produce91chairsand64tables.

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132. IronHorsesCorporationproducestwotypesofmotorcycleframes,(FrameXandFrameY).FrameXpassesthroughfourpr ocesses:Cutting,Welding,Polishing,andPainting.FrameYusesthreeofthesameprocesses:Cutting,Welding,andPaintin g.Eachofthefourprocessesemploysfortyworkerswhoworkeighthourseachday.FrameXsellsfor$80perunit,andFrame Ysellsfor$110perunit.Materialsistheonlyunit-levelvariable expense.ThematerialscostforFrameXis$40perunit,andthematerialscostforFrameYis$50perunit.IronHorses'account ingsystemhasprovidedthefollowingadditionalinformationaboutitsoperationsandproducts:

ResourceUsag ResourceU e/Unit Frame X sage/UnitFr ameY ResourceName ResourceAvailable CuttinglaborWelding 19,200minutes 30minutes 20minutes laborPolishinglaborP 19,200minutes 30minutes 60minutes aintinglabor 19,200minutes 30minutes - 19,200minutes 20minutes 30minutes

Marketdemand:X 400perday 1unit - Marketdemand:Y 200perday - 1unit IronHorses'managementhasdeterminedthatanyproductioninterruptionscanbecorrectedwithintwodays.

Required: a. AssumingthatIronHorsescanmeetdailymarketdemand,computethepotentialdailyprofit.Nowcom putetheminutesneededforeachprocesstomeetthedailymarketdemand.CanIronHorsesmeetdaily marketdemand?Ifnot,whereisthebottleneck?Canyouderiveanoptimalmixwithoutusingagraphical solution?Ifso,explainhow. b. Explainhowadrum-buffer-ropesystemwouldworkforIronHorses.

ANSWER:

a.Potentialdailysales:

Frame X FrameY $80 $110 Sales Materials 40 50 CMperunit $40 $60 Dailydemand 400 200 Dailyprofit $16,000 $12,000

Totaldailyprofitpotentialis$28,000.

download full file at http://testbankeasy.com Full file at http://testbankeasy.eu/Test-bank-for-Cornerstones-of-Cost-Managem ent,-3rd-Edition---Don-R.-Hansen Process Resource Demands Resource Supply Cutting X: 30  400 = 12,000 Y: 20  200 = 4,000 16,000 19,200

Welding X: 30  400 = 12,000 Y: 60  200 = 12,000 24,000 19,200

Polishing X: 30  400 = 12,000 19,200

Painting X: 20  400 = 8,000 Y: 30  200 = 6,000 14,000 19,200

IronHorsescannotmeetdailydemand.Theweldingprocessrequires24,0 00minutes,buthasonly19,200available.Allotherprocesseshaveexcessc apacity.Thus,weldingisthebottleneck.Thecontributionmarginperunitof weldingresourceforeachproductiscomputedbelow:

X:$40/30= $1.33Y:$6 0/60=$1.0 0

ThissuggeststhatBaldwinshouldfirstproduceallthatitcanofFrameX.Thu s,30× 400=12,000minutesofweldingwillbededicatedtoFrameX.There mainingminutes(7,200)willbeusedtoproduceallthatispossibleofFrame Y:7,200/60=120unitsofFrameY.TheoptimalmixisFrameX=400units,an dFrameY=120units,producingadailycontributionof$23,200[($40 × 400)+($60×120)].

b.Theweldingprocessisthedrummer.Itsetstheproductionratefortheentire plant.Thus,theplantshouldproduce400unitsofFrameXperdayand120u nitsofFrameYperday.Toensurethatthecuttingprocessdoesnotexceed thisrate,thereleaseofmaterialsistiedtothemaximumproductionrateof theweldingprocess(materialsfor400unitsofFrameXandmaterialsfor12 0unitsofFrameYwouldbereleases).Thisistherope.Finally,toprotectthr oughput,atimebufferissetupinfrontoftheweldingprocess.Thisbufferw ouldconsistof800cutunitsofFrameXand400cutunitsofFrameY(atwo-d aybuffer).

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133. Grapevine Incorporated produces two different barrels used in wine making. (X and Y) Thecompanyhasthreeprocesses,cutting, forming,andcuring.Incutting,thewoodiscuttosizeandpreparedforforming.Informing,thewood is bent to shape and connected together to form the barrel. In curing, the seams are finished and the oak is left to process. In cutting, setuptime is 1/2 hour. The other twoprocessesdonothaveanysetuptime.ThedemandforComponentXis90unitsperdayandthedemandfor ComponentY is240 units per day. The minutes required per unit for each component are as follows: Cutting Forming Curing ComponentX 30 12 8 ComponentY 20 15 6 Thecompanyoperatesone8- hourshift.Thecuttingprocessemploys10workers.Twohoursoftheirtimeisusedforsetup.

Theformingprocessisthemostlaborintensiveandhas15workers.Thecuringdepartmentisnotlaborintensive— theonlysignificantunit level variable costs are materials and power. The department only employs 6 associates. For component X, the variable cost is $40 per unit and for Component Y, it is $30 per unit. The selling price per barrel is $95 for Component X and $80 for Component Y.

Required: a. Calculatetheestimateddailypotentialprofit. b. Calculatetheresourcesavailableinminutesforeacharea. c. Calculatetheresourcesdemandedinminutesforeachareaandidentifyanybottlenecks. d. Whatisthecontributionmarginperunitofbottleneckresourceandwhatdoesthatimply?

download full file at http://testbankeasy.com Full file at http://testbankeasy.eu/Test-bank-for-Cornerstones-of-Cost-Managem ent,-3rd-Edition---Don-R.-Hansen ANSWER: a. Potential Daily Profit X Y Sales $95 $80 Variable Costs 40 30 CM Per unit $55 $50

Daily demand 90 240 $4,95 $12,00 total daily profit Daily Profit 0 0 $16,950 potential b. Resource Availability:

Cutting 10 workers 8 hours = 4,800 minutes available Forming 15 workers 8 hours = 7,200 minutes available Curing 6 workers 8 hours = 2,880 minutes available c. Resource Demand: X Y Cutting 30 min/unit 2,700 minutes demanded 20 min/unit 4,800 min demanded Forming 12 min/unit 1,080 minutes demanded 15 min/unit 3,600 min demanded Curing 8 min/unit 720 minutes demanded 6 min/unit 1,440 min demanded

Total Demands: Demanded Available Cutting 7,500 4,800 Bottleneck Forming 4,680 7,200 Curing 2,160 2,880

Contribution Margin per unit of cutting: min / X $55 CM / 30 unit $1.83 CM per unit min / Y $50 CM / 20 unit $2.50 CM per unit

Process all of Y possible, then X.

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