Preview Extract
Chapter 21 Production and Control
1) Production is the transformation of organizational resources into products.
Answer: True
Rationale:
Production involves the process of converting inputs such as raw materials, labor, and capital
into outputs, which are products or services. This transformation is at the core of production
activities in organizations.
2) Productivity is the relationship between the total amounts of goods or services being
produced and the organizational resources needed to produce them.
Answer: True
Rationale:
Productivity is a measure of efficiency that calculates the output (goods or services) produced
per unit of input (resources such as labor, capital, or materials) used. It indicates how
efficiently resources are being utilized to generate output.
3) Quality ranking is totally dependent on the industry standards.
Answer: False
Rationale:
While industry standards can play a significant role in determining quality ranking, other
factors such as customer expectations, innovation, and market competition can also influence
how quality is perceived and ranked.
4) Deming's flow diagram for improving product quality focuses on aspects such as suppliers,
materials, and customers rather than the test processes and methods used.
Answer: False
Rationale:
Deming's flow diagram, often referred to as the Plan-Do-Check-Act (PDCA) cycle,
emphasizes continuous improvement through systematic planning, implementation,
evaluation, and adjustment of processes, including testing methods and procedures, to
improve product quality.
5) Quality assurance is a continuum of activities that starts when quality standards are set and
ends when quality goods and services are delivered to the customer.
Answer: True
Rationale:
Quality assurance encompasses all activities and processes within an organization that are
designed to ensure that products and services meet specified requirements and standards,
from the initial setting of quality standards to the final delivery of quality goods and services
to customers.
6) Quality circle is a process used to determine how many products should be inspected to
calculate a probability that the total number of products will meet organizational quality
standards.
Answer: False
Rationale:
A quality circle is a group of employees who volunteer to identify, analyze, and solve workrelated problems to improve the quality of products, services, and processes within an
organization. It is not primarily focused on determining inspection levels or calculating
probabilities.
7) Human effort is often replaced by electromechanical devices in operations such as
welding, materials handling, design, and drafting. This is called automation.
Answer: True
Rationale:
Automation involves the use of technology, such as electromechanical devices, to perform
tasks or processes that were previously done by humans. It is a common practice in industries
to increase efficiency, precision, and speed in operations like welding, materials handling,
and design.
8) A system is a flow of interrelated events toward a goal, purpose, or end.
Answer: False
Rationale:
A system is a set of interconnected components that work together to achieve a common goal,
purpose, or function. While it involves interrelated events, it is more than just a flow; it
includes the components, relationships, and interactions that make up the system.
9) Effectiveness refers to doing things right whereas efficiency refers to doing the right
things.
Answer: False
Rationale:
Effectiveness refers to achieving the desired results or outcomes, regardless of the method
used. Efficiency, on the other hand, refers to achieving the desired results with the least
amount of resources, emphasizing the optimization of processes and resources.
10) Product strategy is an operational plan of action outlining which goods and services an
organization will produce and market.
Answer: True
Rationale:
Product strategy is a plan that outlines the goals, objectives, and approach to developing and
marketing products or services. It includes decisions about what products or services to offer,
how they will be positioned in the market, and how they will be marketed to customers.
11) Organizations commonly employ more than one type of manufacturing process at the
same time and in the same facility.
Answer: True
Rationale:
Many organizations use a combination of manufacturing processes to meet their production
needs. For example, a company may use batch processing for certain products and continuous
processing for others, depending on factors such as demand, product complexity, and
production volume.
12) Layout strategy is a plan of action outlining the operation methods the organization will
use to transform resources into goods and services.
Answer: False
Rationale:
Layout strategy refers to the arrangement of physical facilities within an organization,
including the layout of machinery, equipment, and workspaces, to support efficient and
effective operations. It is not specifically about the operation methods used to transform
resources into goods and services.
13) A process layout is a layout pattern that groups together similar types of equipment.
Answer: True
Rationale:
A process layout, also known as a functional layout, groups together similar types of
equipment or functions in the same area. This layout is commonly used in job shops or
facilities where different types of products are produced in small batches.
14) The fixed-position layout is one in which the resources are stationary while the products
flow from one resource to another.
Answer: False
Rationale:
In a fixed-position layout, the product remains stationary while resources, such as workers,
equipment, and materials, are brought to the product. This type of layout is common in
industries such as construction, shipbuilding, and aircraft manufacturing.
15) Work methods analysis is an operational tool that is performed for new or existing jobs to
improve productivity and ensure the safety of workers.
Answer: True
Rationale:
Work methods analysis, also known as work measurement or time study, involves analyzing
and evaluating the methods used to perform a job to improve productivity, efficiency, and
safety. It is used for both new and existing jobs to identify and implement best practices.
16) JIT is based on the management philosophy that products should be manufactured only in
the quantities customers require.
Answer: True
Rationale:
Just-in-Time (JIT) is a management philosophy and strategy that aims to reduce waste and
improve efficiency by producing and delivering products only when they are needed, in the
quantities required, and to the quality standards expected by customers.
17) Pure-breakdown policy involves regular activities such as machine adjustments,
lubrication, cleaning, parts replacement, and painting.
Answer: False
Rationale:
Pure-breakdown maintenance is a reactive maintenance strategy where equipment is run until
it fails and then repaired. It does not involve regular maintenance activities such as machine
adjustments, lubrication, cleaning, parts replacement, and painting, which are part of
preventive maintenance.
18) Cost control relates to all organizational costs and emphasizes activities in all
organizational areas.
Answer: True
Rationale:
Cost control is the process of managing and reducing costs in all areas of an organization,
including production, operations, marketing, and administration. It involves identifying cost
drivers, implementing cost-saving measures, and monitoring expenses to ensure they are
within budget.
19) Inventory turnover ratio is a profitability ratio used in organizations.
Answer: False
Rationale:
Inventory turnover ratio is a financial ratio that measures how many times a company's
inventory is sold and replaced over a period. It is used to assess how efficiently a company
manages its inventory, but it is not a profitability ratio.
20) Costs of packaging a product and costs of materials needed to make the product are fixed
costs associated with production.
Answer: False
Rationale:
Costs of packaging a product and costs of materials needed to make the product are typically
considered variable costs, as they vary with the level of production. Fixed costs, on the other
hand, remain constant regardless of the level of production, such as rent for a production
facility.
21) Which of the following statements is true about production in organizations?
A) Production is considered a process of conception rather than transformation.
B) The production process does not occur in most service organizations.
C) Organizational assets remain unaffected in the process of production.
D) Production can be considered to be the process of transforming inputs to outputs.
E) The production process is not considered a part of an organization's value chain.
Answer: D
Rationale:
Production in organizations involves transforming inputs such as raw materials, labor, and
capital into outputs, which are goods or services. This process of transformation is central to
the production function in organizations.
22) The assets available to managers for production are called ________.
A) managerial structures
B) organizational layouts
C) process structures
D) organizational resources
E) functional layouts
Answer: D
Rationale:
Organizational resources refer to the assets available to managers for production, including
raw materials, equipment, technology, and human resources.
23) ________ refers to the relationship between the total amount of goods or services being
produced and the organizational resources needed to produce them.
A) Productivity
B) Zero-base measure
C) Control factor
D) Quality assurance
E) Break-even ratio
Answer: A
Rationale:
Productivity is the relationship between the total amount of goods or services produced and
the organizational resources, such as labor, capital, and materials, needed to produce them. It
is a measure of efficiency in production.
24) Which of the following terms specifically refers to the ratio of outputs to inputs?
A) credibility
B) quality
C) productivity
D) revenue
E) competency
Answer: C
Rationale:
Productivity specifically refers to the ratio of outputs (goods or services) to inputs (resources
such as labor, capital, and materials) in production processes.
25) Which of the following is the most accurate observation of product quality?
A) Product quality is more dependent on labor than on the other factors of production.
B) It is a measure of how well a product does what it is intended to do.
C) Quality refers to a product's ability to make an impact on the customers.
D) It can be defined as a ratio of the total output to the total input.
E) Quality refers to the design attributes that are formed internally.
Answer: B
Rationale:
Product quality is a measure of how well a product performs its intended function or purpose.
It reflects the degree to which a product meets customer expectations and requirements.
26) Furntech Corporation manufactures and markets traditional and computer-related office
products and supplies. The company is looking for ways to improve its productivity to
become more competitive. Which of the following actions of the company will be least
effective in improving organizational productivity?
A) It makes necessary changes to product design.
B) It provides additional training to its workforce.
C) It automates some of its lengthy processes.
D) It attempts to improve its recruitment procedures.
E) It reduces its level of production to focus on product quality.
Answer: E
Rationale:
Reducing the level of production to focus on product quality may not be effective in
improving organizational productivity, as productivity is measured by the ratio of outputs to
inputs. Instead, focusing on improving processes, training, and automation can lead to
increased productivity.
27) According to Deming's flow diagram for improving product quality, which of the
following is the next step after the receipt and test of materials?
A) testing of processes, machines, methods, costs
B) production and assembly of raw materials
C) assembly and inspection of raw materials
D) distribution of materials across the organization
E) conducting consumer research on product quality
Answer: A
Rationale:
According to Deming's flow diagram, the next step after the receipt and test of materials is
the testing of processes, machines, methods, and costs to ensure that they meet quality
standards.
28) In an attempt to reduce the number of defective products, James decides to select and
inspect a sample to ensure that the units produced meet the established quality standards.
Which of the following is a specific technique used to determine how many products should
be included in the sample?
A) statistical quality control
B) Six Sigma
C) flexible manufacturing
D) quality circles
E) quality assurance
Answer: A
Rationale:
Statistical quality control is a specific technique used to determine how many products should
be included in a sample for inspection to ensure that the units produced meet quality
standards.
29) As production manager, James has noticed that their mistakes in production are getting
very costly. He decides to make the employee training sessions more rigorous. Which of
these philosophies would best fit his quality control problem?
A) "No mistake" mindset
B) "Acceptable mistakes" philosophy
C) Six Sigma
D) "No rejects" philosophy
E) Kanban system
Answer: D
Rationale:
The "No rejects" philosophy emphasizes the goal of producing products without defects or
mistakes. By making employee training more rigorous, James is aligning with this philosophy
to reduce costly mistakes in production.
30) James believes that involving all company employees in quality control would help them
obtain better ideas on how to solve quality problems. It would also help the firm improve
employee morale. Which of the following strategies should he use for this purpose?
A) quality circles
B) Six Sigma
C) flexible manufacturing
D) statistical quality control
E) quality assurance
Answer: A
Rationale:
Quality circles involve employees from all levels of an organization in identifying, analyzing,
and solving quality-related problems. This approach can help James obtain better ideas for
solving quality problems and improve employee morale by involving them in the quality
control process.
31) Quality assurance is a(n) ________.
A) process used to determine how many products should be inspected to calculate a
probability that the total number of products will meet organizational quality standards
B) process used to determine the number of products to be inspected during a random check
C) standardized system used by organizations to measure employee performance in achieving
the desired quality
D) consortium of a small group of workers who meet with management to discuss qualityrelated problems
E) operations process involving a broad group of activities aimed at achieving the
organization's quality objectives
Answer: E
Rationale:
Quality assurance involves a systematic approach to ensuring that the organization's products
or services meet the established quality standards. It encompasses a wide range of activities
aimed at achieving and maintaining quality objectives, including process improvement,
quality control, and quality management.
32) ________ is the process used to determine how many products should be inspected to
calculate a probability that the total number of products will meet organizational quality
standards.
A) Statistical quality control
B) Quality assurance
C) Six sigma
D) Quality circle
E) Kaizen procedure
Answer: A
Rationale:
Statistical quality control (SQC) is a method used to determine the appropriate sample size
for inspection based on statistical analysis. It helps organizations calculate the probability that
the total number of products will meet quality standards based on the sample inspected.
33) The first step in using quality circles is ________.
A) establishing the theme for observation
B) determining the objective of observation
C) implementing a new procedure
D) obtaining necessary data
E) determining the target rate
Answer: D
Rationale:
The first step in using quality circles is to obtain necessary data related to the problem or
process that the quality circle will be addressing. This data is essential for the quality circle
team to analyze the situation and develop effective solutions.
34) An organization decides to improve its raw material handling process by buying a
material handling crane. This is an example of using ________.
A) human resources
B) automation
C) statistical quality control
D) flexible manufacturing
E) fixed-position layouts
Answer: B
Rationale:
Buying a material handling crane to improve the raw material handling process is an example
of using automation to enhance efficiency and productivity. Automation involves the use of
technology to perform tasks that were previously done manually.
35) Which of the following is the best strategy that a company can use to improve
organizational productivity?
A) Increase employee salaries and provide additional incentives to the employees.
B) Attempt to increase the bargaining power of the suppliers.
C) Automate the lengthy processes that exist in the value chain.
D) Allocate more budget to the operational activities of the firm.
E) Reduce the number of units produced per day to give more attention to product quality.
Answer: C
Rationale:
Automating lengthy processes in the value chain can improve organizational productivity by
reducing manual labor, streamlining operations, and increasing efficiency. This can lead to
cost savings and improved output quality.
36) A flow of interrelated events toward a goal, purpose, or end is specifically referred to as a
________.
A) process
B) system
C) strategy
D) scheme
E) structure
Answer: A
Rationale:
A process refers to a series of interrelated events or activities that are performed to achieve a
specific goal, purpose, or end. Processes are fundamental to the functioning of organizations
as they represent the flow of work within the organization.
37) The performance of managerial activities that involve selecting, designing, managing,
controlling and updating production systems is called ________.
A) strategic management
B) tactical management
C) operations management
D) input management
E) service management
Answer: C
Rationale:
Operations management involves the planning, organizing, and overseeing of production
processes and systems within an organization. It includes activities such as selecting
production methods, designing production layouts, managing resources, controlling quality,
and improving efficiency.
38) ________ is a plan of action aimed at providing the organization with the right facilities
to produce the needed output at the right time.
A) Location strategy
B) Process strategy
C) Product strategy
D) Layout strategy
E) Capacity strategy
Answer: E
Rationale:
Capacity strategy is a plan that focuses on providing the organization with the right capacity
(i.e., facilities, equipment, resources) to produce the required output at the right time. It
involves decisions related to capacity planning, expansion, and utilization.
39) Which of the following is an example of a modern capacity strategy?
A) construct large plants that perform all the value adding activities
B) produce more than the actual demand to minimize customer dissatisfaction
C) build large specialized plants to concentrate all the tasks at one place
D) construct smaller and more specialized plants that focus on a few tasks
E) produce less than the actual demand to reduce the costs of operation
Answer: D
Rationale:
Constructing smaller and more specialized plants that focus on a few tasks is an example of a
modern capacity strategy. This approach allows organizations to be more flexible, responsive,
and efficient in meeting customer demands while reducing costs and improving quality.
40) ________ is an operational plan of action outlining which goods and services an
organization will produce and market.
A) Capacity strategy
B) Product strategy
C) Process strategy
D) Layout strategy
E) Location strategy
Answer: B
Rationale:
Product strategy is an operational plan that outlines which goods and services an organization
will produce and market. It includes decisions about product design, features, pricing,
distribution, and promotion to meet customer needs and achieve organizational goals.
41) A manufacturing company that produces plastic products creates a plan that outlines the
different ways of managing the transformation process. The plan contains detailed
information about aspects such as the handling of materials, operation of the assembly line,
and the labor used in production. This plan of action is called a ________ strategy.
A) process
B) product
C) development
D) layout
E) capacity
Answer: A
Rationale:
The plan described focuses on managing the transformation process, which is a key aspect of
the production or manufacturing process. Therefore, it is best categorized as a process
strategy.
42) The process used to manufacture beer is a product-oriented, high-volume, and lowvariety process. This can be called a(n) ________ process.
A) cyclical
B) job-shop
C) repetitive
D) assembly-line
E) continuous
Answer: E
Rationale:
The description indicates that the process is focused on producing a single product (beer), in
high volumes, and with low variety. This aligns with the characteristics of a continuous
process, which is used for high-volume, standardized production.
43) Which of the following process strategies is characteristic of the auto and appliance
industries?
A) repetitive process
B) continuous process
C) flexible process
D) job-shop process
E) low-volume process
Answer: A
Rationale:
The auto and appliance industries typically produce standardized products in high volumes,
which is characteristic of a repetitive process strategy.
44) The ________ process includes the production of one-of-a-kind items as well as unit
production.
A) job-shop
B) assembly line
C) serial
D) parallel
E) fixed position
Answer: A
Rationale:
A job-shop process is characterized by producing a variety of customized or unique products
in small batches or one-off productions, which includes both one-of-a-kind items and unit
production.
45) Which layout strategy would be most appropriate for an organization with a limited
number of different products that require high production volumes, highly specialized
equipment, and narrow employee skills?
A) product layout
B) process layout
C) functional layout
D) fixed-position layout
E) equipment layout
Answer: A
Rationale:
A product layout, also known as a flow shop layout, is suitable for high-volume production of
a limited number of products with specialized equipment and skills, as it allows for efficient
flow of materials and minimal work-in-process inventory.
46) ________ layout is a layout pattern that groups together similar types of equipment.
A) Process
B) Fixed position
C) Group technology
D) Product
E) Material
Answer: A
Rationale:
A process layout, also known as a functional layout, groups together similar types of
equipment or functions in the same area, making it easier to manage and maintain.
47) ________ are operational tools used to establish labor standards and are useful for
planning, control, productivity improvements, costing and pricing, bidding, compensation,
motivation, and financial incentives.
A) Work measurement methods
B) Manpower plans
C) Motion-study techniques
D) Work method analyses
E) Job design strategies
Answer: A
Rationale:
Work measurement methods, such as time studies and work sampling, are used to establish
labor standards and measure the time required to perform a task, which is essential for
various operational purposes.
48) ________ is a technique for reducing inventories to a minimum by arranging for
production components to be delivered to the production facility only when it is about to be
used.
A) Flexible manufacturing
B) Just-in-time control
C) Mass customization
D) Six Sigma production
E) Total preventive maintenance
Answer: B
Rationale:
Just-in-time (JIT) control is a production strategy that aims to reduce inventory levels by
coordinating production with demand, ensuring that components are delivered only when
they are needed for production.
49) Tom's company repairs machines only after they have malfunctioned. This is an example
of ________.
A) quality circle initiative
B) maintenance control policy
C) pure-breakdown policy
D) total productive maintenance
E) quality assurance initiative
Answer: C
Rationale:
The company's approach of repairing machines only after they have malfunctioned reflects a
pure-breakdown policy, where maintenance is performed reactively rather than proactively.
50) Which of the following is the first stage in a cost control program?
A) measuring actual labor costs incurred
B) making changes to reduce actual labor and material costs
C) comparing planned labor and material costs to incurred costs
D) measuring actual material and process costs incurred
E) establishing standard or planned cost amounts
Answer: E
Rationale:
The first stage in a cost control program involves establishing standard or planned cost
amounts, which serve as benchmarks for measuring actual costs and identifying areas for
improvement.
51) Which of the following outlines the financial plan of an organization for a particular
period?
A) income statement
B) balance sheet
C) HR design
D) product layout
E) budget
Answer: E
Rationale:
A budget outlines the financial plan of an organization for a specific period, detailing
expected revenues and expenses.
52) A budget that automatically indicates an increase in the amount of resources allocated for
various organizational activities when production levels go up is called a(n) ________.
A) variable budget
B) zero-base budget
C) parallel budget
D) incremental budget
E) dependable budget
Answer: A
Rationale:
A variable budget automatically adjusts resource allocations based on changes in production
levels, ensuring that resources increase or decrease in line with production needs.
53) Which of the following techniques is best suited to analyze the financial position of an
organization?
A) process modelling
B) motion-study techniques
C) value analysis
D) functional analysis
E) ratio analysis
Answer: E
Rationale:
Ratio analysis involves comparing financial data in a company's financial statements to
assess its financial performance and position, making it well-suited for analyzing the
financial position of an organization.
54) ________ is an operations control activity that determines the flow of materials from
vendors through an operations system to customers.
A) Just-in-time philosophy
B) Zero-based control
C) Work scheduling
D) Production planning
E) Materials control
Answer: E
Rationale:
Materials control involves managing the flow of materials from suppliers through the
production process to customers, ensuring that materials are available when needed and in the
right quantities.
55) Return on investment is an example of a(n) ________ ratio.
A) operations
B) profitability
C) liquidity
D) leverage
E) activity
Answer: B
Rationale:
Return on investment (ROI) is a profitability ratio that measures the return generated on an
investment relative to the cost of the investment.
56) A company uses current ratio to analyze its financial position. Which of the following
information can be obtained from current ratio?
A) efficiency of inventory management
B) productivity of the company's assets
C) information on the short-term solvency
D) information on the total debt of the company
E) information on financial leverage
Answer: C
Rationale:
The current ratio, calculated as current assets divided by current liabilities, provides
information on a company's short-term solvency by indicating its ability to cover short-term
liabilities with short-term assets.
57) Inventory turnover is an example of a(n) ________ ratio.
A) operations
B) profitability
C) liquidity
D) activity
E) leverage
Answer: D
Rationale:
Inventory turnover is an activity ratio that measures how efficiently a company manages its
inventory by comparing the cost of goods sold to average inventory levels.
58) Which of the following ratios is best suited to analyze how the company finances its
projects?
A) inventory turnover
B) debt ratio
C) current ratio
D) acid test ratio
E) return on investment
Answer: B
Rationale:
The debt ratio, calculated as total debt divided by total assets, provides information on how
the company finances its projects by indicating the proportion of assets financed by debt.
59) Which of the following ratios would be most useful to obtain quantitative information on
the company's inventory management processes?
A) activity ratio
B) profitability ratio
C) liquidity ratio
D) leverage ratio
E) solvency ratio
Answer: A
Rationale:
An activity ratio, such as inventory turnover, provides quantitative information on how
efficiently a company manages its inventory, which is crucial for assessing inventory
management processes.
60) The operational study revealed that the company's inventory turnover is slow. This has
forced them to maintain high levels of liquidity. Which of the following ratios is best suited to
analyze the company's short-term solvency?
A) current ratio
B) return on investment
C) activity ratio
D) equity ratio
E) debt ratio
Answer: A
Rationale:
The current ratio, which compares current assets to current liabilities, is best suited to analyze
the company's short-term solvency by indicating its ability to cover short-term liabilities with
short-term assets.
61) Which of the following is an explicit objective of the inventory control activities?
A) increasing the short-term solvency of the company
B) ensuring continuous availability of purchased materials
C) enhancing the labor force planning activity of the organization
D) increasing the organization's financial leverage
E) making organizational assets more productive
Answer: B
Rationale:
The explicit objective of inventory control activities is to ensure the continuous availability of
purchased materials. This helps in maintaining smooth operations and avoiding stockouts,
which can disrupt production or sales.
62) Which of the following is the best example of a shop-floor control activity?
A) designing jobs
B) storing inventory
C) scheduling work
D) purchasing materials
E) controlling inventory
Answer: C
Rationale:
Scheduling work is the best example of a shop-floor control activity as it involves managing
the daily or weekly plans for production, ensuring that tasks are completed efficiently and on
time.
63) Which of the following statements is true of the control tools used in organizations?
A) It helps to pinpoint organizational strengths and weaknesses.
B) It is generally used during the product design stage.
C) Control tools are not used for day-to-day operations.
D) Employee control is not possible with the use of these tools.
E) These tools are used by workers more than managers.
Answer: A
Rationale:
Control tools help to pinpoint organizational strengths and weaknesses by providing data and
insights into various aspects of operations, such as performance metrics, efficiency, and
effectiveness.
64) Which of the following is the best example of a control tool that could be used at all
stages of operations?
A) quality inspections
B) value statements
C) labor force planning
D) capacity planning
E) layout strategies
Answer: A
Rationale:
Quality inspections can be used at all stages of operations to ensure that products meet
standards and specifications, regardless of the stage of production.
65) ________ is a control technique that allows only significant deviations between planned
and actual performance to be brought to a manager's attention.
A) Management by exception
B) Disaster management
C) Contingency planning
D) Process control
E) Management by objectives
Answer: A
Rationale:
Management by exception is a control technique that focuses on significant deviations from
planned performance, allowing managers to focus on addressing important issues while
avoiding micromanagement of routine activities.
66) David Lamb leads a team of engineers at Alpha technologies, a leading software
company. David started his career as a program developer and is widely recognized as a
subject matter expert. He is not very involved in the day-to-day management of the team and
instead promotes a great deal of autonomy among team members. However, he does help out
if the team comes across unanticipated problems associated with atypical tasks. This is an
example of ________.
A) management by exception
B) the process control method
C) continuous operational control
D) customary process control
E) management by objectives
Answer: A
Rationale:
David Lamb's leadership style, which involves promoting autonomy among team members
and intervening only in the case of significant issues, aligns with the principles of
management by exception.
67) A(n) ________ is an expense incurred by the organization regardless of the number of
products produced.
A) variable cost
B) sunk cost
C) total cost
D) fixed cost
E) inflationary cost
Answer: D
Rationale:
A fixed cost is an expense that remains constant regardless of the number of products
produced. Examples include rent, salaries, and insurance.
68) Which of the following terms refers to the expenses that fluctuate with changes in the
number of products produced?
A) variable costs
B) depreciation
C) asset purchase costs
D) costs of mechanism
E) inflationary costs
Answer: A
Rationale:
Variable costs are expenses that vary with changes in the number of products produced.
Examples include raw materials, labor, and utilities.
69) ________ is defined as the amount of total revenue that exceeds the total costs of
producing the products sold.
A) Total cost
B) Profit
C) Marginal cost
D) Loss
E) Depreciation
Answer: B
Rationale:
Profit is the amount of total revenue that exceeds the total costs of producing the products
sold. It represents the financial gain from operations.
70) ________ is the amount of the total costs of producing a product that exceeds the total
revenue gained from selling the product.
A) Loss
B) Depreciation
C) Asset purchase costs
D) Break-even point
E) Inflationary costs
Answer: A
Rationale:
Loss is the amount by which the total costs of producing a product exceed the total revenue
gained from selling the product. It indicates a negative financial outcome from operations.
71) Identify the algebraic equation to determine the break-even point.
A) BE = VC/(P-FC)
B) BE = P/ (FC-VC)
C) BE = C/R
D) BE = (P-VC)/(FC-VC)
E) BE = FC/(P-VC)
Answer: E
Rationale:
The break-even point (BE) is calculated using the formula BE = FC / (P - VC), where FC is
the total fixed costs, P is the selling price per unit, and VC is the variable cost per unit. This
formula represents the point at which total revenue equals total costs, resulting in neither
profit nor loss.
72) Altratex is the manufacturer of electronic power stabilizers. The company has spent
$50,000 toward the purchase of capital goods and machinery. It has also paid $8,000 toward
annual building maintenance and $1,500 for annual insurance premium. The company has 15
permanent employees who earn an annual salary of $1,500 each. The company pays a 10
percent commission to retailers. The other variable costs for producing a stabilizer is $15.
How many units should the company sell in order to recover its investment if each unit is
priced at $40?
A) 2175
B) 4579
C) 3132
D) 3905
E) 2833
Answer: D
Rationale:
The total fixed costs for Altratex are $50,000 + $8,000 + $1,500 + ($1,500 * 15) = $74,500.
The contribution margin per unit is $40 - $15 = $25. The break-even point in units is $74,500
/ $25 = 2980 units. To recover the investment, the company should sell at least 2980 units.
73) The total fixed cost of production in a manufacturing company is $50,000. The company
sells its products at $15 and the variable costs associated with each unit sold is $10. Calculate
the level of production at which the firm breaks even.
A) 15000 units
B) 10000 units
C) 5000 units
D) 1000 units
E) 20000 units
Answer: B
Rationale:
The break-even point is calculated as $50,000 / ($15 - $10) = $50,000 / $5 = 10,000 units. At
this level of production, the company neither makes a profit nor incurs a loss.
74) Which of the following can be considered annual fixed costs for a publishing company?
A) author royalties
B) salaried labor
C) sales commission
D) cost of binding
E) printing costs
Answer: B
Rationale:
Salaried labor can be considered an annual fixed cost for a publishing company, as it
represents a recurring expense that does not vary with the number of books published or sold.
75) Which of the following would be a rational justification for selecting algebraic breakeven method instead of graphic break-even method?
A) Algebraic method is a quick yet accurate method of determining break-even point.
B) Graphic break-even method is less accurate when there are multiple relationships.
C) Unlike algebraic method, all critical elements cannot be shown in the graphic method.
D) Algebraic method is better suited to analyze cumulative relationships of break-even point.
E) Information such as potential profit and loss can be better studied using the algebraic
method.
Answer: A
Rationale:
The algebraic break-even method is often preferred because it is a quick yet accurate method
of determining the break-even point. It allows managers to calculate the break-even point
without the need for complex graphical representations.
76) ________ helps managers understand the relationships between fixed costs, variable
costs, total costs, and profit and loss within an organization.
A) Algebraic analysis
B) Graphic analysis
C) Control analysis
D) Break-even analysis
E) Information analysis
Answer: D
Rationale:
Break-even analysis helps managers understand the relationships between fixed costs,
variable costs, total costs, and profit and loss within an organization. It provides valuable
insights into the financial aspects of business operations.
77) ________ is a statistical and graphical multiphased decision-making technique that
contains a series of steps showing the sequence and interdependence of decisions.
A) Decision support system
B) Decision-tree analysis
C) Break-even analysis
D) Supply-chain decision
E) Decision table
Answer: B
Rationale:
Decision-tree analysis is a statistical and graphical multiphased decision-making technique
that shows the sequence and interdependence of decisions. It helps in analyzing various
decision paths and their outcomes.
78) ________ is a technique that assists in monitoring production processes.
A) Process control
B) Break-even analysis
C) Ratio analysis
D) Production process
E) Cost control
Answer: A
Rationale:
Process control is a technique that assists in monitoring production processes to ensure they
are operating efficiently and meeting quality standards.
79) Which of the following is a cost control and cost reduction technique that helps managers
control operations by focusing primarily on material costs?
A) materials planning
B) decision-tree analysis
C) break-even analysis
D) value analysis
E) process control
Answer: D
Rationale:
Value analysis is a cost control and cost reduction technique that helps managers control
operations by focusing primarily on material costs. It involves evaluating the cost and
performance of materials to identify opportunities for cost savings.
80) Which among the following is a goal of value analysis?
A) to reduce costs by using cheaper components and materials in such a way as to not affect
the product quality
B) to reduce production costs by reducing production quantity
C) to reduce production costs by automation of the processes involved
D) to reduce production costs by avoiding the algebraic break-even analysis and using the
graphic break-even analysis
E) to reduce production costs by reducing the fixed costs and the sunk costs
Answer: A
Rationale:
The goal of value analysis is to reduce costs by using cheaper components and materials in
such a way as to not affect the product quality. This helps in improving the cost-effectiveness
of products and processes.
81) What is productivity and how is it important to organizations?
Answer: Productivity is the relationship between the total amount of goods or services being
produced and the organizational resources needed to produce them. This relationship is
usually expressed by the following equation:
Productivity = outputs/inputs
Productivity is an important consideration in designing, evaluating, and improving modern
production systems. The higher the value of the ratio of outputs to inputs, the higher the
productivity of the operation.
82) ADB, Inc., an integrated renewable products company, applies its industrial synthetic
biology platform to provide alternatives to select petroleum-sourced products used in
specialty chemical and transportation fuel markets worldwide. The company recently
observed a dip in their overall productivity. Provide a few suggestions to improve the
productivity at ADB.
Answer: Some of the strategies that the company could use here are listed below.
1. Improve the effectiveness of the organizational workforce through training. This would
help the company produce more with the same number of employees.
2. Improve the production process through automation. Automation reduces the human effort
needed. This reduces the cost of inputs to increase productivity.
3. Improve product design to make products easier to assemble. This would help the company
manufacture the products more efficiently.
4. Improve the quality of workers hired to fill open positions. This would help the company
increase productivity in the long term.
5. The company can improve the production facility by purchasing modern equipment.
83) Compare and contrast quality assurance and quality control. Which one do you think is
preferable to organizations? Explain your answer.
Answer: Quality assurance is an operations process involving a broad group of activities
aimed at achieving the organization's quality objectives. Quality assurance is a continuum of
activities that starts when quality standards are set and ends when quality goods and services
are delivered to the customer.
Statistical quality control is a much narrower concept than quality assurance. Statistical
quality control is the process used to determine how many products should be inspected to
calculate a probability that the total number of products will meet organizational quality
standards.
An effective quality assurance strategy reduces the need for quality control and subsequent
corrective actions. So quality assurance is considered a better strategy.
84) An organization wants to involve all company employees in quality control. Can you
suggest a technique to help the organization?
Answer: All company employees can be part of quality control by soliciting their ideas for
judging and maintaining product quality. This is the concept of quality circles. A quality
circle is a small group of workers that meets to discuss quality assurance of a particular
project and to communicate their solutions to these problems to management directly at a
formal presentation session.
Most quality circles operate in a similar manner. The circle usually has fewer than eight
members, and the circle leader is not necessarily the members' supervisor. Members may be
workers on the project and/or outsiders. The focus is on operational problems rather than
interpersonal ones. The problems discussed in the quality circle may be ones assigned by
management or ones uncovered by the group itself.
85) Briefly explain the concept of strategies, systems, and processes.
Answer: A strategy is a plan of action. Strategies create interlocking systems and processes
when they are comprehensive, functional, and dynamic, when they designate responsibility
and provide criteria for measuring output.
A system is a particular linking of organizational components that facilitates carrying out a
process.
A process is a flow of interrelated events toward a goal, purpose, or end.
86) Explain and discuss the concept of operations strategies.
Answer: Operations strategies are specific plans of action designed to ensure that resources
are obtained and used effectively and efficiently. An operational strategy is implemented by
people who get things done with and through people. It is achieved in the context of
objectives and policies derived from the organization's strategic plan.
The operations strategies include capacity strategy, location strategy, product strategy, process
strategy, layout strategy, and human resources strategy.
87) Explain the concept of a layout strategy and discuss the various types of layouts.
Answer: Layout strategy is an operations management strategy that focuses on determining
the location and flow of organizational resources around, into, and within production and
service facilities. A cost-effective and cost-efficient layout strategy is one that minimizes the
expenses of processing, transporting, and storing materials throughout the production and
service cycle.
Layout strategy is closely linked with all other components of operations strategy. A layout is
basically the overall arrangement of equipment, work areas, service areas, and storage areas
within a facility.
There are three basic types of layouts. The first is known as product layout. A product layout
is designed to accommodate a limited number of different products that require high volume,
highly specialized equipment, and narrow employee skills.
A process layout is a pattern that groups together similar types of equipment. It best serves an
organization whose production volumes are low, whose equipment is multipurpose, and
whose employees' skills are broad, such as a hospital.
A fixed-position layout is one in which the product is stationary while resources flow in, out,
and around it. It is appropriate for an organization involved in a large number of different
tasks that require low volumes, multipurpose equipment, and broad employee skills, such as
building a ship or aircraft.
88) Briefly describe JIT inventory control.
Answer: Just-in-time (JIT) inventory control is a technique for reducing inventories to a
minimum by arranging for the components of the production process to be delivered "just-intime." When it is successfully implemented, JIT reduces unnecessary labor and material
expenses and frees up money that is tied up in inventory. JIT is not appropriate in every
situation. JIT works best in companies that manufacture relatively standardized products for
which there is a consistent demand. JIT also requires special, close relationships with
suppliers who will provide the company with the right amount of parts, at the right time, in
the right quantity.
89) What are the potential pitfalls of budgets?
Answer: The following are some of the disadvantages of using budgets:
1. Tendency to place too much emphasis on relatively insignificant organizational expenses
2. Increasing budgeted expenses year after year without adequate information
3. Ignoring the fact that budgets must be changed periodically
90) A group of young entrepreneurs seek your help in analyzing the feasibility of a business
plan that they have. They want to identify the level of production at which the total revenue
of the organization equals its total costs. Which control tool would you use to help them?
Answer: Break-even analysis is the process of generating information that summarizes
various levels of profit or loss associated with various levels of production. The break-even
point is the level of production at which the total revenue of an organization equals its total
costs, that is, the point at which the organization is generating only enough revenue to cover
its costs. By using this you can advise the entrepreneurs about the feasibility of the project.
The break-even point is calculated using the following formula:
BE = FC/(P - VC)
Test Bank for Modern Management: Concepts and Skills
Samuel C. Certo, S. Trevis Certo
9780133059922, 9780133254105, 9780135983546
