MBA Operations Management - Test Bank - Chapter 13

Operations Management, 12e (Heizer/Render/Munson)
Chapter 13  Aggregate Planning and S&OP

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Section 1   The Planning Process

1) Plans for new product development generally fall within the scope of aggregate planning.
Answer:  FALSE
Diff: 2
Key Term:  Aggregate plan
Objective:  LO 13.2 Define aggregate planning
Learning Outcome:  Describe the stages of short-term and long-term scheduling

2) The aggregate planning process usually includes dispatching of individual jobs.
Answer:  FALSE
Diff: 2
Key Term:  Aggregate plan
Objective:  LO 13.2 Define aggregate planning
Learning Outcome:  Describe the stages of short-term and long-term scheduling

3) Frito-Lay uses aggregate planning to match capacity with demand because of the ________ associated with its specialized processes.

1. A) high variable cost and high fixed cost
2. B) high variable cost and low fixed cost
3. C) low variable cost and high fixed cost
4. D) low variable cost and low fixed cost
5. E) none of the above

Answer:  C
Diff: 2
Key Term:  Aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

4) Under which of the following do planning tasks associated with job assignments, ordering, job scheduling, and dispatching typically fall?

1. A) short-range plans
2. B) intermediate-range plans
3. C) long-range plans
4. D) mission-related planning
5. E) strategic planning

Answer:  A
Diff: 2
Learning Outcome:  Describe the stages of short-term and long-term scheduling

5) Under which of the following do planning tasks associated with production planning and budgeting, as well as setting employment, inventory, and subcontracting levels, typically fall?

1. A) short-range plans
2. B) intermediate-range plans
3. C) long-range plans
4. D) demand options
5. E) strategic planning

Answer:  B
Diff: 1
Key Term:  Aggregate plan
Objective:  LO 13.2 Define aggregate planning
Learning Outcome:  Describe the stages of short-term and long-term scheduling

6) Top executives tend to focus their attention on which type of forecasts?

1. A) short-range
2. B) intermediate-range
3. C) long-range
4. D) weather
5. E) the forecast for the next day's absentee levels

Answer:  C
Diff: 1
Learning Outcome:  Describe the stages of short-term and long-term scheduling

7) Which of the following would most likely fall under the scope of only an operations manager?

1. A) research and development
2. B) new product plans
3. C) capital investments
4. D) facility location/capacity
5. E) setting inventory levels

Answer:  E
Diff: 2
Key Term:  Aggregate plan
Objective:  LO 13.2 Define aggregate planning
Learning Outcome:  Describe the stages of short-term and long-term scheduling

Section 2   Sales and Operations Planning

1) Aggregate planning occurs over the medium or intermediate future of 3 to 18 months.
Answer:  TRUE
Diff: 1
Key Term:  Aggregate plan
Objective:  LO 13.2 Define aggregate planning
Learning Outcome:  Describe the stages of short-term and long-term scheduling

2) Aggregate planning in manufacturing ties organizational strategic goals to a production plan.
Answer:  TRUE
Diff: 2
Key Term:  Aggregate plan
Objective:  LO 13.2 Define aggregate planning
Learning Outcome:  Describe the stages of short-term and long-term scheduling

3) One of the four things needed for aggregate planning is a logical overall unit for measuring sales and output.
Answer:  TRUE
Diff: 2
Key Term:  Aggregate plan
Objective:  LO 13.2 Define aggregate planning
Learning Outcome:  Describe the stages of short-term and long-term scheduling

4) What is the typical time horizon for aggregate planning?

1. A) less than a month
2. B) up to 3 months
3. C) 3 to 18 months
4. D) over one year
5. E) over 5 years

Answer:  C
Diff: 1
Key Term:  Aggregate plan
Objective:  LO 13.2 Define aggregate planning
Learning Outcome:  Describe the stages of short-term and long-term scheduling

5) Which of the following is the term used for intermediate-range capacity planning with a time horizon of three to eighteen months?

1. A) material requirements planning
2. B) enterprise resource planning
3. C) strategic planning
4. D) aggregate planning
5. E) job scheduling

Answer:  D
Diff: 1
Key Term:  Aggregate plan
Objective:  LO 13.2 Define aggregate planning
Learning Outcome:  Describe the stages of short-term and long-term scheduling

6) Which of the following is NOT one of the four things needed for aggregate planning?

1. A) a logical overall unit for measuring sales and output
2. B) a method to determine the relevant costs
3. C) a mathematical model that will minimize costs over the intermediate planning period
4. D) an aggregate demand forecast for an intermediate planning period
5. E) All of these are needed for aggregate planning.

Answer:  C
Diff: 2
Key Term:  Aggregate plan
Objective:  LO 13.2 Define aggregate planning
Learning Outcome:  Describe the stages of short-term and long-term scheduling

7) What is the effort to plan the coordination of demand forecasts with functional areas of the firm and its supply chain?

1. A) enterprise resource planning
2. B) material requirements planning
3. C) capacity planning
4. D) sales and operations planning
5. E) new product development

Answer:  D
Diff: 2
Key Term:  Sales and operations planning (S&OP)
Objective:  LO 13.1 Define sales and operations planning
Learning Outcome:  Describe the stages of short-term and long-term scheduling

8) Which of the following is NOT an input to S&OP?

1. A) capacity decisions
2. B) supply-chain support
3. C) workforce
4. D) inventory on hand
5. E) master production schedule

Answer:  E
Diff: 2
Key Term:  Sales and operations planning (S&OP)
Objective:  LO 13.1 Define sales and operations planning
Learning Outcome:  Describe the stages of short-term and long-term scheduling

9) ________ is an approach to determine the quantity and timing of production for the intermediate future.
Answer:  Aggregate planning
Diff: 1
Key Term:  Aggregate plan
Objective:  LO 13.2 Define aggregate planning
Learning Outcome:  Describe the stages of short-term and long-term scheduling

10) What four things are needed to develop an aggregate plan?
Answer:  (1) a logical overall unit for measuring sales and output; (2) a forecast of demand for a reasonable intermediate planning period in aggregate planning terms; (3) a method to determine the relevant costs; (4) a model that combines forecasts and costs so that scheduling decisions can be made for the planning period
Diff: 2
Key Term:  Aggregate plan
Objective:  LO 13.2 Define aggregate planning
Learning Outcome:  Describe the stages of short-term and long-term scheduling

11) What is the typical planning horizon for aggregate planning?
Answer:  The typical planning horizon is intermediate—3 to 18 months ahead.
Diff: 1
Key Term:  Aggregate plan
Objective:  LO 13.2 Define aggregate planning
Learning Outcome:  Describe the stages of short-term and long-term scheduling

Section 3   The Nature of Aggregate Planning

1) The objective of aggregate planning is usually to meet forecast demand while smoothing employment and driving down inventory levels over the planning period.
Answer:  FALSE
Diff: 2
Key Term:  Aggregate plan
Objective:  LO 13.2 Define aggregate planning
Learning Outcome:  Describe the stages of short-term and long-term scheduling

2) Disaggregation is the process of breaking the aggregate plan into greater detail; one example of this detail is the master production schedule.
Answer:  TRUE
Diff: 2
Key Term:  Disaggregation
Learning Outcome:  Describe the stages of short-term and long-term scheduling

3) The objective of aggregate planning is to meet forecast demand while ________ over the planning period.

1. A) minimizing cost
2. B) maximizing service level
3. C) minimizing stock out
4. D) minimizing fixed cost
5. E) all of the above

Answer:  A
Diff: 2
Key Term:  Aggregate plan
Objective:  LO 13.2 Define aggregate planning
Learning Outcome:  Describe the stages of short-term and long-term scheduling

4) Disaggregation:

1. A) breaks the aggregate plan into greater detail.
2. B) transforms the master production schedule into an aggregate plan.
3. C) calculates the optimal price points for yield management.
4. D) converts product schedules and labor assignments to a facility-wide plan.
5. E) is an assumption required for the use of the transportation model in aggregate planning.

Answer:  A
Diff: 1
Key Term:  Disaggregation
Learning Outcome:  Describe the stages of short-term and long-term scheduling


5) Aggregate planning would entail which of the following production aspects at BMW for a 12-month period?

1. A) number of cars with a hi-fi stereo system to produce
2. B) number of two-door vs. four-door cars to produce
3. C) number of green cars to produce
4. D) total number of cars to produce
5. E) B, C, and D

Answer:  D
Diff: 2
Key Term:  Aggregate plan
Objective:  LO 13.2 Define aggregate planning
Learning Outcome:  Describe the stages of short-term and long-term scheduling
6) An aggregate plan satisfies forecast demand by potentially adjusting all EXCEPT which of the following?

1. A) production rates
2. B) labor levels
3. C) inventory levels
4. D) overtime work
5. E) facility capacity

Answer:  E
Diff: 2
Key Term:  Aggregate plan
Objective:  LO 13.2 Define aggregate planning
Learning Outcome:  Describe the stages of short-term and long-term scheduling

7) What directly results from disaggregation of an aggregate plan?

1. A) a master production schedule
2. B) priority scheduling
3. C) a transportation matrix
4. D) a capacity-demand matrix
5. E) detailed work schedules

Answer:  A
Diff: 1
Key Term:  Master production schedule
Learning Outcome:  Describe the stages of short-term and long-term scheduling

8) ________ is the process of breaking the aggregate plan into greater detail.
Answer:  Disaggregation
Diff: 2
Key Term:  Disaggregation
Learning Outcome:  Describe the stages of short-term and long-term scheduling

9) A(n) ________ is the result of the disaggregation of an aggregate plan.
Answer:  master production schedule
Diff: 2
Key Term:  Master production schedule
Learning Outcome:  Describe the stages of short-term and long-term scheduling


10) What is disaggregation?
Answer:  Disaggregation is the process of breaking the aggregate plan into greater detail.
Diff: 1
Key Term:  Disaggregation
Learning Outcome:  Describe the stages of short-term and long-term scheduling

Section 4   Aggregate Planning Strategies

1) One question that operations managers must answer when generating an aggregate plan is whether prices or other factors should be changed to influence demand.
Answer:  TRUE
Diff: 1
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling
2) One of the demand options of aggregate planning is to vary the workforce by hiring or layoffs.
Answer:  FALSE
Diff: 2
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

3) The strategies of aggregate planning are broadly divided into demand options and capacity options.
Answer:  TRUE
Diff: 1
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

4) In aggregate planning, the amount of overtime and the size of the work force are both adjustable elements of capacity.
Answer:  TRUE
Diff: 1
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

5) When developing an aggregate plan, one of the adjustable elements of capacity is the extent of subcontracting.
Answer:  TRUE
Diff: 1
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

6) One motive for using demand-influencing aggregate planning options is to create uses for excess capacity within an organization.
Answer:  TRUE
Diff: 2
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling


7) The use of part-time workers as an aggregate planning option may be less costly than using full-time workers, but it may also reduce quality levels.
Answer:  TRUE
Diff: 2
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

8) Advertising and promotion are methods of manipulating product or service supply in aggregate planning.
Answer:  FALSE
Diff: 2
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling
9) Because service firms do not inventory their output, a chase strategy is not appropriate.
Answer:  FALSE
Diff: 2
Key Term:  Chase strategy
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

10) The level scheduling strategy allows lower inventories than the pure chase strategy.
Answer:  FALSE
Diff: 2
Key Term:  Level scheduling
AACSB:  Reflective thinking
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

11) Mixed strategies in aggregate planning may utilize inventory, work force, and production rate changes over the planning horizon.
Answer:  TRUE
Diff: 2
Key Term:  Mixed strategy
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

12) Finding an ideal mixed strategy is complicated by the huge number of possible strategies.
Answer:  TRUE
Diff: 2
Key Term:  Mixed strategy
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling


13) Dependence on an external source of supply is found in which of the following aggregate planning strategies?

1. A) varying production rates through overtime or idle time
2. B) subcontracting
3. C) using part-time workers
4. D) back ordering during high demand periods
5. E) hiring and laying off

Answer:  B
Diff: 2
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

14) Which of these is among the demand options of aggregate planning?

1. A) subcontracting
2. B) back-ordering during high-demand periods
3. C) changing inventory levels
4. D) varying workforce size
5. E) varying production rates through overtime or idle time

Answer:  B
Diff: 2
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling
15) In the service sector, which of the following aggregate planning strategies might direct your client to a competitor?

1. A) using part-time workers
2. B) subcontracting
3. C) changing inventory level
4. D) varying production rates through overtime or idle time
5. E) varying work force size by hiring or layoffs

Answer:  B
Diff: 2
AACSB:  Reflective thinking
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

16) Which of the following aggregate planning strategies is a capacity option?

1. A) influencing demand by changing price
2. B) counterseasonal product mixing
3. C) influencing demand by extending lead times
4. D) changing inventory levels
5. E) influencing demand by back ordering

Answer:  D
Diff: 2
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling


17) Which of these aggregate planning strategies is a capacity option?

1. A) back ordering
2. B) using part-time workers
3. C) counterseasonal product mixing
4. D) changing price
5. E) promotion

Answer:  B
Diff: 2
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

18) Which of the following aggregate planning strategies is known to lower employee morale?

1. A) yield management
2. B) counterseasonal product and service mixing
3. C) changing inventory levels
4. D) varying work force size by hiring or layoffs
5. E) back ordering during high demand periods

Answer:  D
Diff: 1
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling
19) Which of the following aggregate planning options is NOT associated with manipulation of product or service demand?

1. A) price cuts or discounts
2. B) promotion
3. C) subcontracting
4. D) counterseasonal products or services
5. E) advertising

Answer:  C
Diff: 2
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

20) Which of the following aggregate planning options attempts to manipulate product or service demand?

1. A) inventories
2. B) part-time workers
3. C) subcontracting
4. D) overtime/idle time
5. E) price cuts

Answer:  E
Diff: 2
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling


21) Which of the following aggregate planning strategies is a demand option?

1. A) changing price
2. B) subcontracting
3. C) varying production levels
4. D) changing inventory levels
5. E) using part-time workers

Answer:  A
Diff: 2
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

22) In aggregate planning, which one of the following is not a basic option for altering demand?

1. A) promotion
2. B) subcontracting
3. C) back ordering
4. D) pricing
5. E) personal selling

Answer:  B
Diff: 2
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling
23) Which choice below best describes the counterseasonal product demand option?

1. A) producing such products as lawnmowers and sunglasses during the winter
2. B) developing a mix of products that smoothes out their demands
3. C) lowering prices when demand is slack
4. D) using subcontractors only when demand is excessive
5. E) the breaking of the aggregate plan into finer levels of detail

Answer:  B
Diff: 1
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

24) Which of the following statements about aggregate planning is TRUE?

1. A) An advantage of the counterseasonal product and service mixing option is that it matches seasonal fluctuations without hiring/training costs.
2. B) In aggregate planning, back orders are a means of manipulating supply while part-time workers are a way of manipulating product or service demand.
3. C) A pure chase strategy allows lower inventories when compared to a pure level scheduling.
4. D) A disadvantage of subcontracting is that it may require skills or equipment outside the firm's areas of expertise.
5. E) The option of varying workforce size by hiring or layoffs is used where the size of the labor pool is small.

Answer:  C
Diff: 2
AACSB:  Reflective thinking
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling


25) Which choice best describes level scheduling?

1. A) Daily production is variable from period to period.
2. B) Subcontracting, hiring, and layoffs manipulate supply.
3. C) Price points are calculated to match demand to capacity.
4. D) Inventory goes up or down to buffer the difference between demand and production.
5. E) Overtime is used to handle seasonal demand fluctuations.

Answer:  D
Diff: 2
Key Term:  Level scheduling
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling
26) Which of the following statements regarding aggregate planning is TRUE?

1. A) In a pure level strategy, production rates or work force levels are adjusted to match demand requirements over the planning horizon.
2. B) A pure level strategy allows lower inventories when compared to pure chase and hybrid strategies.
3. C) Mixed strategies in aggregate planning may utilize inventory, work force, and production rate changes over the planning horizon.
4. D) Because service firms have no inventory, the chase strategy does not apply.
5. E) A disadvantage of the option of changing inventory levels is that it forces abrupt production changes.

Answer:  C
Diff: 2
Key Term:  Mixed strategy
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

27) In level scheduling, what is kept uniform from month to month?

1. A) product mix
2. B) inventory levels
3. C) production/workforce levels
4. D) demand levels
5. E) sub-contracting levels

Answer:  C
Diff: 2
Key Term:  Level scheduling
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

28) Which of the following is NOT consistent with level scheduling?

1. A) varying the use of subcontracting
2. B) finding alternative work for employees during low-demand periods
3. C) using built-up inventory to meet demand requirements
4. D) varying production levels and/or work force to meet demand requirements
5. E) All of the above are inconsistent with the pure level strategy.

Answer:  D
Diff: 2
Key Term:  Level scheduling
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

29) Which of the following is consistent with a chase strategy?

1. A) vary production levels to meet demand requirements
2. B) vary work force to meet demand requirements
3. C) vary production levels and work force to meet demand requirements
4. D) little or no use of inventory to meet demand requirements
5. E) All of the above are consistent with a chase strategy.

Answer:  E
Diff: 2
Key Term:  Chase strategy
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling
30) Which of the following is NOT an advantage of level scheduling?

1. A) stable employment
2. B) lower absenteeism
3. C) matching production exactly with sales
4. D) lower turnover
5. E) more employee commitment

Answer:  C
Diff: 2
Key Term:  Level scheduling
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

31) A firm uses the chase strategy of aggregate planning. It produced 1000 units in the last period. Demand in the next period is estimated at 800, and demand over the next six periods (its aggregate planning horizon) is estimated to average 900 units. Which of the following tactics would be most representative of following a chase strategy?

1. A) add 100 units to inventory in the next period
2. B) add 200 units to inventory in the next period
3. C) hire workers to match the 100-unit difference
4. D) lay off workers to match the 200-unit difference
5. E) implement a lower price point to increase demand

Answer:  D
Diff: 2
Key Term:  Chase strategy
AACSB:  Analytical thinking
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling


32) Which of the following actions is consistent with the use of level scheduling?

1. A) use inventory to meet demand requirements
2. B) use overtime to meet higher-than-average demand requirements
3. C) vary production levels to meet demand requirements
4. D) vary work force to meet demand requirements
5. E) none of the above

Answer:  A
Diff: 2
Key Term:  Level scheduling
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

33) ________ is a capacity option that works especially well in the service sector where labor needs are relatively unskilled.
Answer:  Using part-time workers
Diff: 3
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

34) Developing a mix of ________ products is a widely used demand smoothing technique.
Answer:  counterseasonal
Diff: 2
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling
35) The ________ strategy sets production equal to forecasted demand.
Answer:  chase
Diff: 1
Key Term:  Chase strategy
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

36) ________ maintains a constant output rate, or work force level, over the planning horizon.
Answer:  Level scheduling
Diff: 1
Key Term:  Level scheduling
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

37) Identify (a) the demand options for aggregate planning; and (b) the capacity (supply) options for aggregate planning.
Answer:  (a) Demand options are: influencing demand (through price, promotion, advertising, selling), back ordering during high-demand periods, and counterseasonal product and service mixing. (b) Capacity options are: changing inventory levels, varying workforce size by hiring or layoffs, varying production rates through overtime or idle time, subcontracting, and using part-time workers.
Diff: 2
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling


38) Explain the fundamental difference between the "capacity options" and the "demand options" of aggregate planning strategies.
Answer:  Capacity options do not try to change the demand but attempt to absorb the demand fluctuations; capacity options deal with supply, not demand. Demand options try to smooth the demand pattern, but do not impact supply or capacity.
Diff: 2
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

39) Compare the chase strategy versus level scheduling.
Answer:  The chase strategy sets production equal to forecasted demand, using varying workforce levels, overtime, idle time, part-time employees, or subcontracting. Its main advantage is low inventory levels. The level strategy maintains a constant output rate, production rate, or workforce level over the planning horizon. A stable workforce generally leads to better quality, less turnover and absenteeism, and more employee commitment to corporate goals.
Diff: 2
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling
40) The textbook illustrates demand management in the form of price cuts or discounts. Can demand manipulation for aggregate planning involve price increases? Explain; provide an example.
Answer:  The text did allude to price increases when it stated that air conditioners are "least expensive in winter"–they must be more expensive when demand is high. Lower prices for one circumstance imply higher prices (or lower discounts) in other circumstances. Student examples may build from text examples, or come from experience, such as: energy companies can use peak-load pricing; transit systems have higher rush-hour fares, etc. The bottom line is that higher prices may lower demand during certain periods. In some cases, that demand will be lost (with the revenue at least partially being made up in the form of a higher price per unit). In other cases, that demand will be pushed to a different period (smoothed), which is actually a good thing for the company from a cost perspective.
Diff: 2
AACSB:  Reflective thinking
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

41) If a service firm were to attempt level scheduling for aggregate planning, should its level of output be at average demand, peak demand, or minimum demand?
Answer:  This is a critical-thinking question for students. The answer depends on the ability of customers to reschedule or reserve service times, and upon the organization's view toward lost sales. Level = average if customers can reserve or reschedule. Level = maximum if the organization wishes to prevent lost sales.
Diff: 3
Key Term:  Level scheduling
AACSB:  Reflective thinking
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling


42) Most people would argue that a service firm must follow chase or mixed strategies. On the other hand, most state agencies, which are clearly service-oriented, are not at all able to "chase" demand. Discuss how they manipulate demand to allow the level strategy to be used.
Answer:  This is a critical-thinking item for students. Most will recognize that state agencies (driver's license, tax, etc.) are often level because of restrictions on their ability to hire and layoff at will. Most students will uncover examples from personal experience, such as: demand is forced to meet level capacity by queues, waiting lines, processing delays (back orders), appointments, or ultimately by lost "sales."
Diff: 3
Key Term:  Chase strategy
AACSB:  Reflective thinking
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

43) What is a disadvantage common to the following two strategies: (1) varying inventory levels and (2) back ordering during periods of high demand?
Answer:  Shortages or backorders may result in lost sales, i.e., customers may go elsewhere.
Diff: 2
Objective:  LO 13.3 Identify optional strategies for developing an aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling
Section 5   Methods for Aggregate Planning

1) Graphical techniques are easy to understand and use, but are not well-suited for generating optimal strategies.
Answer:  TRUE
Diff: 2
Key Term:  Graphical techniques
Objective:  LO 13.4 Prepare a graphical aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

2) The transportation method of linear programming is an optimizing approach to aggregate planning.
Answer:  TRUE
Diff: 1
Key Term:  Transportation method of linear programming
Objective:  LO 13.5 Solve an aggregate plan via the transportation method
Learning Outcome:  Describe the stages of short-term and long-term scheduling


3) A firm practices a chase strategy. Production last quarter was 1000. Demand over the next four quarters is estimated to be 900, 700, 1000, and 1000. Hiring cost is $20 per unit, and layoff cost is $5 per unit. Over the next year, what will be the sum of hiring and layoff costs?

1. A) $500
2. B) $2,500
3. C) $7,500
4. D) $7,000
5. E) $12,500

Answer:  C
Diff: 2
Key Term:  Chase strategy
AACSB:  Analytical thinking
Objective:  LO 13.4 Prepare a graphical aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

4) "An optimal plan for minimizing the cost of allocating capacity to meet demand over several planning periods" best describes which of the following?

1. A) the linear decision rule
2. B) simulation
3. C) the management coefficients model
4. D) the transportation method
5. E) graphical methods

Answer:  D
Diff: 2
Key Term:  Transportation method of linear programming
Objective:  LO 13.5 Solve an aggregate plan via the transportation method
Learning Outcome:  Describe the stages of short-term and long-term scheduling
5) A firm uses graphical techniques in its aggregate planning efforts. Over the next twelve months (its intermediate period), it estimates the sum of demands to be 105,000 units. The firm has 250 production days per year. In January, which has 22 production days, demand is estimated to be 11,000 units. A graph of demand versus level production will show that:

1. A) the January requirement is below level production of 420 units.
2. B) level production is approximately 1000 units per day.
3. C) level production of 420 units per day is below the January requirement.
4. D) level production is approximately 420 units per month.
5. E) the firm must hire workers between December and January.

Answer:  C
Diff: 2
Key Term:  Graphical techniques
AACSB:  Analytical thinking
Objective:  LO 13.4 Prepare a graphical aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling


6) Which of the following aggregate planning methods does not work if hiring and layoffs are possible?

1. A) the linear decision rule
2. B) simulation
3. C) the management coefficients model
4. D) the transportation method
5. E) graphical methods

Answer:  D
Diff: 2
Key Term:  Transportation method of linear programming
Objective:  LO 13.5 Solve an aggregate plan via the transportation method
Learning Outcome:  Describe the stages of short-term and long-term scheduling

7) A manager is applying the transportation model of linear programming to solve an aggregate planning problem. Demand in period 1 is 100 units, and in period 2, demand is 150 units. The manager has 125 hours of regular employment available for $10/hour each period. In addition, 50 hours of overtime are available for $15/hour each period. If holding costs are $2 per unit each period, how many hours of regular employment should be used in period 1? (Assume demand must be met in both periods 1 and 2 for the lowest possible cost and that production is 1 unit per hour.)

1. A) 100
2. B) 125
3. C) 150
4. D) 50
5. E) none of the above

Answer:  B
Diff: 2
Key Term:  Transportation method of linear programming
AACSB:  Analytical thinking
Objective:  LO 13.5 Solve an aggregate plan via the transportation method
Learning Outcome:  Describe the stages of short-term and long-term scheduling
8) ________ for developing aggregate plans work with a few variables at a time and are easy to understand and use.
Answer:  Graphical techniques
Diff: 2
Key Term:  Graphical techniques
Objective:  LO 13.4 Prepare a graphical aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

9) Among the mathematical approaches to aggregate planning, ________ is good at working with inventories, holding costs, overtime, and subcontracting, but not with hiring and layoffs.
Answer:  the transportation method of linear programming
Diff: 2
Key Term:  Transportation method of linear programming
Objective:  LO 13.5 Solve an aggregate plan via the transportation method
Learning Outcome:  Describe the stages of short-term and long-term scheduling


10) Normally, the transportation model is used to solve problems involving several physical sources of product and several physical uses of the product, as in factories and warehouses. How is it possible to use the transportation model where the "routes" are from one time period to another? Describe how this provides aggregate planners with a usable mathematical model.
Answer:  Time travel is not involved. "From" regular time March "To" demand May simply describes when production took place to provide the units sold in May. "From" April production "To" March demand simply describes back orders — demand in one month is met by production in a later period. The algorithm is optimizing — it minimizes cost over the planning period; the algorithm balances supply and demand by combinations of capacity options and demand options.
Diff: 2
Key Term:  Transportation method of linear programming
AACSB:  Reflective thinking
Objective:  LO 13.5 Solve an aggregate plan via the transportation method
Learning Outcome:  Describe the stages of short-term and long-term scheduling

11) Describe the advantages and limitations of the graphical method of aggregate planning.
Answer:  Advantages include that it is easy to understand and use. Limitations include: (1) it's a trial-and error approach, (2) there is no guarantee that it will provide an optimal solution, and (3) it works with only a few variables at a time.
Diff: 2
Key Term:  Graphical techniques
Objective:  LO 13.4 Prepare a graphical aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling
12) List, in order, the five steps of the graphical method of aggregate planning. Is it possible that these steps can be properly followed and the solution properly implemented without using a graph? Explain.
Answer:  The steps are:

1. Determine the demand in each period.
2. Determine capacity for regular time, overtime, and subcontracting each period.
3. Find labor costs, hiring and layoff costs, and inventory holding costs.
4. Consider company policy that may apply to the workers or to stock levels.
5. Develop alternative plans and examine their total costs.

The steps can be followed and the solution implemented with tables of values and without
graphs.
Diff: 3
Key Term:  Graphical techniques
Objective:  LO 13.4 Prepare a graphical aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

13) Describe the advantages and limitations of the transportation method for aggregate planning.
Answer:  Advantages include that it provides an optimal solution, and it is flexible by allowing overtime, subcontracting, extra shifts, and inventory carryover options. However, it does not work when more factors such as hiring and layoffs are introduced.
Diff: 2
Key Term:  Transportation method of linear programming
Objective:  LO 13.5 Solve an aggregate plan via the transportation method
Learning Outcome:  Describe the stages of short-term and long-term scheduling

14) Fairview Industries is preparing its aggregate plan for the second half of the year. The table below contains monthly demand estimates and working days per month. Complete the table by computing total demand, demand per day (for each month), and the average requirement (in units per day) over the six-month planning horizon. Prepare a graph of forecast demand and level production, by months, for the planning period. Label your graph carefully.

Month	Expected Demand	Production Days	Demand per Day
July	18,000	20
August	21,000	23
September	17,500	21
October	12,500	21
November	12,000	20
December	13,500	21
TOTAL

Answer:

Month	Expected Demand	Production Days	Demand per Day
July	18,000	20	900.00
August	21,000	23	913.04
September	17,500	21	833.33
October	12,500	21	595.24
November	12,000	20	600.00
December	13,500	21	642.86
TOTAL	94,500	126	Average =750

Diff: 2
Key Term:  Graphical techniques
AACSB:  Analytical thinking
Objective:  LO 13.4 Prepare a graphical aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

15) Eagle Fabrication has the following aggregate demand requirements and other data for the upcoming four quarters.

Quarter	Demand		Previous quarter's output	1500 units
1	1300		Beginning inventory	200 units
2	1400		Stockout cost	$50 per unit
3	1500		Inventory holding cost	$10 per unit at end of quarter
4	1300		Hiring workers	$4 per unit
			Laying off workers	$8 per unit
			Unit cost	$30 per unit
			Overtime	$10 extra per unit

Which of the following production plans is better: Plan A—chase demand by hiring and layoffs; or
Plan B—produce at a constant rate of 1200 and obtain the remainder from overtime?
Answer:  Plan A would cost $165,400, while Plan B would cost $167,400. In this case it is cheaper to vary workforce than to use overtime.

Plan A:
                                                           Eagle Fabrication Solution

	Demand	Regular Time Capacity	Regular Time Production	Units Increase	Units Decrease
Initial Inventory
Period 1	1,300.	1,100.	1,100.	0.	400.
Period 2	1,400.	1,400.	1,400.	300.	0.
Period 3	1,500.	1,500.	1,500.	100.	0.
Period 4	1,300.	1,300.	1,300.	0.	200.
Total (units)	5,500.	5,300.	5,300.	400.	600.
			@$30/unit	@$4/unit	@$8/unit
Subtotal Costs			159,000.	1,600.	4,800.
Total Cost	165,400.

Plan B:
                                                         Eagle Fabrication Solution

	Demand	Regular Time Capacity	Overtime Capacity	Regular Time Production	Overtime Production	Inventory (end PD)	Units Decrease
Initial Inventory						200.
Period 1	1,300.	1,200.	400.	1,200.	0.	100.	300.
Period 2	1,400.	1,200.	400.	1,200.	100.	0.	0.
Period 3	1,500.	1,200.	400.	1,200.	300.	0.	0.
Period 4	1,300.	1,200.	400.	1,200.	100.	0.	0.
Total (units)	5,500.	4,800.	1,600.	4,800.	500.	100.	300.
				@$30/unit	@$40/unit	@$10/unit	@$8/unit
Subtotal Costs				144,000.	20,000.	1,000.	2,400.
Total Cost	167,400.

Diff: 3
Key Term:  Graphical techniques
AACSB:  Analytical thinking
Objective:  LO 13.4 Prepare a graphical aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling
16) Osprey Fabrication has the following aggregate demand requirements and other data for the upcoming four quarters.

Quarter	Demand		Previous quarter's output	1300 units
1	1400		Beginning inventory	0 units
2	1200		Stockout cost	$50 per unit
3	1600		Inventory holding cost	$10 per unit at end of quarter
4	1500		Hiring workers	$40 per unit
			Laying off workers	$80 per unit
			Subcontracting cost	$60 per unit
			Unit cost	$30 per unit
			Overtime	$15 extra per unit

Which of the following production plans is better: Plan A — chase demand by hiring and layoffs;
Plan B— pure level strategy, or Plan C — 1350 level with the remainder by subcontracting?
Answer:  Plan A will cost $215,000, Plan B will cost $179,500, and Plan C will cost $183,500. Plan B is the cheapest, by a small margin.

Plan A
                                                          Osprey Fabrication Solution

	Demand	Regular Time Capacity	Regular Time Production	Units Increase	Units Decrease
Initial Inventory
Period 1	1,400.	1,400.	1,400.	100.	0.
Period 2	1,200.	1,200.	1,200.	0.	200.
Period 3	1,600.	1,600.	1,600.	400.	0.
Period 4	1,500.	1,500.	1,500.	0.	100.
Total (units)	5,700.	5,700.	5,700.	500.	300.
			@$30/unit	@$40/unit	@$80/unit
Subtotal Costs			171,000.	20,000.	24,000.
Total Cost	215,000.

Plan B
                                                          Osprey Fabrication Solution

	Demand	Regular Time Capacity	Regular Time Production	Inventory (end PD)	Units Increase
Initial Inventory				0.
Period 1	1,400.	1,425.	1,425.	25.	125.
Period 2	1,200.	1,425.	1,425.	250.	0.
Period 3	1,600.	1,425.	1,425.	75.	0.
Period 4	1,500.	1,425.	1,425.	0.	0.
Total (units)	5,700.	5,700.	5,700.	350.	125.
			@$30/unit	@$10/unit	@$40/unit
Subtotal Costs			171,000.	3,500.	5,000.
Total Cost	179,500.

Plan C
                                                          Osprey Fabrication Solution

	Demand	Regular Time Capacity	Subcontract Capacity	Regular Time Production	Subcon- tracting	Inventory (end PD)	Units Increase
Initial Inventory						0.
Period 1	1,400.	1,350.	300.	1,350.	50.	0.	50.
Period 2	1,200.	1,350.	300.	1,350.	0.	150.	0.
Period 3	1,600.	1,350.	300.	1,350.	100.	0.	0.
Period 4	1,500.	1,350.	300.	1,350.	150.	0.	0.
Total (units)	5,700.	5,400.	1,200.	5,400.	300.	150.	50.
				@$30/unit	@$60/unit	@$10/unit	@$40/unit
Subtotal Costs				162,000.	18,000.	1,500.	2,000.
Total Cost	183,500.

Diff: 3
Key Term:  Graphical techniques
AACSB:  Analytical thinking
Objective:  LO 13.4 Prepare a graphical aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

17) A manufacturer of industrial seafood processing equipment wants you to develop an aggregate plan for the four quarters of the upcoming year using the following data on demand and capacity.

Quarter	Units	Regular Time	Over- time	Sub- contract		Initial inventory Regular time cost	250 units $1.25/unit
1	200	400	80	100		Overtime cost	$1.50/unit
2	750	400	80	100		Subcontracting cost	2.00/unit
3	1200	800	160	100		Carrying cost	$0.50/unit/quarter
4	450	400	80	100		No back ordering is allowed

1. Find the optimal plan using the transportation method.
2. What is the cost of the plan?
3. Does any regular time capacity go unused? How much in what periods?
4. What capacity went unused in this solution? (List in detail.)

Answer:  The optimal plan appears in the table below. A cost of 100 is assigned to "impossible" cells (no back orders are allowed.) Cost increases 0.50 for each period past the current period (carrying cost). The minimum cost solution is $3,360. Forty units of regular time capacity went unused in period 1. Other unused capacity includes OT-1, 80; Sub-1, 100; Sub-2, 100; and OT-4, 30; and Sub-4, 100.

Diff: 3
Key Term:  Transportation method of linear programming
AACSB:  Analytical thinking
Objective:  LO 13.5 Solve an aggregate plan via the transportation method
Learning Outcome:  Describe the stages of short-term and long-term scheduling

18) Washington Laundry Products, Inc., makes commercial and industrial laundry machines (the kinds hotels use), and has these aggregate demand requirements for the next six months. The firm has regular capacity for 200 units, and overtime capacity for 40 more. Currently, subcontracting can supply up to 100 units per month, but the subcontracting firm may soon be unavailable.

Month	Demand		Costs and other data
1	220		Previous output level	150 units
2	160		Beginning inventory	100 units
3	200		Stockout cost	$250 per unit
4	210		Inventory holding cost	$100 per unit at end of month
5	200		Unit Cost, regular time	$1,200 per unit
6	190		Subcontracting	$2,000 per unit
			Unit Cost, overtime	$1,500 per unit
			Hiring workers	$200 per unit
			Laying off workers	$500 per unit

Which is cheaper: to produce level, incurring back orders and inventory charges; or to produce a base quantity of 120, using first, overtime, then subcontracting, to meet demand?
Answer:  The cost of the level strategy is $1,326,000. The cost of the mixed strategy is $1,499,000. The added holding costs of the level strategy are far cheaper than the added overtime and subcontracting costs of the mixed strategy, as well as hedging against the potential loss of subcontracting.

Level Strategy
                                               Washington Laundry Products Solution

	Demand	Regular Time Capacity	Regular Time Production	Inventory (end PD)	Units Increase
Initial Inventory				100.
Period 1	220.	180.	180.	60.	30.
Period 2	160.	180.	180.	80.	0.
Period 3	200.	180.	180.	60.	0.
Period 4	210.	180.	180.	30.	0.
Period 5	200.	180.	180.	10.	0.
Period 6	190.	180.	180.	0.	0.
Total (units)	1,180.	1,080.	1,080.	240.	30.
			@$1200/unit	@$100/unit	@$200/unit
Subtotal Costs			1,296,000.	24,000.	6,000.
Total Cost	1,326,000.

Mixed Strategy
                                               Washington Laundry Products Solution

	Demand	Regular Time Capacity	Overtime Capacity	Subcon- tract Capacity	Regular Time Production	Overtime Production	Subcon- tracting	Units Decrease
Initial Inventory
Period 1	220.	120.	40.	100.	120.	0.	0.	30.
Period 2	160.	120.	40.	100.	120.	40.	0.	0.
Period 3	200.	120.	40.	100.	120.	40.	40.	0.
Period 4	210.	120.	40.	100.	120.	40.	50.	0.
Period 5	200.	120.	40.	100.	120.	40.	40.	0.
Period 6	190.	120.	40.	100.	120.	40.	30.	0.
Total (units)	1,180.	720.	240.	600.	720.	200.	160.	30.
					@$1200/u	@$1500/u	@$2000/u	@$500
Subtotal Costs					864,000.	300,000.	320,000.	15,000.
Total Cost	1,499,000.

Diff: 3
Key Term:  Graphical techniques
AACSB:  Analytical thinking
Objective:  LO 13.4 Prepare a graphical aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

19) Reddick's Specialty Electronics makes weatherproof surveillance systems for parking lots. Demand estimates for the next four quarters are 25, 9, 13, and 17 units. The firm is preparing an aggregate plan that uses inventory, regular time and overtime and back orders. Subcontracting is not allowed. Regular time capacity is 15 units for quarters 1 and 2, 18 units for quarters 3 and 4. Overtime capacity is 3 units per quarter. Regular time cost is $2000 per unit, while overtime cost is $3000 per unit. Back order cost is $300 per unit per quarter; inventory holding cost is $100 per unit per quarter. Beginning inventory is zero.

The data inputs for this problem, and the optimal solution, generated by microcomputer software, appear below. Answer the following questions based on the scenario and the solution.

1. How many total units will be produced in quarter 1 for delivery in quarter 1?
2. How many units in total will be used to fill back orders over the four quarters?
3. What is the cost to produce one unit in Quarter 4 using overtime to deliver in quarter 1 (filling a back order)?
4. At the end of quarter 3, what is the ending inventory of finished systems?
5. What is the total cost of the solution?
6. What is the average cost per unit?

                                    Reddick's Specialty Electronics

	Period 1	Period 2	Period 3	Period 4	Supply
RT 1	2,000	2,100	2,200	2,300	15
OT 1	3,000	3,100	3,200	3,300	3
RT 2	2,300	2,000	2,100	2,200	15
OT 2	3,300	3,000	3,100	3,200	3
RT 3	2,600	2,300	2,000	2,100	18
OT 3	3,600	3,300	3,000	3,100	3
RT 4	2,900	2,600	2,300	2,000	18
OT 4	3,900	3,600	3,300	3,000	3
Demand	25	9	13	17

                                   Reddick's Specialty Electronics Solution

Optimal cost = $132,200	Period 1	Period 2	Period 3	Period 4	Dummy
RT 1	15.
OT 1					3.
RT 2	6.	9.
OT 2					3.
RT 3	4.		13.		1.
OT 3					3.
RT 4				17.	1.
OT 4					3.

Answer:  a. 15; b. 10; c. $3,900; d. 0; e. $132,200; f. 132200 / 64 = $2,066
Diff: 3
Key Term:  Transportation method of linear programming
AACSB:  Analytical thinking
Objective:  LO 13.5 Solve an aggregate plan via the transportation method
Learning Outcome:  Describe the stages of short-term and long-term scheduling

20) Osprey Machine Works has the following demand requirements and other data for the upcoming four quarters.

Quarter	Demand		Previous quarter's output	2500 units
1	2300		Beginning inventory	200 units
2	2400		Stockout (backorder) cost	$50 per unit
3	2600		Inventory holding cost	$10 per unit at end of quarter
4	2100		Hiring workers	$4 per unit
			Laying off workers	$8 per unit
			Unit cost	$30 per unit
			Overtime	$10 extra per unit

What is the total cost of pursuing a level aggregate plan over the coming year?
Answer:  Requirements total 9400 units, of which 200 are already in stock. A level rate of 2300 units will meet demand while using up beginning inventory. Costs associated with this plan are:

Cost element	Detail	Extension
Layoffs	$8 × 200 units for the reduction from 2500 units to 2300 units	$1,600
Holding	There will be 200 units ending inventory at end of Q1 and 100 units at end of Q2, creating an inventory holding cost of $10 × 300 units	$3,000
Stockout	In Q3, 200 units go unfilled until Q4, for a stockout cost of $50 × 200	$10,000
Unit cost	$30 × 9,200	$276,000
TOTAL		$290,600.00

Diff: 3
Key Term:  Graphical techniques
AACSB:  Analytical thinking
Objective:  LO 13.4 Prepare a graphical aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

21) Golden Eagle Machine Works has the following demand requirements and other data for the upcoming four quarters.

Quarter	Demand		Previous quarter's output	2500 units
1	2300		Beginning inventory	200 units
2	2400		Stockout (backorder) cost	$50 per unit
3	2600		Inventory holding cost	$10 per unit at end of quarter
4	2100		Hiring workers	$4 per unit
			Laying off workers	$8 per unit
			Unit cost	$30 per unit

What is the total cost of pursuing a chase aggregate plan over the coming year?
Answer:  For a chase strategy, quarterly production should be Q1: 2100; Q2: 2400; Q3: 2600;
and Q4: 2100. Costs associated with this plan are:

Cost element	Detail	Extension
Layoffs	Reductions are 400 units in Q1 and 500 units in Q4. Costs are 900 × $8	$7,200
Hiring	Increases are 300 units in Q2 and 200 units in Q3. Costs are 500 × $4	$2,000
Unit cost	$30 × 9,200	$276,000
TOTAL		$285,200.00

Diff: 3
Key Term:  Graphical techniques
AACSB:  Analytical thinking
Objective:  LO 13.4 Prepare a graphical aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

22) An electronics manufacturer makes video security systems for parking lots. Demand estimates for the next four quarters are 15, 9, 23, and 17 units. The company is preparing an aggregate plan that uses inventory, regular time, overtime, and back orders. Subcontracting is not allowed. Regular time capacity is 12 units for quarters 1 and 2, 15 units for quarters 3 and 4. Overtime capacity is 6 units per quarter. Regular time cost is $20,000 per system, while overtime cost is $30,000 per unit. Back order cost is $2000 per system per quarter; inventory holding cost is $500 per unit per quarter. Beginning inventory is zero.

Complete the table of data inputs for solving this aggregate planning problem with the transportation method. Specifically, how many sources are there, and how many destinations? What is the supply from each source, and the demand of each destination? What is the cost of each source-destination pair?
Answer:  There are eight sources: regular time and overtime for each quarter. There are four destinations, one for each quarter. The four demands are the quarterly demand estimates. The eight supplies are the regular time and overtime capacities of each quarter. The cell costs for regular time begin at $20,000, and increase rightward by the carrying cost increment, and increase downward by the backorder increment. The data table appears below.

                                                                      Video Security

	Quarter 1	Quarter 2	Quarter 3	Quarter 4	SUPPLY
Regular time quarter 1	20,000	20,500	21,000	21,500	12
Overtime quarter 1	30,000	30,500	31,000	31,500	6
Regular time quarter 2	22,000	20,000	20,500	21,000	12
Overtime quarter 2	32,000	30,000	30,500	31,000	6
Regular time quarter 3	24,000	22,000	20,000	20,500	15
Overtime quarter 3	34,000	32,000	30,000	30,500	6
Regular time quarter 4	26,000	24,000	22,000	20,000	15
Overtime quarter 4	36,000	34,000	32,000	30,000	6
DEMAND	15	9	23	17

Diff: 3
Key Term:  Transportation method of linear programming
AACSB:  Analytical thinking
Objective:  LO 13.5 Solve an aggregate plan via the transportation method
Learning Outcome:  Describe the stages of short-term and long-term scheduling

23) Houma Containers, Inc., makes industrial fiberglass tanks that are used on offshore oil platforms. Demand for the next four months and capacities of the plant are shown in the table below. Unit cost on regular time is $400. Overtime cost is 150% of regular time cost. Subcontracting is available in substantial quantity but at a very high cost, $1100 per unit. Holding costs are $200 per tank per month; back orders cost the firm $1000 per unit per month. Houma's management believes that the transportation algorithm can be used to optimize this scheduling problem. The firm has no beginning inventory and anticipates no ending inventory.

	March	April	May	June
Demand	300	500	300	350
Regular capacity	200	200	250	250
Overtime capacity	50	50	50	50
Subcontract cap.	150	100	100	150

Answer the following questions based on the data table and solution table shown below.

                                                                     Houma Containers

	March	April	May	June	SUPPLY
March regular time	400	600	800	1,000	200
March overtime	600	800	1,000	1,200	50
March subcontracting	1,100	1,300	1,500	1,700	150
April regular time	1,400	400	600	800	200
April overtime	1,600	600	800	1,000	50
April subcontracting	2,100	1,100	1,300	1,500	100
May regular time	2,400	1,400	400	600	250
May overtime	2,600	1,600	600	800	50
May subcontracting	3,100	2,100	1,100	1,300	100
June regular time	3,400	2,400	1,400	400	250
June overtime	3,600	2,600	1,600	600	50
June subcontracting	4,100	3,100	2,100	1,100	150
DEMAND	300	500	300	350

                                                         Houma Containers Solution

Optimal Cost = $935,00	March	April	May	June	DUMMY
March regular time	100.	100.
March overtime	50.
March subcontracting	150.
April regular time		200.
April overtime		50.
April subcontracting		100.
May regular time			250.
May overtime			50.
May subcontracting		50.	0.		50.
June regular time				250.
June overtime				50.
June subcontracting				50.	100.

1. How many units will be produced on regular time in June?
2. How many units will be produced by subcontracting over the four-month period?
3. What will be the inventory at the end of April?
4. What will be total production from all sources in April?
5. What will be the total cost of the optimum solution?
6. Does the firm utilize the expensive options of subcontracting and back ordering? When; why?

Answer:  (a) 250; (b) 350; (c) 0, and 50 units are back ordered; (d) 350; (e) $935,000; (f) they use subcontracting every month; there are back orders in April filled with May production. The firm has so little excess capacity, even with the short-term options, that it must utilize almost every unit available, which forces the use of the more expensive options.
Diff: 3
Key Term:  Transportation method of linear programming
AACSB:  Analytical thinking
Objective:  LO 13.5 Solve an aggregate plan via the transportation method
Learning Outcome:  Describe the stages of short-term and long-term scheduling

24) Fred's Fabrication has the following aggregate demand requirements and other data for the upcoming four quarters.

Quarter	Demand		Previous quarter's output	800 units
1	700		Beginning inventory	0 units
2	900		Stockout cost	$100 per unit
3	1200		Inventory holding cost	$10 per unit at end of quarter
4	600		Hiring workers	$20 per unit
			Laying off workers	$40 per unit
			Subcontracting cost	$200 per unit
			Unit cost	$100 per unit

Which of the following production plans is better: Plan A–chase demand by hiring and layoffs; Plan B–pure level strategy, or Plan C–700 level with the remainder by subcontracting?
Answer:  Plan A has cost of $378,000, plan B has cost of $368,500, and plan C has cost of $425,000. Plan B has the lowest cost. Note that Plan C has an ending inventory of 100 units, which is the result of level production that exceeds demand in the last quarter.

Plan A — Chase strategy
                                                              Fred's Fabrication Solution

	Demand	Regular Time Capacity	Regular Time Production	Units Increase	Units Decrease
Initial Inventory
Period 1	700.	1,200.	700.	0.	100.
Period 2	900.	1,200.	900.	200.	0.
Period 3	1,200.	1,200.	1,200.	300.	0.
Period 4	600.	1,200.	600.	0.	600.
Total (units)	3,400.	4,800.	3,400.	500.	700.
			@$100/unit	@$20/unit	@$40/unit
Subtotal Costs			340,000.	10,000.	28,000.
Total Cost	378,000.

Plan B — Level production, 850 per quarter
                                                              Fred's Fabrication Solution

	Demand	Regular Time Capacity	Regular Time Production	Inventory (end PD)	Shortage (end PD)	Units Increase
Initial Inventory				0.
Period 1	700.	1,200.	850.	150.	0.	50.
Period 2	900.	1,200.	850.	100.	0.	0.
Period 3	1,200.	1,200.	850.	0.	250.	0.
Period 4	600.	1,200.	850.	0.	0.	0.
Total (units)	3,400.	4,800.	3,400.	250.	250.	50.
			@$100/unit	@$10/unit	@$100/unit	@$20/unit
Subtotal Costs			340,000.	2,500.	25,000.	1,000.
Total Cost	368,500.

Plan C — 700 units level, with subcontracting

	Demand	Regular Time Production	Subcon- tracting Production	Regular Time Production	Subcon- tracting	Inventory (end PD)	Units Decrease
Initial Inventory						0.
Period 1	700.	700.	0.	700.	0.	0.	100.
Period 2	900.	700.	200.	700.	200.	0.	0.
Period 3	1,200.	700.	500.	700.	500.	0.	0.
Period 4	600.	700.	0.	700.	0.	100.	0.
Total (units)	3,400.	2,800.	700.	2,800.	700.	100.	100.
				@$100/unit	@$200/unit	@$10/unit	@$40/unit
Subtotal Costs				280,000.	140,000.	1,000.	4,000.
Total Cost	425,000.

Diff: 3
Key Term:  Graphical techniques
AACSB:  Analytical thinking
Objective:  LO 13.4 Prepare a graphical aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

25) Byron's Manufacturing makes tables. Demand for the next four months and capacities of the plant are shown in the table below. Unit cost on regular time is $40. Overtime cost is 150% of regular time cost. Subcontracting is available in substantial quantity at $75 per unit. Holding costs are $5 per table per month; back orders cost the firm $10 per unit per month. Byron's management believes that the transportation algorithm can be used to optimize this scheduling problem. The firm has 50 units of beginning inventory and anticipates no ending inventory.

	March	April	May	June
Demand	400	600	600	700
Regular capacity	400	400	400	400
Overtime capacity	100	100	100	100
Subcontract cap.	150	50	50	50

Answer the following questions based on the data table and solution table shown below.

                                                              Byron's Manufacturing

	March	April	May	June	SUPPLY
Beginning Inventory	0	5	10	15	50
March regular time	40	45	50	55	400
March overtime	60	65	70	75	100
March subcontracting	75	80	85	90	150
April regular time	50	40	45	50	400
April overtime	70	60	65	70	100
April subcontracting	85	75	80	85	50
May regular time	60	50	40	45	400
May overtime	80	70	60	65	100
May subcontracting	95	85	75	80	50
June regular time	70	60	50	40	400
June overtime	90	80	70	60	100
June subcontracting	105	90	85	75	50
DEMAND	400	600	600	700

                                                     Byron's Manufacturing Solution

Optimal Cost = $109,750	March	April	May	June	DUMMY
Beginning Inventory	50.
March regular time	350.	50.
March overtime		100.
March subcontracting			100.		50.
April regular time		400.
April overtime		50.	50.
April subcontracting				50.
May regular time			400.
May overtime			50.	50.
May subcontracting				50.	50.
June regular time				400.
June overtime				100.
June subcontracting				50.	100.

1. How many units will be produced on regular time in June?
2. How many units will be produced by subcontracting over the four-month period?
3. What will be the inventory at the end of April?
4. What will be total production from all sources in April?
5. What will be the total cost of the optimum solution?
6. Does the firm utilize the expensive options of subcontracting and back ordering? When; why?

Answer:  (a) 400; (b) 250; (c) 0; (d) 550; (e) Total Cost = $109,750; (f) The firm uses subcontracting, but not backordering; there is no production in one month for "delivery" in an earlier month. Subcontracted quantities are 100 in March, 50 each in April, May, and June.
Diff: 3
Key Term:  Transportation method of linear programming
AACSB:  Analytical thinking
Objective:  LO 13.5 Solve an aggregate plan via the transportation method
Learning Outcome:  Describe the stages of short-term and long-term scheduling

Section 6   Aggregate Planning in Services

1) Techniques for controlling the cost of labor in services include accurate scheduling of labor hours to assure quick response to customer demand, on-call labor for unexpected demand, flexibility of labor skills for reallocation of available labor, and flexibility in rate of output or hours of work to meet changing demand.
Answer:  TRUE
Diff: 3
Learning Outcome:  Describe the stages of short-term and long-term scheduling


2) Aggregate planning for fast food restaurants is very similar to aggregate planning in manufacturing, but with much smaller units of time.
Answer:  TRUE
Diff: 2
Key Term:  Aggregate plan
Learning Outcome:  Describe the stages of short-term and long-term scheduling

3) Which of the following is NOT one of the successful techniques for controlling the cost of labor in services?

1. A) accurate scheduling of labor-hours to assure quick response to customer demand
2. B) an on-call labor resource that can be added or deleted to meet unexpected demand
3. C) little flexibility in worker hours to decrease the burden on management
4. D) flexibility of individual worker skills that permits reallocation of available labor
5. E) flexibility in rate of output or hours of work to meet changing demand

Answer:  C
Diff: 1
Learning Outcome:  Describe the stages of short-term and long-term scheduling
4) Which of the following statements regarding aggregate planning in services is FALSE?

1. A) Approaches to aggregate planning differ by the type of service provided.
2. B) Some service organizations conduct aggregate planning in exactly the same way as manufacturing firms, but with demand management taking a more active role.
3. C) Aggregate planning in some service industries may be easier than in manufacturing.
4. D) Labor is the primary aggregate planning vehicle.
5. E) Level scheduling is far more common than using a chase strategy.

Answer:  E
Diff: 1
Learning Outcome:  Describe the stages of short-term and long-term scheduling

5) Aggregate planning for service firms that provide intangible output deals mainly with:

1. A) smoothing the production rate and finding the optimal size of the workforce.
2. B) capital investment decisions.
3. C) centralized purchasing.
4. D) centralized production.
5. E) planning for human resource requirements and managing demand.

Answer:  E
Diff: 2
Learning Outcome:  Describe the stages of short-term and long-term scheduling

6) What are successful techniques of controlling the cost of labor involved in service firms?
Answer:

1. accurate scheduling of labor-hours to assure quick response to customer demand
2. an on-call labor resource that can be added or deleted to meet unexpected demand
3. flexibility of individual worker skills that permits reallocation of available labor
4. flexibility in rate of output or hours of work to meet changing demand

Diff: 2
Learning Outcome:  Describe the stages of short-term and long-term scheduling

7) A large consulting firm is deciding on if its workforce should be expanded, maintained, or decreased. Suppose that demand is given in week-long projects, and that a consultant can work on 3 projects each month (1 week off for personal leave and/or other duties such as conferences, etc). Currently there are 25 consultants. Ten consultants are trained for LEAN and 15 for Six Sigma, with 5 of those consultants being overlaps (the consultant is trained for BOTH LEAN and Six Sigma). Assume that all consultants can do the general work. Complete the table (the forecast period is an upcoming month) and prepare a recommendation.

Category	Best Forecast (# projects)	Likely Forecast (# projects)	Worst Forecast (# projects)	Max Demand in # of people	Number of Qualified People
LEAN	42	24	12
Six Sigma	45	36	30
General	75	60	57

Answer:

Category	Best Forecast (# projects)	Likely Forecast (# projects)	Worst Forecast (# projects)	Max Demand in # of people	Number of Qualified People
LEAN	42	24	12	14	10
Six Sigma	45	36	30	15	15
General	75	60	57	25	25

NOTE: Student responses will vary but should follow the same principles.
Under the likely condition (24 + 36 + 60)/3 = 40 total consultants are needed but only 25 are available. Under the worst forecast 33 consultants are needed total but again only 25 are available. Thus the firm should hire more consultants, but which type?
Four additional LEAN trained consultants are needed to meet maximum demand, while the number of Six Sigma consultants is adequate. However, there is an overlap of 5 consultants being counted in each category, so the hiring recommendation must be at least 4 LEAN consultants and then 5 additional consultants that can perform either LEAN or Six Sigma, for a total of 9 trained consultants. To meet likely demand 15 total consultants must be added, so 6 general consultants at a minimum should be hired. Thus the recommendation is for: At least 15 consultants, with a minimum of 4 trained in LEAN and a minimum total of 9 trained in either LEAN or Six Sigma.
Diff: 3
Key Term:  Aggregate plan
AACSB:  Analytical thinking
Learning Outcome:  Describe the stages of short-term and long-term scheduling

Section 7   Revenue Management

1) A hotel room that goes unrented and an airline seat that goes unsold are both examples of perishable inventory in services.
Answer:  TRUE
Diff: 2
Key Term:  Revenue (or yield) management
Objective:  LO 13.6 Understand and solve a revenue management problem
Learning Outcome:  Describe the stages of short-term and long-term scheduling

2) Which of the following characteristics makes revenue management UNATTRACTIVE to organizations that have perishable inventory?

1. A) demand can be segmented
2. B) service can be sold in advance of consumption
3. C) capacity is easily changed
4. D) variable costs are low and fixed costs are high
5. E) demand fluctuates

Answer:  C
Diff: 1
Key Term:  Revenue (or yield) management
Objective:  LO 13.6 Understand and solve a revenue management problem
Learning Outcome:  Describe the stages of short-term and long-term scheduling

3) Revenue management is MOST likely to be used in which one of the following situations?

1. A) a fast food restaurant with wide demand fluctuations during the day
2. B) a dental clinic that wants to fill its appointment book
3. C) a firm with a good counterseasonal product mix
4. D) a shipping company that can change its fleet size easily
5. E) an airline attempting to fill "perishable" seats at maximum revenue

Answer:  E
Diff: 3
Key Term:  Revenue (or yield) management
AACSB:  Reflective thinking
Objective:  LO 13.6 Understand and solve a revenue management problem
Learning Outcome:  Describe the stages of short-term and long-term scheduling

4) Revenue (or yield) management is best described as:

1. A) a situation where management yields to labor demands.
2. B) a situation where the labor union yields to management demands.
3. C) a process designed to increase the rate of output.
4. D) allocation of scarce resources to customers at prices that will maximize revenue.
5. E) management's selection of a product mix yielding maximum profits.

Answer:  D
Diff: 1
Key Term:  Revenue (or yield) management
Objective:  LO 13.6 Understand and solve a revenue management problem
Learning Outcome:  Describe the stages of short-term and long-term scheduling

5) Industries in which revenue management techniques are easiest to apply are those where:

1. A) use tends to be predictable, and pricing tends to be fixed.
2. B) use tends to be predictable, and pricing tends to be variable.
3. C) use tends to be uncertain, and pricing tends to be fixed.
4. D) use tends to be uncertain, and pricing tends to be variable.
5. E) All of the above, i.e., there is no difference.

Answer:  B
Diff: 2
Key Term:  Revenue (or yield) management
Objective:  LO 13.6 Understand and solve a revenue management problem
Learning Outcome:  Describe the stages of short-term and long-term scheduling

6) To use revenue management strategies, a business should have which combination of costs?

1. A) high variable and high fixed
2. B) low variable and high fixed
3. C) high variable and low fixed
4. D) low variable and low fixed
5. E) either A or B

Answer:  B
Diff: 2
Key Term:  Revenue (or yield) management
Objective:  LO 13.6 Understand and solve a revenue management problem
Learning Outcome:  Describe the stages of short-term and long-term scheduling

7) A hotel room that goes unrented, a dental appointment that no patient booked, and an airline seat that went unsold, are all examples of ________ in services.
Answer:  perishable inventory
Diff: 2
Key Term:  Revenue (or yield) management
Objective:  LO 13.6 Understand and solve a revenue management problem
Learning Outcome:  Describe the stages of short-term and long-term scheduling

8) ________ involves capacity decisions that determine the allocation of resources to maximize revenue or yield.
Answer:  Revenue management (or Yield management)
Diff: 1
Key Term:  Revenue (or yield) management
Objective:  LO 13.6 Understand and solve a revenue management problem
Learning Outcome:  Describe the stages of short-term and long-term scheduling

9) What is the primary management challenge when implementing revenue management?
Answer:  Identifying differences in customers' willingness to pay and pricing accordingly.
Diff: 3
Key Term:  Revenue (or yield) management
Objective:  LO 13.6 Understand and solve a revenue management problem
Learning Outcome:  Describe the stages of short-term and long-term scheduling

10) Identify the five conditions that make revenue management of interest.
Answer:  (1) service or product can be sold in advance of consumption; (2) fluctuating demand; (3) relatively fixed resource (capacity); (4) segmentable demand; and (5) low variable costs and high fixed costs
Diff: 3
Key Term:  Revenue (or yield) management
Objective:  LO 13.6 Understand and solve a revenue management problem
Learning Outcome:  Describe the stages of short-term and long-term scheduling


11) To make revenue management work, the company needs to manage what three issues?
Answer:  (1) multiple pricing structures; (2) forecasts of the use and duration of the use; and (3) changes in demand
Diff: 3
Key Term:  Revenue (or yield) management
Objective:  LO 13.6 Understand and solve a revenue management problem
Learning Outcome:  Describe the stages of short-term and long-term scheduling
12) A small private university normally charges the same price –$200–per credit-hour for all courses and for all students. While the university is pretty near capacity in the fall and spring, it finds that its classrooms are only about 60 percent occupied during the summer session. A student of operations management wonders if revenue management might be useful to both the university and its students alike. This student, with help from some economics majors, estimates a demand curve for summer course enrollment. Points on this demand curve include 9000 credit-hours at the current rate of $200, 12,000 credit hours at $180, 15,000 credit-hours at $160, and 18,000 credit-hours at $140. Based on this demand curve, what price point would best serve the university, if its objective is the greatest revenue for the summer session?
Answer:  The student must consider that since 9000 hours is 60 percent of capacity there is a classroom capacity of 15,000 credit-hours during the summer session. The lowest price generates the most revenue, but it is based on 18,000 credit-hours, which is beyond capacity. At $200 per credit hour, revenues would be $1,800,000; at $180, revenues would be $2,160,000; at $160, revenues would be $2,400,000; and at $140, demand exceeds capacity. The $160 price point yields the most revenue of the feasible price points.
Diff: 2
Key Term:  Revenue (or yield) management
AACSB:  Analytical thinking
Objective:  LO 13.6 Understand and solve a revenue management problem
Learning Outcome:  Describe the stages of short-term and long-term scheduling

13) A professional services firm is investigating revenue management as a means of taking advantage of unused capacity. Analysts for this firm estimate a demand curve for the firm's service, which is sold by the hour. Points on this demand curve include 9000 hours at the current rate of $60 per hour, 9500 hours at $55, 10,000 hours at $50, and 10,500 hours at $45. Based on this demand curve, what price point would be best for the firm, if its objective is maximum revenue?
Answer:  The yields of these price points are as follows: at $60 per hour, revenue is $540,000; at $55, revenue is $522,500; at $50, revenue is $500,000; and at $45, revenue is $472,500. The firm would be well advised not to lower its price, since that will not raise revenue. The lower prices will generate more demand, and utilize some unused capacity, but the firm's revenues will fall. (Demand in this case is rather inelastic).
Diff: 2
Key Term:  Revenue (or yield) management
AACSB:  Analytical thinking
Objective:  LO 13.6 Understand and solve a revenue management problem
Learning Outcome:  Describe the stages of short-term and long-term scheduling

----------------------------------

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