MGSC 395 EXAM 2 QUESTIONS AND
ANSWERS GRADED A+ 2025/2026
Capacity - ANS The max rate of output of a process or system
What do long-term capacity plans involve? - ANS Investments in new facilities and equip at
the organizational level, and require top mgmt participation and approval bc they are not easily
reversed
When choosing a capacity strategy, what do managers need to consider? - ANS How much of
a cushion is needed for variable demand & should we expand capacity ahead of demand or wait
until demand is more certain
2 ways capacity can be expressed - ANS 1. output measures
2. input measures
When are output measures of capacity best utilized? - ANS When applied to individual
processes within the firm or when the firm provides a relatively small number of standardized
services or products
When are input measures of capacity best utilized? - ANS Low volume, flexible processes
What is the problem w/ input measures? - ANS Demand is invariably expressed as an output
rate
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,Utilzation - ANS The degree to which a resource such as equipment, space, or the workforce
is currently being used
Utilization formula - ANS U= Average output rate / Max capacity * 100%
Deciding on the best level of capacity involves consideration for the __ of ___ - ANS Efficiency
of operations
Economies of scale - ANS States that the average unit cost of a service or good can be
reduced by increasing its output rate
4 reasons why economies of scale can drive costs down when output increases - ANS 1. fixed
costs are spread over more units
2. construction costs are reduced
3. costs of purchased materials are cut
4. process advantages are found
Diseconomies of scale - ANS Occurs when the average cost per unit increases as the facility's
size increases
3 dimensions of capacity strategy - ANS 1. sizing capacity cushions
2. timing and sizing expansion
3. linking process capacity and other operating decisions
Capacity cushion - ANS The amount of reserve capacity a process uses to handle sudden
increases in demand or temporary losses of production capacity
Capacity cushion formula - ANS CC= 100% - Average Utilization Rate %
In a capital intensive industry, a capacity cushion of __ % is preferred - ANS 10% or under
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, In less capital intensive industries, the capacity cushion should be around __ % - ANS 30-40%
Businesses find large capacity cushions appropriate when ___ varies - ANS demand
2 extreme strategies for expanding capacity - ANS 1. expansionist strategy (large, infrequent
jumps in capacity)
2. wait & see strategy (smaller. more frequent jumps)
A ___ approach is needed for long term capacity decisions - ANS systematic
4 steps for a sound capacity decision (assuming mgmt already determined existing capacity &
whether current capacity cushion is appropriate) - ANS 1. estimate future capacity
requirements
2. identify gaps by comparing requirements w/ available capacity
3. develop alt plans for reducing the gaps
4. evaluate each alt, both quant and qual, and make a final choice
Capacity requirements - ANS What a process's capacity should be for some future time
period to meet the demand of customers (ext or int) given the firm's desired capacity cushion
2 ways capacity requirements can be expressed - ANS 1. output measure
2. input measure
4 potential foundations for the estimate of capacity requirements - ANS 1. forecasts of
demand
2. productivity
3. competition
4. technological change
3 @COPYRIGHT 2026 ALLRIGHTS RESERVED.
ANSWERS GRADED A+ 2025/2026
Capacity - ANS The max rate of output of a process or system
What do long-term capacity plans involve? - ANS Investments in new facilities and equip at
the organizational level, and require top mgmt participation and approval bc they are not easily
reversed
When choosing a capacity strategy, what do managers need to consider? - ANS How much of
a cushion is needed for variable demand & should we expand capacity ahead of demand or wait
until demand is more certain
2 ways capacity can be expressed - ANS 1. output measures
2. input measures
When are output measures of capacity best utilized? - ANS When applied to individual
processes within the firm or when the firm provides a relatively small number of standardized
services or products
When are input measures of capacity best utilized? - ANS Low volume, flexible processes
What is the problem w/ input measures? - ANS Demand is invariably expressed as an output
rate
1 @COPYRIGHT 2026 ALLRIGHTS RESERVED.
,Utilzation - ANS The degree to which a resource such as equipment, space, or the workforce
is currently being used
Utilization formula - ANS U= Average output rate / Max capacity * 100%
Deciding on the best level of capacity involves consideration for the __ of ___ - ANS Efficiency
of operations
Economies of scale - ANS States that the average unit cost of a service or good can be
reduced by increasing its output rate
4 reasons why economies of scale can drive costs down when output increases - ANS 1. fixed
costs are spread over more units
2. construction costs are reduced
3. costs of purchased materials are cut
4. process advantages are found
Diseconomies of scale - ANS Occurs when the average cost per unit increases as the facility's
size increases
3 dimensions of capacity strategy - ANS 1. sizing capacity cushions
2. timing and sizing expansion
3. linking process capacity and other operating decisions
Capacity cushion - ANS The amount of reserve capacity a process uses to handle sudden
increases in demand or temporary losses of production capacity
Capacity cushion formula - ANS CC= 100% - Average Utilization Rate %
In a capital intensive industry, a capacity cushion of __ % is preferred - ANS 10% or under
2 @COPYRIGHT 2026 ALLRIGHTS RESERVED.
, In less capital intensive industries, the capacity cushion should be around __ % - ANS 30-40%
Businesses find large capacity cushions appropriate when ___ varies - ANS demand
2 extreme strategies for expanding capacity - ANS 1. expansionist strategy (large, infrequent
jumps in capacity)
2. wait & see strategy (smaller. more frequent jumps)
A ___ approach is needed for long term capacity decisions - ANS systematic
4 steps for a sound capacity decision (assuming mgmt already determined existing capacity &
whether current capacity cushion is appropriate) - ANS 1. estimate future capacity
requirements
2. identify gaps by comparing requirements w/ available capacity
3. develop alt plans for reducing the gaps
4. evaluate each alt, both quant and qual, and make a final choice
Capacity requirements - ANS What a process's capacity should be for some future time
period to meet the demand of customers (ext or int) given the firm's desired capacity cushion
2 ways capacity requirements can be expressed - ANS 1. output measure
2. input measure
4 potential foundations for the estimate of capacity requirements - ANS 1. forecasts of
demand
2. productivity
3. competition
4. technological change
3 @COPYRIGHT 2026 ALLRIGHTS RESERVED.
