Table 5.2 High Tech, Inc. Is Producing Two Types of Products: a Products

question 30

Multiple Choice

Table 5.2
High Tech, Inc. is producing two types of products: A and B. Both are produced at the same sawing operation. Because of demand uncertainties, the operations manager obtained three demand forecasts (pessimistic, expected, and optimistic) . The demand forecasts, batch sizes (units/batch) , processing times (hr/unit) , and setup times (hr/batch) follow.


The sawing machines operate on two 8- hour shifts, 5 days per week, and 50 weeks per year. The manager wants to maintain a 10 percent capacity cushion.
-Using the information from Table 5.2, if the operation currently has 18 machines and the manager is willing to expand capacity by 20 percent through short- term options, what is the capacity gap (in terms of number of machines) if you assume the optimistic demand forecasts?

• A) less than or equal to 10
• B) more than 10 but less than or equal to 12
• C) more than 12 but less than or equal to 14
• D) more than 14

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Definitions:

Expected ROE

The projected return on equity for a future period, based on estimates of future earnings and shareholders' equity.

Risk-free Rate

An anticipated earning on an investment that is free from the danger of monetary loss, commonly illustrated by the return rate on state-issued securities.

Market-capitalization Rate

The combined value of all a company's shares currently on the market, found by taking the current price of one stock and multiplying it by the total number of shares available.

Expected Return

The anticipated average return of an investment over a specified period, based on historical data or statistical analysis.