Question

1. If a company’s manufacturing cycle efficiency (MCE) is calculated as 0.6, then:

a) 60% of the time a unit is in process is spent on activities that add value to the product.

b) 40% of the time a unit is in process is spent on activities that add value to the product

c) the largest component of the cycle is inspection time.

d) there has been a calculation error.

2. Which of the following is correct regarding companies with production constraints?

a) Eliminating nonproductive processing time is not that important in a bottleneck operation.

b) Total contribution margin will be maximized by emphasizing the products with the highest contribution margin per unit of the constrained resource.

c) The product with the lowest contribution margin per unit of the constrained resource should usually be given highest priority.

d) Payment of overtime differential to a worker in order to relax a production constraint will always decrease the profits of a company.

3. Which of the following is correct regarding a company’s “make or buy” analysis?

a) A disadvantage of vertical integration is that by pooling demand for parts from a number of companies, a supplier may be able to enjoy economies of scale that result in higher quality and lower cost than if every company makes its own parts.

b) When a company is involved in one activity in the entire value chain, it is vertically integrated.

c) A vertically integrated company is more dependent on its suppliers than one that is not vertically integrated.

d) The variable selling cost of the item is relevant in the decision to make or buy an item.

Answer 1

1. The correct answer is A.

MCE measures the proportion of production time spent on value added activities.In this case since MCE is 0.6, it means that option A is correct.

2. The correct answer is B

In case of a company facing production constraints, contribution margin per unit of constrained resource should be calculated first & the products with highest contribution should be manufactured to the full utilisation capacity to maximise the total contribution.

3.The correct answer is C