PART I.

IDENTIFICATION
Directions: Identify what is being asked in the following sentences. USE CAPITAL
LETTERS ONLY.
1. Its existence is the evidence of an unbalanced system. This limits the entire system’s capacity
to produce at its optimum level that results in clogging productivity, profitability, growth,
interruption in the steady flow of production and often delays the overall production process.
BOTTLENECK OPERATION (1 point)
2. Constraint Management is often based on what work of Eli Goldratt? THE THEORY OF
CONSTRAINTS (1 point)
3. A business practice in which services or job functions are farmed out to a third party.
OUTSOURCING (1 point)
4. This is developed after the overall business strategy has been established; thus, this also
supports the firm's overall strategic objectives. OPERATIONS STRATEGY (1 point)
5. Examples this includes buying more land than what is currently needed, building larger
plants/offices/homes than currently needed, and designing facilities in such a way that future
expansion will require minimal cost and effort (e.g., electrical, plumbing hookups, room for
expanded parking, etc.). DESIGN FLEXIBILITY INTO SYSTEMS (1 point)
6. The concept that states an AMOUNT OF MONEY TODAY is worth more than that same
amount in the future. PRESENT VALUE (1 point)
7. This is useful for designing or modifying service system. WAITING-LINE ANALYSIS (1 point)
8. This can be a key issue in capacity decision for this allows the organization to be agile.
FLEXIBILITY (1 point)
9. It is particularly useful as a tool for comparing capacity alternatives. It focuses on the
relationship between cost, revenue, and volume output. COST-VOLUME ANALYSIS (1 point)
10. If the output rate is more than the optimal level, increasing the output rate will also
increase the average unit costs. DISECONOMIES OF SCALE (1 point)
Part II. ENUMERATION
Direction: Enumerate or list down what are asked for each of the following. USE
CAPITAL LETTERS ONLY.
11. FACTORS TO CONSIDER WHEN DECIDING TO PERFORM IN-HOUSE OR OUTSOURCING.
(5points)
1. AVAILABLE CAPACITY
2. EXPERTISE
3. QUALITY CONSIDERATION
4. THE NATURE OF DEMAND
5. COST
 6. RISK
12. 7 WAYS TO ENHANCE DEVELOPMENT OF CAPACITY STRATEGIES (7 points)
1. DESIGN FLEXIBILITY INTO SYSTEMS
2. TAKE STAGE OF LIFE CYCLE INTO ACCOUNT
3. TAKE A “BIG-PICTURE” APPROACH TO CAPACITY CHANGES
4. PREPARE TO DEAL WITH CAPACITY CHUNKS
5. ATTEMPT TO SMOOTH OUT CAPACITY REQUIREMENTS
6. IDENTIFY THE OPTIMAL OPERATING LEVEL
7. CHOOSE A STRATEGY IF EXPANSION IS INVOLVED

13. (1 point)
STATEMENT 1: In the decline phase, the organization can eliminate the excess capacity
by storing it and just maintaining the present product or service.
STATEMENT 2: Another way is to transfer capacity to a location that has a lower labor
cost, which allows the organization to continue to make a profit on the product for a
while longer.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both Statements are correct
d. Both Statements are incorrect
14. (1 points)
STATEMENT 1: The result of not taking the big- picture approach is that the system will
be unbalanced and evidence of the unevenness is the existence of bottleneck operation.
STATEMENT 2: Bottleneck Operation is also called “throughput.”

a. Only statement 1 is correct

b. Only statement 2 is correct
c. Both Statements are correct
d. Both Statements are incorrect
15. (1 point)
STATEMENT 1: Capacity in "chunks" refers to the large stepwise increases that are
frequently encountered in capacity decisions.
STATEMENT 2: Capacity in "chunks" is important because it means that small capacity
increases is more feasible than other alternatives like working overtime.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both Statements are correct
d. Both Statements are incorrect