# Which one of the following statements about capacity cushions is best?

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Question – 5:

Answer is: (C) Companies that have considerable
customization tend to have larger capacity
cushions.

Reason: Capacity cushion is having a
buffer of extra capacity so as to meet the demand. If the
customization is high, then the capacity cushion also should be
high in order to avoid any problem during execution.

Why other options are incorrect:

Flexible flow process requires a capacity cushion of higher
degree

Capital cost has nothing to do with the capacity cushion

Constant demand means no capacity cushion required.

Question – 6:

Calculations:

Here,

Fixed cost = \$9,200

Variable cost = \$0.70 per unit

Retail price = \$0.90 per unit.

At breakeven, the profit = 0

Total revenue – Total cost –= 0

Total Revenue – (fixed cost + variable cost total) = 0

Let the breakeven unit = x

0.90*x – (9200 + 0.7*x) = 0

0.2*x – 9200 = 0

0.2*x = 9200

x = 9200/0.2 = 46000

so the breakeven point is 46000

Question – 7:

Answer is: (C) Customization is high and volume is
low

Reason: Job shops are small
manufacturing systems. When the volume is low and customization
required is high, it should be preferred so as to lower the overall
cost.

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The other options are irrelevant to job shop. Hence
incorrect.

Question – 8:

Answer is: (B) Efficiency and volume can be very
high

Reason: In continuous flow process the
whole system is continuous processing the same thing at large
volume. Hence the volume is high. The process is continuous. So the
output is much more as compared to the capacity ratio. So the
efficiency is also high.

Why other options are incorrect:

As the system is continuous and goes on with only the same type
of processing, the customization is not easy.

Cost of downtime is high because the whole process will stop for
one error.

System cant be changed easily as it is meant for same type of
work continuously.

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