CH 14

File: ch14, Chapter 14: The Sales and Operations Planning Process
True/False
1. Sales and operations planning is an aggregate planning process that determines the
capacity needed to meet immediate demand.
Ans: False
Difficulty: Moderate
Feedback: The Sales and Operations Planning Process
2. An aggregate operations plan specifies the production quantities for an entire product
family or product line.
Ans: True
3. One objective of sales and operations planning is to develop a companywide game

plan to satisfy production.
Ans: False
4. An operations plan is an input into the sales and operations planning process.
Ans: True
5. Financial constraints are one of the major inputs of the sales and operations planning
process.
Ans: True
6. Adjusting capacity and managing demand are two economic strategies for meeting
demand.
Ans: True
Feedback: Strategies for Adjusting Capacity
7. Overtime and undertime are common strategies for adjusting demand.

Ans: False
Difficulty: Easy
8. A chase demand strategy is one of several alternatives available for managing

demand.
Ans: False
Feedback: Strategies for Managing Demand
9. Inventory holding costs are an important consideration for the level production
strategy.
Ans: True
10. When demand fluctuations are extreme using overtime and undertime is a feasible
strategy for adjusting capacity.
Ans: False
11. Subcontracting is a feasible alternative for adjusting capacity provided the supplier
can reliably meet quality and time requirements.
Ans: True
12. One of several strategies for managing demand is to shift it into other time periods
using incentives, sales promotions, and advertising.
Ans: True
13. A mixed strategy for adjusting capacity is simpler and easier to implement than any
pure strategy.
Ans: False
14. Most companies use mixed strategies for managing demand.
Ans: True
15. The transportation method is used for aggregate planning when the strategy for
adjusting capacity is hiring and firing workers.
Ans: False
Feedback: Quantitative Techniques for Aggregate Planning
Quantitative Techniques for Aggregate Planning
16. Disaggregation is the process of breaking a sales and operations plan into more
detailed plans.
Ans: True
Feedback: The Hierarchical Nature of Planning
17. Sharing information and synchronizing production across the supply chain is known
as disaggregation.
Ans: False
18. Yield management seeks to maximize profit from time-sensitive products and
services.
Ans: True
Difficulty: Hard
Feedback: Aggregate Planning for Services
19. Implementing a companywide game plan for allocating resources addresses the long-
standing battle between operations and marketing.
Ans: True
Difficulty: Hard
20. An economic strategy for adjusting demand can include adjusting capacity or
managing demand.
Ans: True
21. The level strategy for adjusting capacity is only appropriate when there is no variation
in demand.
Ans: False
22. A chase strategy involves hiring and firing workers so that production matches
demand.
Ans: True
23. Reconciliation of the sales plan and the operations plan may include adjusting
capacity and/or managing demand.
Ans: True
Multiple Choice
24. All of the following are inputs to the aggregate production planning process except
a. demand forecasts.
b. financial constraints.
c. sales plans.
d. capacity constraints.
Ans:c
25. Adjusting available capacity by hiring and firing workers to match demand is an
example of a(n) ________ strategy.
a. level production
b. chase demand
c. mixed production.
d. optimal production.
Ans:b
Difficulty: Easy
26. The primary cost associated with the level production strategy is the cost of
a. holding inventory.
b. hiring and firing workers.
c. overtime.
d. outsourcing (subcontracting)
Ans: a
27. Problems associated with using a part-time workers strategy for adjusting capacity
include all of the following except
a. high turnover.
b. accelerated training requirements
c. scheduling difficulties
d. high retirement costs
Ans: d
Difficulty: Easy
28. Strategies for proactive demand management would not include

a. shifting demand into other time periods
b. offering products or services with countercyclical demand patterns
c. partnering with suppliers to reduce information distortion along the supply chain
d. using subcontracting to meet unexpected high demand levels
Ans: d
29. The most effective aggregate planning strategy depends on
a. the demand distribution
b. the competitive position
c. the firms cost structure
d. all of the above
Ans:d
Feedback: Sales and Operations planning
30. An optimizing technique originally developed for aggregate planning in the paint
factory is the
a. linear decision rule.
b. search decision rule.
c. management coefficients model.
d. transportation technique.
Ans:a
31. The search decision rule (SDR) is an algorithm that

a. solves a set of four quadratic equations.
b. finds the minimum cost for combinations of different workforce levels and
production rates.
c. uses regression analysis to improve the consistency of production planning decisions
d. requires that a linear cost function be used.
Ans:b
32. The process of breaking an aggregate plan into more detailed plans is referred to as
a. collaborative planning.
b. hierarchical planning.
c. disaggregation.
d. rough-cut planning.
Ans: a
Difficulty: Hard
33. The difference between planned production and customer orders is known as
a. the master production schedule.
b. available-to-promise.
c. capable-to-promise.
d. the disaggregate plan.
Ans: b
34. Which of the following is not a characteristic of aggregate planning for services?
a. labor is usually the most constraining resource for services
b. service capacity must be provided at the appropriate place and time
c. demand for services is easy to predict
d. capacity for services is difficult to predict
Ans: c
35. Yield management can be used to address all of the following problems except
a. overbooking.
b. portioning demand into fare classes.
c. single order quantities.
d. backorders.
Ans: d
Difficulty: Easy
36. The following information relates to a companys aggregate production planning

activities:
Quarter Demand Forecast
1 75,000
2 100,000
3 75,000
4 125,000
Beginning Workforce = 35 workers
Production per Employee = 1,250 units per quarter
Hiring Cost = $500 per worker
Firing Cost = $1,000 per worker
Inventory Carrying Cost = $20 per unit per quarter
If a chase demand strategy is used then the number of workers hired at the start of quarter
2 is
a. 10
b. 20
c. 35
d. 80
Ans:b

activities:
1 75,000
2 100,000
3 75,000
4 125,000
If a chase demand strategy is used then the total firing cost for the plan is
a. $10,000
b. $15,000
c. $20,000
d. $25,000
Ans: c
activities:
1 75,000
2 100,000
3 75,000
4 125,000
If a level production strategy is used then the required quarterly output is

a. 75,000
b. 87,350
c. 93,750
d. 125,000
Ans:c

activities:
1 75,000
2 100,000
3 75,000
4 125,000
If a level production strategy is used then the number of workers required for the plan is
a. 35
b. 75
c. 100
d. 125
Ans: b

activities:
1 75,000
2 100,000
3 75,000
4 125,000
If a level production strategy is used then the inventory at the end of quarter 3 is
a. 18,750
b. 12,500
c. 25,650
d. 31,250 units
Ans: d

activities:
1 75,000
2 100,000
3 75,000
4 125,000
If a level production strategy is used then the cost of the level production plan (inventory
costs plus hiring and firing costs) is
a. $20,000
b. $645,000
c. $1,250,000
d. $1,270,000
Ans: d
42. A company is developing a linear programming model for its aggregate production
plan. If It = units in inventory at the end of period t, Pt = units produced in period t,
and Dt = demand in period t, then the companys demand constraint to ensure that
demand is met in quarter 3 is
a. D3 = I2 I3 + P3
b. D3 = I3 + P3
c. D3 = I3 I2 + P3
d. D3 = I2 I3 + P2
Ans: a
Difficulty: Hard
plan. If Wt = workforce size for period t, Ht = number of workers hired for period t,
and Ft = number of workers fired for period t, then the companys workforce
constraint for period 2 is
a. W2 = W1 + F2 H2
b. W2 = H2 F2
c. W2 = W1 + H2 F2
d. W2 = H2 F2 W1
Ans: c
plan. If It = units in inventory at the end of period t, Pt = units produced in period t,
and Dt = demand in period t, then the companys demand constraint to ensure that
demand is met in quarter 2 is
a. D2 = I2 I1 + P2
b. D2 = I1 + P2
c. D2 = I2 + I1 + P2
d. D2 = I1 + P2 I2
Ans: d
plan. If Wt = workforce size for period t, Ht = number of workers hired for period t,
and Ft = number of workers fired for period t, then the companys workforce
constraint for period 4 is
a. W4 = W3 H4 + F4
b. W4 = W3 + H4 F4
c. W4 = W3 + H3 F3
d. W4 = W3 + H4
Ans: b
plan. Each worker can produce 500 units per quarter. If Wt = workforce size in period
t and Pt = number of units produced in period t, then the production constraint for
period 3 is
a. W3 = 500P3
b. P3 = W3 - 500
c. P3 = 500W3
d. P3 = W3/500
Ans: c
47. In capacity planning, the feasibility of the sales and operations production plan is
verified by a
a. resource requirements plan.
b. rough-cut capacity plan.
c. capacity requirements plan.
d. master production schedule.
Ans: a
Feedback: The Hierarchical Nature of Production Planning
48. Given the information below, the number of available-to-promise units in period 2 is
Period
On Hand = 100 1 2 3 4 5 6
Forecast 200 250 200 300 200 200
Customer Orders 150 125 100 250 150 250
Master Production Schedule 400 400 400
Available-to-Promise
a. 400
b. 150
c. 50
d. 0
Ans: d
Period
On Hand = 100 1 2 3 4 5 6
Forecast 200 250 200 300 200 200
Customer Orders 150 125 100 250 150 250
a. 400
b. 150
c. 50
d. 0
Ans: d
Period
On Hand = 100 1 2 3 4 5 6
Forecast 200 250 200 300 200 200
Customer Orders 150 125 100 250 150 250
a. 400
b. 150
c. 50
d. 0
Ans: d
Period
On Hand = 200 1 2 3 4 5 6
Forecast 300 250 300 300 200 200
Customer Orders 250 200 250 200 150 250
Master Production Schedule 500 700
a. 500
b. 100
c. 200
d. 350
Ans: b
Period
On Hand = 200 1 2 3 4 5 6
Forecast 300 250 300 300 200 200
Customer Orders 250 200 250 200 150 250
Master Production Schedule 500 700
a. 700
b. 500
c. 250
d. 0
Ans: d
53. A bagel company bakes a specialty bagel that it sells by the dozen every day. These
specialty bagels can only be baked early in the morning before the store opens for
business. The company estimates that the daily demand (in dozens) for its specialty
bagel is distributed as follows:
Demand
(dozens) Probability
1 0.10
2 0.20
3 0.15
4 0.25
5 0.30
Specialty bagels are sold by the dozen only at a cost of $9.00 per dozen. The cost to
bake each bagel is $0.50. Leftover specialty bagels are sold by the dozen the next day
for a 50% discount. The bagel companys cost of underestimating demand, Cu, is
a. $9.00
b. $6.00
c. $4.50
d. $3.00
Ans: d
Demand
1 0.10
2 0.20
3 0.15
4 0.25
5 0.30
make one bagel is $0.50. Leftover specialty bagels are sold by the dozen the next day
for a 50% discount. The bagel companys cost of overestimating demand, Co, is
a. $1.50
b. $3.00
c. $4.50
d. $6.00
Ans: a
Demand
1 0.10
2 0.20
3 0.15
4 0.25
5 0.30
make one bagel is $0.50. Leftover specialty bagels are sold by the dozen the next day
for a 50% discount. The optimal number of specialty bagels that should be baked
tomorrow (in dozens) is
a. 5 dozen
b. 4 dozen
c. 3 dozen
d. 2 dozen
Ans: b

activities:
1 25,000
2 50,000
3 35,000
4 60,000
Production per Employee = 250 units per quarter
If a chase demand strategy is used then the number of workers hired at the start of
quarter 2 is
a. 0
b. 50
c. 100
d. 200
Ans: c

activities:
1 25,000
2 50,000
3 35,000
4 60,000
If a chase demand strategy is used then the number of workers fired at the start of
quarter 3 is
a. 0
b. 50
c. 60
d. 100
Ans: c
activities:
1 25,000
2 50,000
3 35,000
4 60,000
If a chase demand strategy is used then the total hiring and firing cost of the plan is
a. $340,000
b. $250,000
c. $125,000
d. $90,000
Ans: a

activities:
1 25,000
2 50,000
3 35,000
4 60,000
If a level production strategy is used then the required output per quarter is
a. 60,000 units
b. 42,500 units
c. 35,000 units
d. 25,000 units
Ans: b

activities:
1 25,000
2 50,000
3 35,000
4 60,000
If a level production strategy is used then the inventory at the end of quarter 3 is
a. 0
b. 5,000
c. 10,000
d. 17,500
Ans: d

activities:
1 25,000
2 50,000
3 35,000
4 60,000
If a level production strategy is used then the number of workers required is

a. 125
b. 170
c. 250
d. 325
Ans: b

activities:
1 25,000
2 50,000
3 35,000
4 60,000
If a level production strategy is used then the total cost of the plan (hiring cost, firing
cost and inventory carrying cost) is
a. $120,000
b. $377,500
c. $675,000
d. $795,000
Ans: d
63. A hot dog vendor must decide on Monday how many hot dogs to have available for
the coming Saturdays football game. Each hot dog costs the vendor $3.00 and is
sold for $5.00. After the game any unsold hot dogs are discounted and sold to the
university cafeteria for $1.75. The vendor believes that the demand for hot dogs
follows the probability distribution shown below:
Demand for Hot Dogs Probability

1000 0.30
1500 0.20
2000 0.30
2500 0.15
3000 0.05
The vendors cost of underestimating demand, Cu, is

a. $3.00
b. $1.75
c. $2.00
d. $3.25
Ans: c

1000 0.30
1500 0.20
2000 0.30
2500 0.15
3000 0.05
The vendors cost of overestimating demand, Co, is

a. $5.00
b. $3.00
c. $1.75
d. $1.25
Ans: d
1000 0.30
1500 0.20
2000 0.30
2500 0.15
3000 0.05
The optimal number of hot dogs the vendor should order for next Saturdays game is
a. 1000
b. 1500
c. 2000
d. 3000
Ans: c
66. A hotel manager must decide how many rooms to overbook. Room rates are $125 per
night and each room costs $45 to maintain. A bumped customer is sent to another
hotel at a cost of $75. Given the distribution of no-shows below, how many rooms
should the manager overbook?
No-Shows Probability
7 0.15
8 0.20
9 0.15
10 0.15
11 0.10
12 0.10
13 0.05
14 0.05
15 0.05
a. Overbook 9 rooms
b. Overbook 10 rooms
c. Overbook 11 rooms
d. Overbook 12 rooms
Ans: b
activities:
1 37,500
2 45,000
3 25,000
4 62,500
If a chase demand strategy is used then the number of workers hired in quarter 4 is
a. 0
b. 15
c. 75
d. 125
Ans: c

activities:
1 37,500
2 45,000
3 25,000
4 62,500
If a chase demand strategy is used the number of workers fired in quarter 3 is
a. 0
b. 40
c. 50
d. 75
Ans: b
activities:
1 37,500
2 45,000
3 25,000
4 62,500
If a chase demand strategy is used the total hiring and firing costs for the production
plan is
a. $67,500
b. $135,000
c. $202,500
d. $337,500
Ans: c

activities:
1 37,500
2 45,000
3 25,000
4 62,500
If a level production strategy is used the number of units to produce each quarter is
a. 42,500
b. 85,000
c. 62,500
d. 37,500
Ans: a

activities:
1 37,500
2 45,000
3 25,000
4 62,500
If a level production strategy is used the number of workers required each quarter is
a. 50
b. 75
c. 85
d. 125
Ans: c

activities:
1 37,500
2 45,000
3 25,000
4 62,500
If a level production strategy is used the number of units in inventory at the end of
quarter 3 is
a. 0
b. 2,500
c. 5,000
d. 20,000
Ans: d

activities:
1 37,500
2 45,000
3 25,000
4 62,500
If a level production strategy is used the total cost of the production plan (hiring cost,
firing cost, and inventory cost) is
a. $60,000
b. $275,000
c. $335,000
d. $610,000
Ans: c
Short Answer Questions
74. What is aggregate planning and what alternatives are generally feasible when
developing the aggregate production plans?
Ans: Aggregate planning determines the resource capacity a firm will need to meet its
demand over an intermediate time horizon6 to 12 months in the future. The term
aggregate is used because the plans are developed for product lines or product families,
rather than individual products. Within this time frame it is usually not feasible to
increase capacity by building new facilities or purchasing new equipment; however, it is
feasible to hire or lay off workers, increase or deduce the workweek, add an extra shift,
subcontract out work, use overtime, or build up and deplete inventory levels.
75. Briefly discuss the two primary objectives of aggregate planning.
Ans: There are two objectives to aggregate planning: (1) to establish a companywide
game plan for allocating resources, and (2) to develop an economic strategy for meeting
demand. The first objective refers to the long-standing battle between the firms
marketing and production functions. Marketing will sometimes make unrealistic sales
projections that production is expected to meet. Production employees who are evaluated
on keeping manufacturing costs down may be reluctant to accept orders that incur higher
processing costs. The job of aggregate planning is to match forecasted demand with
available capacity. If capacity is inadequate it can sometimes be expanded, but at a cost.
An analysis of whether the extra revenue is worth the extra cost must be performed.
76. What are the outputs of aggregate planning?
Ans: The outputs of aggregate planning include production per month or quarter by
product or service family, the size of the workforce, and the amount of regular, overtime,
and subcontracted production required. Inventory and backlog levels are projected, along
with the number of units or dollars to be backordered or lost. For companies that
outsource most of their production, the aggregate plan also includes where the production
will take place. For services, the aggregate plan outlines how much work can be
completed (or new work accepted) in a specified time period.

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File: ch14, Chapter 14: The Sales and Operations Planning Process

3. One objective of sales and operations planning is to develop a companywide game

7. Overtime and undertime are common strategies for adjusting demand.

8. A chase demand strategy is one of several alternatives available for managing

14. Most companies use mixed strategies for managing demand.

28. Strategies for proactive demand management would not include

31. The search decision rule (SDR) is an algorithm that

36. The following information relates to a companys aggregate production planning

37. The following information relates to a companys aggregate production planning

If a level production strategy is used then the required quarterly output is

39. The following information relates to a companys aggregate production planning

40. The following information relates to a companys aggregate production planning

41. The following information relates to a companys aggregate production planning

56. The following information relates to a companys aggregate production planning

57. The following information relates to a companys aggregate production planning

59. The following information relates to a companys aggregate production planning

60. The following information relates to a companys aggregate production planning

61. The following information relates to a companys aggregate production planning

If a level production strategy is used then the number of workers required is

62. The following information relates to a companys aggregate production planning

Demand for Hot Dogs Probability

The vendors cost of underestimating demand, Cu, is

Demand for Hot Dogs Probability

The vendors cost of overestimating demand, Co, is

68. The following information relates to a companys aggregate production planning

70. The following information relates to a companys aggregate production planning

71. The following information relates to a companys aggregate production planning

72. The following information relates to a companys aggregate production planning

73. The following information relates to a companys aggregate production planning

Short Answer Questions

75. Briefly discuss the two primary objectives of aggregate planning.

76. What are the outputs of aggregate planning?

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