17. Which scenario is evidence of a capacity cushion?
Answer: B
A frozen-yogurt output changes with the seasons.
A frozen-yogurt output that varies with the seasons indicates the presence of a capacity cushion, as it suggests that the production can be adjusted to meet fluctuating demand, allowing for flexibility in operations.
A) A footwear plant runs at 92 % of rated capacity.
Running at 92% of rated capacity suggests that the footwear plant is operating close to its maximum capability, leaving little room for additional demand or unexpected increases, which does not demonstrate a capacity cushion.
B) A frozen-yogurt output changes with the seasons.
This scenario exemplifies a capacity cushion because the ability to adjust production levels according to seasonal demand indicates that the firm can manage fluctuations and maintain service levels without exceeding capacity.
C) A food processor has been maxed out for months.
If a food processor has been maxed out for months, it implies that the facility is consistently operating at full capacity, which does not allow for any flexibility or buffer to accommodate changes in demand, thus lacking a capacity cushion.
D) A lumber firm plans output based on detailed forecasts.
While planning output based on forecasts may suggest some level of preparedness, it does not inherently indicate the existence of a capacity cushion. A firm can plan effectively yet still operate at full capacity without any flexibility, which is contrary to the concept of a capacity cushion.
Conclusion
The scenario of a frozen-yogurt output changing with the seasons clearly illustrates the concept of a capacity cushion, as it allows for adjustments in production to meet varying demand. In contrast, the other options reflect either full capacity or rigid planning without the necessary flexibility that defines a capacity cushion. Thus, only option B effectively demonstrates the principle being examined.