Strategic Planning Study Notes

Part 3 : 11/10/10 21:33:42 Question 1 - HOCK CMA P3A H45 - Strategic Planning The four factors that derive from a company's distinctive competencies and which create competitive advantage are A. the value (utility) customers place on the company's products, the price it charges for its products, the costs of creating those products, and the profitability of the company. B. employee productivity, capital productivity, product innovation and process innovation. C. superior efficiency, quality, innovation, and customer responsiveness. D. continuous improvement, continuous learning, prior strategic commitments and absorptive capacity. A. A company's profitability is derived from the value customers place on its products, the price that it charges for its products, and the costs of creating those products. However, these are not the four factors that create competitive advantage. B. Employee productivity and capital productivity are important components of efficiency. Product innovation and process innovation are the two types of innovation. However, these are not the four factors that create competitive advantage. C. These are the four factors that create competitive advantage. Efficiency is the relationship between inputs and outputs, and superior efficiency leads to lower costs which leads to higher profitability and competitive advantage. A product has superior quality when its customers consider that its attributes give them higher utility than do the attributes of competing products. Innovation in products and processes is perhaps the most important component of competitive advantage, because competition is driven by innovation. Superior responsiveness to customers means the company does a better job than its competition of identifying customer needs and satisfying them. D. Continuous improvement and continuous learning are important ways to improve the four factors that create competitive advantage. Prior strategic commitments are commitments to specific ways of doing business that can limit a company's flexibility and ability to respond to changing circumstances. Absorptive capacity refers to the company's ability to make use of new knowledge. None of these are factors that create competitive advantage, however. Question 2 - HOCK CMA P3A H33 - Strategic Planning In Theory of Constraints analysis, the throughput contribution margin is A. the selling price minus all variable costs. B. the selling price minus direct materials and direct labor only. C. the selling price minus all variable and fixed costs. D. the selling price minus the direct materials cost. A. The selling price minus all variable costs is the contribution margin, not the throughput contribution margin. B. This is not the way to calculate the throughput contribution margin. C. This is not the way to calculate the throughput contribution margin. D. (c) HOCK international, page 1 Part 3 : 11/10/10 21:33:42 The selling price minus the totally variable cost per unit is the throughput contribution margin per unit. Generally, the only totally variable cost will be the direct materials cost. The throughput contribution margin per day is the throughput contribution margin per unit multiplied by the number of units that can be produced in a day. Question 3 - HOCK CMA P3A H32 - Strategic Planning Which of the following is not a benefit of materials resource planning (MRP)? A. It requires sales and marketing to estimate future product sales. B. Computer software helps manage the manufacturing process. C. It helps the company avoid having to determine what parts are necessary for assembly of its products. D. It reduces cash needed by the company. A. This is a benefit of MRP. MRP is a "push" inventory management system. Direct materials are ordered based upon projections of future sales. If the company's sales department is not already forecasting future product sales, an MRP system will force it to begin doing so. Anything that spurs better planning in an organization is of benefit to the organization. B. This is a benefit of MRP. The manufacturing process is more automated, since it is not necessary to manually calculate what needs to be ordered and when. This makes the process faster and less subject to manual calculation errors. C. This is not a true statement. A company using MRP software still needs to determine what parts are necessary for assembly of its products. However, MRP automates the process of determining what sub-assemply parts need to be ordered and when to place the order, so that the needed items can be ordered at the proper times back-dated from the scheduled assembly dates. D. This is a benefit of MRP. Direct materials can be ordered at the appropriate time in the production process, which should allow the company to keep raw materials inventory at the minimum required level. This limits the amount of cash that is tied up in raw materials inventory. Question 4 - HOCK CMA P3A H6 - Strategic Planning The type of manager with key responsibilities for overall corporate performance or for the performance of one of the company's key divisions is typically referred to as a: A. functional manager. B. general manager. C. chief of the mission statement. D. production manager. A. A functional manager is responsible for supervising a particular function such as accounting, marketing, or information technology. A functional manager is not responsible for overall corporate performance or for the performance of an entire company division. (c) HOCK international, page 2 Part 3 : 11/10/10 21:33:42 B. A general manager is responsible for overall corporate performance or for the performance of one of the company's key divisions. C. Chief of the mission statement is not a recognized corporate position. D. A production manager is responsible for supervising a particular production activity. A production manager is not responsible for corporate performance or the performance of an entire company division. Question 5 - HOCK CMA P3A H20 - Strategic Planning Toys 4 Us, Inc. manufactures toy over-the-road trucks. Toys 4 Us molds the bodies of the trucks from recycled plastic using an injection molding process, and it purchases the components for the wheel assemblies and assembles the wheel assemblies and the trucks. Each truck consists of a cab and a trailer. The cab requires ½ pound of plastic for the body, while the trailer requires 1 pound of plastic for the body. The cab requires two wheel assemblies: a front wheel assembly consisting of one axle and two wheels; and a rear wheel assembly consisting of one axle and four wheels. The trailer requires 3 wheel assemblies, each consisting of one axle and 4 wheels. Inventory on hand at the end of January was as follows: Finished goods: Completed trucks - 100 Raw materials: Recycled plastic – 150 pounds Axles – 375 Wheels – 1,350 There was no work in process. Demand for the toy trucks during the month of February is expected to be 1,200 units. The company plans to produce the trucks evenly throughout the month. Management has just decided that in order to make sure the company will be able to meet increasing demand, it needs a minimum of the following inventories on hand at all times, as follows (no exceptions): Finished goods: Completed trucks - 200 Raw materials: Recycled plastic – 300 pounds Axles – 550 Wheels – 2,000 Lead time required to order and receive wheels is 1 week. Toys 4 Us has an order of 5,000 wheels on order which will come in on February 1. Orders can be placed in lots of 1,000 only. Assuming February 1 falls on the first day of the work week and there are four weeks in the month, how many wheels does Toys 4 Us need to order on February 1? A. 6,000 B. 5,400 C. 8,000 D. 7,000 A. An answer of 6,000 results from failing to recognize the need to increase the finished goods inventory and the raw materials inventory. B. 5,400 is the number of wheels needed per week to fulfill the projected sales demand. However, it does not (c) HOCK international, page 3 Part 3 : 11/10/10 21:33:42 recognize the need to increase the inventories on hand, nor does it recognize the limitation on the size of the lot that can be ordered. C. Toys 4 Us has 100 completed units in finished goods inventory at the end of January. It needs to increase finished goods inventory to 200 units. In addition, it needs to meet demand of 1,200 units during the month of February. Therefore, production during February needs to be 1,300 units, and this production will take place evenly throughout the month, which consists of four weeks. Thus, weekly production will be 325 units. Each toy truck requires 18 wheels: 6 wheels for the cab (1 * 2) + (1 * 4) and 12 for the trailer (3 * 4). Therefore, the weekly requirement will be 325 * 18, or 5,850 wheels. Beginning raw materials inventory is 1,350 wheels. On Feb. 1, an order of 5,000 wheels will be received. During the week beginning Feb. 1, the company will use 5,850 wheels in manufacturing, leaving it with only 500 wheels on hand in raw materials inventory. Therefore, on Feb. 8, the company will need to receive enough wheels to meet its weekly production schedule requiring 5,850 wheels, plus it will need to receive enough wheels to increase its raw materials inventory of wheels from 500 units to the minimum required 2,000 units, a 1,500 unit increase. Thus, the company will require 7,350 wheels to be delivered on Feb. 8. Since only lots of 1,000 can be ordered, the order placed on Feb. 1 for Feb. 8 delivery should be for 8,000 units. D. An answer of 7,000 results from failing to recognize the need to increase the finished goods inventory. Question 6 - HOCK CMA P3A H13 - Strategic Planning To achieve total quality management (TQM), the company must identify the relevant quality problems when and/or where they occur, and then use methods to analyze them. Which of the following is not one of these methods? A. Pareto diagram. B. Drum-Buffer-Rope diagram. C. Control chart. D. Histogram. A. A Pareto diagram is used in analyzing qualify problems in a TQM environment. A Pareto diagram is a specific type of histogram. Utilizing the Pareto 80-20 principle (20% of the population causes 80% of the problems), it helps management to pinpoint which 20% of the causes are accounting for 80% of the problems. In this way, it helps management to focus efforts on improving the areas that are likely to have the greatest overall positive impact. B. Drum-Buffer-Rope is a means of applying Theory of Constraints principles to manufacturing. It is not applicable to TQM. C. A control chart is a method used in analyzing quality problems in a TQM environment. A control chart records observations of an operation taken at regular intervals. If there are trends, clusters, or many measurements outside or nearly outside the specified range, the process may be out of control. D. A histogram is a method for analyzing quality problems in a TQM environment. A histogram is a bar graph that shows the frequency of events in a set of data. Patterns that may not be apparent when just looking at a set of numbers become clear in a histogram, and problem areas can be pinpointed. For instance, if a particular production line is (c) HOCK international, page 4 Part 3 : 11/10/10 21:33:42 experiencing most of the difficulty, a histogram can help determine what types of problems are occurring most frequently. Question 7 - HOCK CMA P3A H19 - Strategic Planning Total quality management (TQM) is built on a philosophy based on several beliefs. Which of the following is not part of TQM's four major objectives: A. Timely and consistent responses to customer needs. B. A stable and unchanging product or service. C. Elimination of non-value adding work or processes, which leads to lower costs. D. Enhanced and consistent quality of the product or service. A. Timely and consistent responses to customer needs is a major objective of TQM. B. Rather than a having stable and unchanging product or service, an objective of TQM is quick adaptation and flexibility in response to the shifting requirements of customers. C. Elimination of non-value adding work or processes, which leads to lower costs, is a major objective of TQM. D. Enhanced and consistent quality of the product or service is one of the four major objectives of TQM. Question 8 - HOCK CMA P3A H22 - Strategic Planning One of the key sources of competitive advantage is: A. Maintaining average quality. B. Responsiveness to customer needs. C. Slow adoption of more efficient business practices. D. Taking advantage of, and being a follower in, competitors' product innovation. A. This could detract from gaining and sustaining competitive advantage. B. In analyzing why some companies outperform others, we see that it comes in great part from their pursuit of responsiveness to customers' needs and customer satisfaction. C. This could detract from gaining and sustaining competitive advantage. D. This could detract from gaining and sustaining competitive advantage. Question 9 - HOCK CMA P3A H37 - Strategic Planning One of the steps in the the strategic planning process is analyzing external factors in order to identify the organization's opportunities and threats. Which of the following is not a part of external analysis? A. Examination of the industry in which the company operates. B. Analysis of the national environment in which the company operates. C. Analysis of the macroenvironment. D. Identification of the company's strengths and weaknesses. (c) HOCK international, page 5 Part 3 : 11/10/10 21:33:42 A. Examination of the industry in which the company operates is a part of external analysis. The industry analysis involves assessing the company’s industry, the company’s competitive position in the industry, and the competitive positions of its major rivals. The nature of the industry, the stage the industry is in, the dynamics and the history are all part of this analysis. B. Analysis of the national environment in which the company operates is a part of external analysis. Analyzing the national environment includes assessing domestic and international political risk and the impact of globalization on competition within the industry. C. Analysis of the macroenvironment is analysis of the wider environment in which the company operates. This is a part of external analysis. Analysis of the macroenvironment includes macroeconomic factors such as inflation and the labor market, social factors such as environmental issues, and government, legal, international and technological factors that affect the industry and the company. D. Identification of the company's strengths and weaknesses is a part of internal analysis, not external analysis. Strengths lead to superior performance and weaknesses lead to inferior performance in efficiency, quality, innovation, and customer responsiveness. Question 10 - HOCK CMA P3A H1 - Strategic Planning An organization is said to have a "competitive advantage" over its industry rivals when: A. It spends more money on advertising than its competitors do. B. Its distribution channels are wider than others in its industry. C. The profitability of the company is greater than that of the average profitability for all other organizations in its industry. D. It can distribute its product more quickly than other industry competitors. A. The amount of money spent on advertising is not directly related to competitive advantage. B. Distribution channels are not directly related to competitive advantage. C. A company is said to have competitive advantage when it is more profitable than the average company in its industry. Profitability does not create competitive advantage, though. It is the other way around. Competitive advantage is required in order to have high profitability. Thus, in order to increase profitability and sustain profit growth, managers need to formulate strategies that will give their company a competitive advantage. D. While it may be important for the company to quickly distribute its product, this is not directly related to competitive advantage. Question 11 - HOCK CMA P3A H39 - Strategic Planning Which of the following is not a productivity concept or system: A. Computer-aided manufacturing (CAM). (c) HOCK international, page 6 Part 3 : 11/10/10 21:33:42 B. Flexible manufacturing system (FMS). C. Computer-aided design (CAD). D. Decision support system (DSS). A. Computer-aided manufacturing (CAM) plans, implements and controls production through automated workstations using robots or other electronically controlled machine tools. A computer-aided manufacturing system is a productivity system. B. A flexible manufacturing system (FMS) is a network of automated equipment producing parts or models of a product. It uses robots and computer-controlled material handling systems to switch from one production run to another. A flexible manufacturing system is a productivity system. C. Computer-aided design (CAD) is a system that utilizes computers in the product development, analysis and design modifications stages, which leads to improvements in quality and performance. A computer-aided design system is a productivity system. D. Decision support systems (DSS) are used by managers for analytical modeling. They are used for what-if analysis, sensitivity analysis, goal-seeking analysis, and optimization analysis. A decision support system is not a productivity system. Question 12 - HOCK CMA P3A H24 - Strategic Planning Companies group customers in order to gain a competitive advantage. This is called: A. Customer differentiation. B. Positioning. C. Market segmentation. D. Product differentiation. A. Customer differentiation is not a term used in strategic planning or marketing. B. A product's position is the place it occupies in the minds of consumers, particularly in relation to competitors' products. Positioning involves deciding what position or positions the company wants to occupy in its chosen segment(s). C. In market segmentation, a company looks at the many types of potential customers and groups them according to their needs. Market segmentation is used in strategic planning to decide which market segments offer the best opportunities and to determine whether to offer a product that will satisfy the needs of each identified market segment. D. Differentiation is development of a product or service with unique attributes that customers perceive to be better or different from competitive offerings. Question 13 - HOCK CMA P3A H30 - Strategic Planning Which of the following is not a characteristic of a tactical plan: A. It is quantitative in focus. (c) HOCK international, page 7 Part 3 : 11/10/10 21:33:42 B. Top management is responsible for development and overall implementation. C. It covers a period of time one year to five years. D. It relates to production, materials requirements, inventory, cash flows and income statements. A. Quantitative in focus is a characteristic that describes a tactical plan, which explains "how to get there" or how to achieve the ultimate objectives of a strategic plan. B. Top management is not responsible for a tactical plan but rather for the development and overall implementation of the strategic plan. Upper and middle management are responsible for the tactical plan. C. This is a characteristic that describes a tactical plan, which explains "how to get there" or how to achieve the ultimate objectives of a strategic plan. Tactical plans cover an intermediate time period: less than a strategic plan but greater than an operational plan. D. This is a characteristic that describes a tactical plan, which explains "how to get there" or how to achieve the ultimate objectives of a strategic plan. Question 14 - HOCK CMA P3A H18 - Strategic Planning Total quality management (TQM) stresses that all of the organization's operations must be oriented toward improving the reliability of which of the following: A. Business models. B. Compensation methods. C. Product or service offerings. D. Employee practices. A. Internal and external analysis is concerned with identifying the strengths and weakness of the company to provides managers with the information they need to build the strategies and business models necessary to attaining and sustaining competitive advantage, but this does not revolve around TQM. B. Compensation methods may contribute only to employee attitudes toward TQM. C. TQM is an approach that is committed to customer satisfaction and continuous improvement of the company's products or services. D. Employee practices may contribute only to employee attitudes toward TQM. Question 15 - HOCK CMA P3A H14 - Strategic Planning The value chain is made up of both primary and support activities. Of the following, which is a primary activity? A. Marketing and Sales. B. Information Systems. C. Infrastructure. D. Human Resources. A. Marketing and Sales is a primary activity. Marketing and sales includes advertising, promotion and sales activities. The other answer choices are all support activities. B. Information Systems is a support activity. (c) HOCK international, page 8 Part 3 : 11/10/10 21:33:42 C. Infrastructure is a support activity. D. Human Resources is a support activity. Question 16 - HOCK CMA P3A H47 - Strategic Planning Profitability is derived from three basic factors. Which of the following is not one of those? A. The amount of value placed on the company's products or services by the customer. B. The price that the company charges for its products and services. C. The costs of creating the company's products or services. D. Research and development that is highly innovative. A. The value customers place on a company's products or services is one of the three critical factors that affect the company's profitability. B. The price charged for a company's product or service is one of the three critical factors that affect the company's profitability. C. The costs of creating the company's products or services is one of the three critical factors that affect the company's profitability. D. Through research and development (R&D), companies research knowledge for creating new or improving existing products, services or processes. Ultimately, this may have a long-term impact on the company's success. However, this is not one of the three basic factors from which the company's profitability is derived. Question 17 - HOCK CMA P3A H2 - Strategic Planning Which of the following is NOT a significant reason for planning in an organization? A. Promoting coordination among operation units. B. Enabling selection of personnel for open positions. C. Forcing managers to consider expected future trends and conditions. D. Developing a basis for controlling operations. A. Coordinating operation units is a significant reason for planning in an organization. B. Planning does not enable selection of personnel for open positions. C. Involving managers in considering future trends and conditions is a significant reason for planning in an organization. D. Developing a basis for controlling operations is a significant reason for planning in an organization. Question 18 - HOCK CMA P3A H17 - Strategic Planning To avoid failure, a company must maintain a constant focus on all of the following except: A. Continuous improvement and learning. (c) HOCK international, page 9 Part 3 : 11/10/10 21:33:42 B. The foundation and practices of competitive advantage. C. Identification and adoption of the best industrial practices. D. The nature of the organization's previous strategy and strategic commitments. A. Continuous improvement and learning are critical to avoiding failure. Things change so quickly that the only way to maintain a competitive advantage over time is to continually improve the four generic building blocks of competitive advantage: efficiency, quality, innovation, and responsiveness to customers. To do this, it is necessary to focus on learning ― seeking ways to improve operations and create new competencies. B. The four generic building blocks of competitive advantage are superior efficiency, quality, innovation, and responsiveness to customers. Developing distinctive competencies in all four of these areas will result in superior performance and avoid failure. C. Use of benchmarking contributes to superior efficiency, quality, innovation, and responsiveness to customers. This is an important way to build and maintain the resources and capabilities that support those four building blocks of competitive advantage. D. Constantly focusing on the organization's previous strategy can help a company gain understanding about and learn from its past successes or failures, but it is not a tactic to avoid failure. Question 19 - HOCK CMA P3A H49 - Strategic Planning Michael Porter of Harvard University has set forth three generic strategies for companies. Which of the following is not one of those strategies? A. Cost leadership. B. Focus, or competitive scope. C. Innovation. D. Differentiation. A. Cost leadership, or being the low-cost producer within a particular industry for a given level of quality, is one of Michael Porter's three generic strategies. B. Focusing, or concentrating on a particular marketing niche or narrow segment of the market for the purpose of achieving either cost leadership or differentiation is one of Michael Porter's three generic strategies. C. Superior innovation is not one of Michael Porter's three generic strategies. Superior innovation is one of the four components of competitive advantage. Product innovations give the innovator something that is unique, and this uniqueness provides differentiation which in turn allows the company to charge a premium price for its product. Process innovation can reduce unit costs below those of the competition. So although innovation is necessary in order to pursue the generic strategies of cost leadership and differentiation, it is not itself a generic strategy. D. Differentiation, or development of a product or service with unique attributes that customers perceive to be better or different from competitive offering, is one of Michael Porter's three generic strategies. Question 20 - HOCK CMA P3A H15 - Strategic Planning The sources of a company's distinctive competencies are: (c) HOCK international, page 10 Part 3 : 11/10/10 21:33:42 A. The company's resources and capabilities. B. High profitability and sustained profit growth. C. The company's threats and opportunities. D. The company's prior strategic commitments. A. What an organization does better than the competition are its distinctive competencies. Distinctive competencies are strengths that a company has that enable it to either (1) have a differentiation advantage and/or (2) have a cost advantage. The source of a company's distinctive competencies are its resources and capabilities. B. High profitability and sustained profit growth are means to achieving the goal of maximizing shareholder returns. C. Threats and opportunities are external. D. A company’s prior strategic commitments, such as investments, may limit its ability to respond to competitors' actions and to be flexible, causing a competitive disadvantage. Question 21 - HOCK CMA P3A H11 - Strategic Planning Asheville Furniture Company manufactures glass top tables. The company purchases the wood parts for the tables from a local craftsman, cuts and bevels the glass tops from sheets of glass, and assembles the tables. One table requires the following components: Wood table top consisting of a frame to hold the glass 1 Wood table legs 4 Bolts to attach legs to top 4 Sheets of glass (1 sheet of glass can make 4 table tops).25 The company has orders for 300 tables to be shipped next month. Asheville Furniture's on hand inventory of finished goods and direct materials is as follows. There is no work-in-process inventory. Completed tables 20 Wood table tops 30 Wood table legs 50 Bolts 36 Sheets of glass 10 Asheville Furniture prefers to keep the following inventories on hand at all times: Completed tables25 Wood table tops 20 Wood table legs 80 Bolts 40 Sheets of glass 15 How many sheets of glass will the company need to purchase to fulfill the orders for next month and end the month with the desired finished goods inventory and materials inventory of glass sheets (assume no spoilage)? A. 82 B. 75 C. 80 D. 77 A. The company will need to produce 305 tables for next month's requirements: 300 for orders to be shipped during the month plus 5 to increase the finished goods inventory on hand from its present level of 20 to the desired level of 25. Production of 305 tables will require 305 / 4 sheets of glass, or 76.25 sheets of glass. The company also needs to increase its direct materials sheets of glass on hand from its present level of 10 to its (c) HOCK international, page 11 Part 3 : 11/10/10 21:33:42 desired level of 15, so the total need will be 76.25 + 5, or 81.25 sheets. Since the company cannot purchase a quarter of a sheet, it will have to purchase 82 sheets. B. An answer of 75 results from dividing the total number of tables ordered for next month by 4. However, it fails to consider both the increase in finished goods inventory needed and the increase in the direct materials inventory needed. C. An answer of 80 results from calculating the number of sheets of glass needed for the tables that the company has orders for and plans to ship during the next month, plus the increase needed in the direct materials inventory on hand. However, the production for the month will need to be greater than the number of tables needed to fulfill the orders for next month, because the company needs to build up its finished goods inventory on hand, as well. D. An answer of 77 results from not considering the increase needed in the sheets of glass on hand in the direct materials inventory. Question 22 - HOCK CMA P3A H42 - Strategic Planning A total quality management system (TQM) is most compatible with: A. Distinctive competencies. B. Robotics. C. Push system. D. An activity-based costing system. A. Distinctive competencies are what the company does better than the competition and does not relate to this subject. B. Robots are primarily used in manufacturing, are programmable and better at manual tasks than humans because they don't tire and easily adapt to changing conditions. Furthermore, they are useful in environments that are unfit for humans, such as radioactive areas. Robots can have visual perception, touch capability, dexterity, locomotion and navigation. A TQM program involves changing the corporate culture by eliminating faulty processes, empowering employees and creating teamwork that focuses on quality. Thus, a TQM program requires living, breathing people to execute it. Robotics may be utilized, but this is not the best answer to the question. C. A push system, where nothing is produced until the next process needs it, does not relate to this subject. D. TQM is most compatible with an activity-based costing (ABC) system because it makes the costs of quality more apparent. A firm with a good ABC system only needs to modify it to identify costs and activities relating to costs of quality. A company that utilizes ABC will also be continuously identifying activities that can be eliminated, as well as ensuring that necessary activities are carried out efficiently. Question 23 - HOCK CMA P3A H9 - Strategic Planning When the organization develops a plan or plans to prepare for future, often unpredictable events, it is called: A. Short-term business planning. B. Contingency planning. C. Long-term business planning. D. Capital budgeting. (c) HOCK international, page 12 Part 3 : 11/10/10 21:33:42 A. Short-term business plans encompass tactics for achieving short-term objectives and operational elements that will contribute to the achievement of long-term strategic goals. B. Contingency planning, or scenario planning, considers alternatives that enable the company to respond quickly and capably to future, external, generally unpredictable events. C. Long-term (strategic) business plans define the corporate mission and address the long-term objectives of the organization. D. Capital budgeting involves analyzing a proposed capital investment project to determine whether the investment will increase shareholder value. Question 24 - CMA 1290 3-16 - Strategic Planning All of the following are characteristics of the strategic planning process except the A. Analysis and review of departmental budgets. B. Analysis of external economic factors. C. Emphasis on the long run. D. Review of the attributes and behavior of the organization's competition. A. Strategic planning is long-term planning that looks at how the company is going to achieve its goals and objectives over a period of usually 5 years or longer. This type of planning is neither detailed nor focused on specific financial targets, but instead looks at the strategies as well as the objectives and goals of the company by examining both internal and external factors that affect the company. Analysis and review of departmental budgets is not a strategic planning concern, since it is a short-term operational concern. B. In strategic planning external economic factors are examined because this is part of the wider environment, or macroenvironment, in which the company operates. Economic factors such as inflation and the labor market are factors that will affect the industry and the firm. The primary purpose of analyzing the external operating environment is to identify opportunities as well as threats that can affect the company in its pursuit of its mission. C. Strategic plans are broad, general, long-term plans, usually for 5 years or longer. They are developed from the company's mission statement and so they are focused on long-term goals and objectives. D. In strategic planning external factors, such as competition, are examined because this is part of the environment in which the company will be operating. Therefore, it is part of the long-term, strategic planning process. Question 25 - HOCK CMA P3A H34 - Strategic Planning Which of the following statements is not true about the application of Theory of Constraints to production called the drum-buffer-rope (DBR) system: A. The constrained process is the drum. B. DBR attempts to minimize buildup of inventory at a bottleneck while keeping the bottleneck busy at all times. C. The buffer is a minimum amount of work-in-process inventory waiting for completion. D. The sequence of processes after the constraint is the rope. A. In DBR, the constrained process is the drum. B. DBR attempts to maximize the flow through the bottleneck by minimizing the buildup of inventory at the bottleneck (c) HOCK international, page 13 Part 3 : 11/10/10 21:33:42 while keeping the bottleneck busy at all times. Non-bottleneck operations are not permitted to produce more output than can be processed by the bottleneck, because this creates excess inventory and doesn't increase throughput contribution. C. The buffer is a minimum amount of work-in-process inventory waiting for completion by the constrained process (just enough to ensure that the constrained process is busy at all times). D. The sequence of processes prior to (not after) the constraint is the rope. There are different steps in managing bottleneck operations through the use of the theory of constraints (TOC) analysis. The constrained process is the drum and the sequence of processes prior to the constraint is the rope. The objective is to balance the flow of production through the rope by timing and scheduling activity for all processes leading up to the drum. Question 26 - HOCK CMA P3A H46 - Strategic Planning Successful implementation of a just-in-time (JIT) inventory system requires all of the following except A. lean production. B. work cells. C. each worker is able to operate all machinery and perform all supporting tasks. D. use of Materials Requirements Planning (MRP) software. A. This is a true statement. The company must be reorganized to permit what is known as lean production, where the plant layout is arranged by manufacturing cells or work cells that produce a product, or product type. Additionally, each worker knows how to operate all machines, and can perform supporting tasks within that cell, which lessens downtime resulting from breakdowns or employee absences. B. This is a true statement. The company must be reorganized to permit what is known as lean production, where the plant layout is arranged by manufacturing cells or work cells that produce a product, or product type. Additionally, each worker knows how to operate all machines, and can perform supporting tasks within that cell, which lessens downtime resulting from breakdowns or employee absences. C. This is a true statement. The company must be reorganized to permit what is known as lean production, where the plant layout is arranged by manufacturing cells or work cells that produce a product, or product type. Additionally, each worker knows how to operate all machines, and can perform supporting tasks within that cell, which lessens downtime resulting from breakdowns or employee absences. D. Use of Materials Requirements Planning software is not required in order to implement a Just-In-Time (JIT) inventory system. Question 27 - HOCK CMA P3A H25 - Strategic Planning Strategic managers use different business-level strategies to put the company's business model into action. Business-level strategies include all of the following except A. How much to differentiate and how to price the company's product or service. B. What products should be offered and to which customer groups (market segments). C. How and where to invest the company's capital in ways that will result in competitive advantage. D. How to improve the product attributes, the service attributes and personnel attributes associated with the company's product. A. Business-level strategy involves decisions about customers’ needs and what needs are to be satisfied. This entails (c) HOCK international, page 14 Part 3 : 11/10/10 21:33:42 decisions about how much to differentiate the company's products versus the need to keep their costs down so that the products can be offered at a competitive price. Some companies will choose to differentiate their products to a great degree through innovation, excellent quality, or responsiveness to customers. These managers are investing their resources to create something distinct and different, and as a result they can often charge a premium price. Other managers will base their business model on increasing efficiency and reliability in order to reduce costs. These managers are choosing to offer customers low-priced products. B. Business-level strategy involves decisions about what products should be offered and to which customer groups (market segments). The company needs to group customers according to their needs in order to determine what products each market segment needs. The company must then decide whether to offer a product that will satisfy the needs of each identified market segment. C. Business-level strategy involves choosing strategies to create products or services that will provide customers with the most value while keeping the cost structure at a level that will permit them to be price competitive. The company needs to invest its capital in order to shape its distinctive competencies in a way that will result in a competitive advantage based on superior efficiency, quality, innovation, and responsiveness to customers. D. Improving the product attributes, the service attributes and the personnel attributes associated with the company’s product leads to improved quality and improved customer satisfaction. The company needs to identify the attributes that are important to its customers. It then needs to design its products and services to embody those attributes. It also needs to make sure that its personnel are trained so that the correct attributes will be emphasized. This is a functional-level strategy, not a business-level strategy. Functional-level strategies are developed to improve the effectiveness of a company’s operations. Question 28 - HOCK CMA P3A H35 - Strategic Planning Some of the benefits that horizontal integration may provide include the all of the following except: A. Increase in the value of a company's product offering through differentiation B. Increased bargaining power over supplier, providers and buyers. C. Cost reduction. D. Diseconomies of scale. A. Horizontal integration is a corporate-level strategy that involves acquiring or merging with competitors to achieve competitive advantages such as economies of scale. Horizontal integration can increase profitability if the integration increases product differentiation. In many cases, however, the resulting company is not more profitable and may even be less profitable than the two separate companies were. B. Horizontal integration is a corporate-level strategy that involves acquiring or merging with competitors to achieve competitive advantages such as economies of scale. Horizontal integration can increase profitability if the integration increases the company’s bargaining power with suppliers and customers. In many cases, however, the resulting company is not more profitable and may even be less profitable than the two separate companies were. C. Horizontal integration is a corporate-level strategy that involves acquiring or merging with competitors to achieve competitive advantages such as economies of scale. Horizontal integration can increase profitability if the integration lowers the cost structure of the resulting company. In many cases, however, the resulting company is not more profitable and may even be less profitable than the two separate companies were. D. Horizontal integration is a corporate-level strategy that involves acquiring or merging with competitors to achieve competitive advantages such as economies of scale. Horizontal integration can increase profitability (c) HOCK international, page 15 Part 3 : 11/10/10 21:33:42 if the integration lowers the cost structure of the resulting company, increases product differentiation, replicates a company’s successful business model in new market segments, reduces rivalry in an industry, and/or increases the company’s bargaining power with suppliers and customers. In many cases, however, the resulting company is not more profitable and may even be less profitable than the two separate companies were. In any event, "diseconomies of scale" is not a benefit. Question 29 - HOCK CMA P3A H8 - Strategic Planning It could be argued that a company that has succeeded in a very competitive market while its rivals have failed is because: A. The strategies that the successful company pursues have a strong impact on its performance relative to its rivals. B. The successful company has adopted more steps to its formal strategic planning process. C. The company has evolved into a multi-divisional organization. D. The company has adopted a strategy with a low propensity for risk-taking. A. The company in a leadership position has developed and pursued strategies that succeed in its own marketplace and that build competitive advantage. The strategies that a company pursues can build new resources and capabilities or strengthen existing ones and thus can enhance the company’s distinctive competencies. At the same time, distinctive competencies shape the strategies that a company uses, and those strategies in turn lead to a competitive advantage and superior profitability. So the relationship between a company’s distinctive competencies and its strategies is a circular one. Strategies help build and create distinctive competencies, and distinctive competencies in turn shape strategies. There are typically five steps in the strategic planning process: 1. Defining the company’s mission and addressing the key corporate goals; 2. Analyzing the organization’s external competitive environment in order to identify the opportunities and threats; 3. Analyzing the internal operating environment to identify the strengths and weaknesses of the organization; 4. Formulating and selecting strategies that, consistent with the organization’s mission and goals, will optimize the organization’s strengths and correct its weaknesses for the purpose of taking advantage of external opportunities while countering external threats (SWOT analysis); and 5. Developing and implementing the chosen strategies. B. Success does not rest on adopting a formal strategic planning process with many steps (there are typically five steps in the process). C. Success does not rest on becoming a multi-divisional organization. D. Although some successful companies adopt strategies that involve low risk, a company that does not take risks will not be very innovative. Superior innovation is one of the four factors derived from a company's distinctive competencies that create competitive advantage. (The four factors are superior efficiency, superior quality, superior innovation, and superior customer responsiveness.) Innovation in products and processes is perhaps the most important component of competitive advantage. (c) HOCK international, page 16 Part 3 : 11/10/10 21:33:42 Competition is driven by innovations. Product innovations give the innovator something that is unique, and this uniqueness provides differentiation which in turn allows the company to charge a premium price for its product. Process innovation can reduce unit costs below those of the competition. Question 30 - HOCK CMA P3A H38 - Strategic Planning All of the following statements are true about Kanban except A. "Kanban" is a Japanese term meaning "continuous improvement." B. Kanban was originally developed at Toyota in the 1960s. C. The supplier delivers components to the production line on an "as needed" basis, signaled by receipt of a card and empty container, eliminating storage in the production areA. D. Kanban is a part of a JIT system and its purpose is to manage the flow on a manufacturing assembling line. A. Kanban is a Japanese term for "visual record." It is a simple parts movement system or an inventory system in which 'cards' or 'tickets' are used to keep track of inventory and its movement. The term "kaizen" is the Japanese term for "continuous improvement." B. Kanban was developed at Toyota in the 1960s. C. Kanban is a simple parts movement system or an inventory system in which 'cards' or 'tickets' are used to keep track of inventory and its movement. The supplier delivers components to the production line on an "as needed" basis, signaled by receipt of a card and empty container, eliminating storage in the production area. D. Kanban is part of a JIT system and its purpose is to manage the flow on a manufacturing assembly line. This is a chain process where orders flow from one process to another, so production of components is pulled to the production line, rather than the pushed (as is done in the traditional forecast-oriented system). Question 31 - HOCK CMA P3A H3 - Strategic Planning A company's mission statement is, above all, intended to define: A. The specific actions that the company should take. B. The company's profit objectives. C. Why the company exists. D. The weaknesses of the firm. A. The actions the company might take based on its strengths and weaknesses, along with its profit objectives, can be a result of the mission statement and the strategic planning process, but they are not what the mission statement defines. B. The company's profit objectives can be a result of the mission statement and the strategic planning process, but they are not what the mission statement defines. C. The mission statement defines why the company exists and also prioritizes and communicates the company's overall objectives. D. A recognition of the firm's weaknesses can be a result of the mission statement and the strategic planning process, but it is not what the mission statement defines. (c) HOCK international, page 17 Part 3 : 11/10/10 21:33:42 Question 32 - HOCK CMA P3A H29 - Strategic Planning Fragmented industries have all of the following characteristics except: A. Possible diseconomies of scale. B. Constant entry by new competitors. C. Control by one or a small number of very large firms. D. Low entry barriers. A. This is a characteristic of a fragmented industry. B. This is a characteristic of a fragmented industry. C. Fragmented industries are composed of many small and medium-sized businesses such as motels or restaurants. Fragmented industries have low entry barriers, diseconomies of scale, and a constant stream of new competitors to their industries. Control by one or a small number of very large firms are characteristics of monopolistic or oligopolistic situations, not fragmented industries. D. Low entry barriers are characteristic of a fragmented industry. Question 33 - HOCK CMA P3A H28 - Strategic Planning All of the following are included in product life-cycle strategies except: A. Maximize market share. B. Harvest the product. C. Superior responsiveness to customers. D. Maximize profit. A. Maximizing market share is a product life-cycle strategy used during a product's growth stage. It includes continuously improving product quality and adding new product features and models. Market penetration pricing is usually used. Advertising continues for product awareness, but some advertising is shifted to the goal of building product conviction and purchase. Prices are lowered at appropriate times to attract more business, and an intensive distribution channel is developed. B. Harvesting the product is a product life-cycle strategy used during a product's decline stage. It involves reducing costs by withdrawing R&D, advertising, sales promotion and selling support in the hope that sales will hold up without these efforts. The price is usually cut as well, to maintain the sales. If the sales do hold up, this tactic increases short-term profits. C. Responsiveness to customers is not a product life cycle strategy but rather one of the four factors that derive from a company's distinctive competencies and which create competitive advantage. (The four factors are superior efficiency, superior quality, superior innovation and superior customer responsiveness). All of the other answer choices are product life-cycle strategies. D. (c) HOCK international, page 18 Part 3 : 11/10/10 21:33:42 Maximizing profit while defending market share is a product life-cycle strategy used during a product's maturity stage. It is accomplished by modifying the market, modifying the product, or modifying the market mix by changing one or more of the marketing mix elements (product, price, promotion and place) to improve sales. Question 34 - HOCK CMA P3A H44 - Strategic Planning The theory of constraints (TOC) is a technique used to improve profitability by making operating decisions that will impact net profit, return on investment and cash flow positively. Which of the following is not a focus of TOC? A. Identifying the place in the production process where total available hours exceed the total required hours. B. Increasing throughput contribution. C. Decreasing investments. D. Decreasing operating costs. A. TOC focuses on identifying the place in the production process where total required hours exceed the available hours, not the reverse. This place is called the bottleneck. After the bottleneck has been identified, the flow through the bottleneck is then maximized and used in the best way to maximize contribution. B. TOC focuses on increasing throughput contribution. Throughput contribution is revenues minus totally variable costs, which is usually only direct materials cost, during a given period of time. It is the rate at which contribution dollars are earned. C. Decreasing investments is an area that TOC focuses on, because decreasing investments will increase Return on Investment. Investments includes costs in direct materials, work-in-process and finished goods inventories; R&D, and costs of equipment and buildings. D. Decreasing operating costs is an area that TOC focuses on, because decreasing operating costs will improve Return on Investment, operating profit, and cash flow. Operating costs include salaries and wages, rent, utilities and period expenses. Question 35 - HOCK CMA P3A H7 - Strategic Planning Which one of the following management considerations does the company usually address first in strategic planning? A. Overall objectives of the company. B. Outsourcing. C. Structure of the organization. D. Recent annual budgets. A. The company must determine its overall objectives before anything else can be set. B. Outsourcing is not directly related to the strategic planning process. C. The structure of the organization is not the first consideration addressed in the strategic planning process. D. The review of recent annual budgets is not the first consideration addressed in the strategic planning process. (c) HOCK international, page 19 Part 3 : 11/10/10 21:33:42 Question 36 - HOCK CMA P3A H5 - Strategic Planning The method(s) that managers employ to attain one or more of the organization's goals can be defined as: A. Strategy. B. Capital investments. C. Choosing the company's organizational structure. D. Determining the company's business model. A. Management uses strategy (strategies) to attain the company's goals and objectives. B. Capital investments are long-term investments made by a business for the purpose of increasing capacity and shareholder wealth. While they are an important part of a business's strategy, they are not the method that managers employ to attain the organization's goals. C. Choosing the company's organizational structure is strategic in nature but is not the method that managers employ to attain the organization's goals. D. A company's business model is its managers’ idea of how the set of strategies and capital investments that the company makes should fit together to generate above-average profitability and, at the same time, profit growth. Determining the company's business model is strategic in nature but is not the method that managers employ to attain the organization's goals. Question 37 - HOCK CMA P3A H10 - Strategic Planning Michael Porter's Five Forces Model helps managers to analyze forces that shape competition within an industry in order to identify opportunities and threats in their industry environments. Which of the following forces is not one of the Five Forces? A. The bargaining power of suppliers. B. The bargaining power of competitors. C. Risk of entry by potential competitors. D. The closeness of substitutes to a company's products. A. Bargaining power of suppliers is one of the forces that shape competition for a company within an industry. If suppliers have the ability to raise the prices of inputs such as materials or direct labor (i.e., labor unions), that is a strong competitive force and represents a threat. If suppliers have little ability to raise input prices, that is a weak competitive force and represents an opportunity. B. Bargaining power of competitors is not one of the forces that shape competition for a company within an industry. C. Risk of entry by potential competitors is one of the forces that shape competition for a company within an industry. If significant barriers to entry exist, such as high costs, economies of scale or regulatory requirements, this will constitute a weak competitive force and an opportunity for companies already established in the industry, because a new competitor would not have the volume necessary to enable it to compete against the established businesses in the industry. If entry barriers are low, this would be a strong competitive force and a threat for established companies. D. (c) HOCK international, page 20 Part 3 : 11/10/10 21:33:42 The closeness of product substitutes is one of the forces that shape competition for a company within an industry. If there are close substitutes for the company's product, this limits the prices that the company can charge and that is a threat. If there are few or no close substitutes, then a company can raise its prices without being concerned that its customers may switch to a substitute, so that is an opportunity. Question 38 - CMA 692 H9 - Strategic Planning Strategy is a broad term that usually means the selection of overall objectives. Strategic analysis ordinarily excludes the A. Trends that will affect the entity's markets. B. Target product mix and production schedule to be maintained during the year. C. Forms of organizational structure that would best serve the entity. D. Best ways to invest in research, design, production, distribution, marketing, and administrative activities. A. Market trends are strategic in nature and would be included in strategic analysis. B. Strategic analysis is focused on the long-term and looks at the strengths, weaknesses, opportunities and threats that the company will face in the future. The production schedule for the year is not a strategic item as it is a short-term issue. This production plan would be more of an operational budget or plan. C. Creating the correct internal structure for the company that will enable the fulfillment of the company's long-term strategic objectives is a critical strategic decision. D. Strategic analysis is focused on the long-term and looks at the strengths, weaknesses, opportunities and threats that the company will face in the future. Research, design, production methods and the other listed items will be included in the strategic analysis. Question 39 - HOCK CMA P3A H16 - Strategic Planning Which of the following statements is true about benchmarking? A. Benchmarking team members should be made up only of senior managers responsible for the strategic planning and management of the company. B. Benchmarking is the process of measuring the organization against the products, practices and services of all of its most efficient global competitors. C. Companies undertake best practice analysis to cut costs, boost output, and achieve their strategic business goals and objectives. D. After best practice analysis, a company must then identify the critical success factors for its business. A. Team members should be from different areas of the business and have different skills. B. A benchmark is a standard of performance, and benchmarking is the process of measuring the organization against the products, practices and services of some, but not particularly all, of its most efficient global competitors. C. The company can use these standards as a target or model for its own operations. This is also called best practices. Through the application of research and sophisticated software analysis tools, companies undertake best practice analysis to cut costs, boost output, and achieve their strategic business goals and objectives. D. Identification of critical success factors is a first step. (c) HOCK international, page 21 Part 3 : 11/10/10 21:33:42 Question 40 - HOCK CMA P3A H12 - Strategic Planning Value chain analysis can help an organization gain competitive advantage by identifying what does or does not increase value to the customers. Which of the following is not one of the three steps in value chain analysis? A. Identify the activities that add value to the end product. B. Identify the cost driver or cost drivers for each activity. C. Determine the amount of value that customers attribute to the end product. D. Build competitive advantage by either increasing value to the customer or reducing the costs of production. A. This is a step in value chain analysis. What the specific activities are will depend upon the industry and what the company does (manufacturing, resale, etc.). B. This is a step in value chain analysis. C. This is not a step in value chain analysis. D. This is a step in value chain analysis. Question 41 - HOCK CMA P3A H43 - Strategic Planning In a just-in-time-inventory (JIT) system, which statement is false: A. The main idea in a JIT system is that the company does not produce anything until the next process requires it. B. JIT combines purchasing, production and inventory control into one function. C. JIT is a pull system. D. Because JIT is a push system, production is not driven by the expected demand for the product. A. This is a true statement. B. This is a true statement. C. This is a true statement. JIT is a pull system, which is based on a manufacturing philosophy that combines purchasing, production and inventory control into one function. This reduces the level of inventory that is held within the company at all stages of production, and lowers the cost of carrying the inventory. D. The main idea of JIT is that nothing is produced until the next process in the assembly line needs it. JIT is a "pull system" rather than a "push system." In a push system, a department produces and sends all that it can to the next step for further processing, which means that the manufacturer is producing something without understanding consumer demand. This can result in large, useless stocks of inventory. Because the idea of JIT is that nothing will be produced until the next process needs it, technically this means that nothing will be produced until a customer orders it. However, this is not actually possible, so production is driven by the expected demand for the product. Question 42 - HOCK CMA P3A H50 - Strategic Planning (c) HOCK international, page 22 Part 3 : 11/10/10 21:33:42 Bird Watcher, Inc. manufactures both large and small birdhouses. Bird Watcher can manufacture 200 large birdhouses per day. The large birdhouses sell for $50 each. The per unit costs for the large houses are as follows: Direct Materials $7 Direct Labor 10 Variable Overhead 3 Fixed Overhead 2 ----Total Cost $22 What is Bird Watcher's throughput contribution margin per day on large birdhouses? A. $5,600 B. $8,600 C. $6,600 D. $6,000 A. An answer of $5,600 results from subtracting all per unit costs from the selling price per unit, then multiplying that amount by the number of large birdhouses manufactured per day. The throughput contribution margin per unit is not the selling price minus all per unit costs. B. The throughput contribution margin per unit is the selling price minus the totally variable costs, which are usually only direct materials. The selling price of $50 minus the direct materials cost of $7 leaves a throughput contribution margin per unit of $43. Since Bird Watcher can manufacture 200 large birdhouses per day, the throughput contribution margin per day for large birdhouses is $43 * 200, or $8,600. C. An answer of $6,600 results from subtracting direct materials and direct labor from the selling price and multiplying that amount by the number of large birdhouses manufactured per day. The throughput contribution margin per unit is not the selling price minus direct materials and direct labor. D. An answer of $6,000 results from subtracting all variable costs from the selling price and multiplying that amount by the number of large birdhouses manufactured per day. The throughput contribution margin per unit is not the selling price minus all variable costs. (c) HOCK international, page 23