ASSIGNMENT ON CAPACITY PLANNING

1. A firm is considering three capacity alternatives: A, B, and C. Alternative A would have

an annual fixed cost of P100,000.00 and variable costs of P22 per unit. Alternative B
would have annual fixed costs of P120,000.00 and variable costs of P20 per unit.
Alternative C would have fixed costs of P80,000.00 and variable costs of P30 per unit.
Revenue is expected to be P50 per unit.
a. Which alternative has the lowest break-even quantity?
b. Which alternative will produce the highest profits for an annual output of 10,000 units?
c. Which alternative would require the lowest volume of output to generate an annual profit
P50,000.00

SOLUTION FOR QUESTION A.

ALTERNATIVE
ALT A
BEPx = FC / (SP – VC) 3,571.43 units
BEPx = 100,000 / (50-22)
Alt B
BEPx = FC / (SP – VC) 4,000 units
BEPx = 120,000 / (50-20)
Alt C
BEPx = FC / (SP – VC) 4,000 units
BEPx = 80,000 / (50-30)

ALT. W/ LOWEST B.E. QUANTITY ALTERNATIVE A

SOLUTION FOR QUESTION B

ALTERNATIVE

Alt A
Profit = (SP x Units)-FC-(VC x Units) Php 180,000
Profit = (50x10,000)-100,000-(22x10,000)

Alt B
Profit = (50x10,000)-120,000-(20x10,000) Php 180,000

Alt C
Profit = (50x10,000)-80,000-(30x10,000) Php 120,000

ALT. W/ HIGEST PROFITS Alternative A and Alternative B

SOLUTION FOR QUESTION C.

ALTERNATIVE
Alt A = Let A be the number of units 5,357.14 units
50,000 = (50 x A)-100,000-(22 x A)
50,000 + 100,000 = 50A – 22A
150,000 = 28A
A= 150,000/28
Alt B = Let B be the number of units 5,666.67 units
50,000 = (50 x B)-120,000-(20 x B)
50,000 + 120,000 = 50B – 20B
170,000 = 30B
B= 170,000/30
Alt C = Let C be the number of units 6,500 units
50,000 = (50 x C)-80,000-(30 x C)
50,000 + 80,000 = 50C – 30C
130,000 = 20C
C= 130,000/20

ALT. W/ LOWEST VOLUME Alternative A

2. Given the following information, compute the following:

a. Efficiency is 90% and actual output is 28 machines per day, what is the effectivity
capacity?

SOLUTION
Efficiency = Actual Output/Effective Capacity
Effective Capacity = Actual Output/Efficiency
Effective Capacity = 28 / 90%
Effective Capacity = 31.11 machines

b. Utilization is 80%; design capacity if 25 machines, what is the actual output?

SOLUTION
Utilization = Actual Output/Design Capacity
Actual Output = Utilization x Design capacity
Actual Output = 80% x 25
Actual Output = 20 machines