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MANAGEMENT
Chapter - 05
CAPACITY PLANNING
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CAPACITY PLANNING
Capacity is the upper limit or ceiling on the
load that an operating unit can handle.
What kind of capacity is needed?
Depends on the product or the service
management intends to produce or provide.
CAPACITY
Design Capacity: The maximum output rate or
service capacity an operation, process or facility is
designed for.
Design capacity is the maximum rate of output achieved
under ideal conditions.
CAPACITY
Effective Capacity: Design capacity minus
allowances such as personal time,
maintenance and scrap.
Effective capacity is usually less than design
capacity owing to realities of changing product
mix, periodic maintenance of equipment, lunch
breaks, coffee breaks etc.
EFFICIENCY AND
UTILIZATION
Actual output
Efficiency =
Utilization =
Effective capacity
Actual output
Design capacity
EXAMPLE 01
Design capacity = 50 trucks/day
Effective capacity = 40 trucks/day
Actual output = 36 units/day
Efficiency =
Utilization =
Actual output
Effective capacity
Actual output
Design capacity
36 units/day
40 units/ day
36 units/day
50 units/day
= 90%
= 72%
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EXAMPLE 02
A
1.
2.
3.
Identify alternatives
4.
5.
6.
7.
8.
Monitor results
Amount ($)
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Amount ($)
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1.
2.
Profit (P) = Q (R v) FC
3.
4.
QBEP = FC / (R v)
Where,
v = Variable cost per unit
R = Price per unit (Also called revenue)
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EXAMPLE 03
The owner of old fashion berry pies, Mr. Simon, is
planning a new lines of pies, which will require
leasing new equipments for a monthly payment of
$6,000. Variable costs would be $2.00 per pie, and
pies retail for $7.00 each.
EXAMPLE 04
The manufacturer of Igloo ice-cream has a fixed cost of tk
80, 000 and variable cost of tk 25 per pkt of made and sold.
Selling price is tk 40 per pkt.
Find the revenue, cost and profit functions using x for number
of pkt of ice-cream.
What is the profit if 50000 pkt of ice-cream are made and sold?
What is the profit if 5000 pkt of ice-cream are made and sold?
Find the break even quantity.
At what sales volume (revenue) will break-even occur?
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