1.

Explain with an example:

Briefly discuss how uncertainty affects capacity decisions.

Uncertainty is when it is impossible to assess the likelihood of various possible future events.
When a manger makes decisions with uncertainty they must be careful and take their time.
An example of this is if a pharmaceutical company is adding another drug, it would create very
many uncertain decisions for a manager. Things like amount of the drug produced, the number
of sales people, the number of people on the marketing and financial teams, and the number
of machines needed to create the drug.If the manager decides on even one of these things
wrong, by over/under staffing, over/under producing, ect, the whole drug could become a
failure and cause the company a major fananical loss.

2. XYT, has a computer repair service that has a design capacity of 80 repairs per day.
It's effective capacity, however, is 68 repairs, and it actual output is 64 repairs per day.
a. Determine the utlization and the effciency for XYT
b. If the manager wants to increase tehe number of repairsper day, which of the
following factors would you recommend that the manger investigae, and why.
(Quality problems, absenteeism, or scheudling and balancing)
a.
Utlization = Actual/Design
Effeciency = Actual/Effective
Utilization = 64/80
Effeciency = 64/68
Utilization= 0.8
Effeciency = 0.941176
Utilization = 80%
Effeciency = 94%
b.
The manager should investiage absenteeism because the more people are gone, the less
repairs are going to be made. As well, the efficieny rate includes the effective capacity, the
effective capacity is the design capacity minus personal and other allowances. In this scenario,
the effeciency (not including the people) is higher than the utilization. So investigating the
absenteesim, which deals with peole would be a good idea.

3. A producer of pottery is considering the addition of a new plan to absorb the backlog
of demand that now exists. The primary location being considered will have the
fixed costs of $10,000 and variable costs of $2.50 per unit produced. Each
item is sold to retailers at a price that averages $3.50.
Required: (rounded to two decimal places):
a. What volume per month is required in order to break even?
b. What profit would be realized on a monthly volume of 50,000 units?
c. What volume (Q) is needed to obtain a profit of $15,000 per month?
d. What volume (Q) is needed to provide a revenue of $25,000 per month?
e. Use Excel to plot the total costs and total revenue lines. See Figure 5.6 for an ex.
b.
P=Q(R-V) - F
P=50,000(3.50-2.50) - 10,000
P= 40000
= $40,000

a.
BEP = F/(R-V)
BEP = 10,000/(3.50-2.50)
BEP= 10000
units
c.
P=Q(R-V) - F
15,000 = Q(3.50-2.50) - 10,000
15,000=1Q - 10,000
25,000 = 1Q
Q= 25,000 units

d.
Revenue = Q x R
25,000 = Q x 3.50
25,000 = 3.50Q
Q= 7142.857
units

e.
Q
0
6000
8000
10000
12000
14000

TC
10000
31000
38000
45000
52000
59000
Total Cost

TR
0
21000
28000
35000
42000
49000

Fixed
10000
10000
10000
10000
10000
10000

Total Revenue

70000
60000
50000

$$$

40000
30000
20000
10000
0
0

5000
Demand

10000

15000

4. A manager must decide which type of machine to buy, A or B. Machine costs are as follows:
Machine
Cost
A
$100,000
B
$40,000
Product forecasts and processing times on the machines are as follows:
PROCESSING TIME PER UNIT (minutes)
Product
A
B
Annual Demand
1
20,000
4
5
2
15,000
2
3
3
7,500
3
5
4
40,000
1
3
Assume that only purchasing costs are being considered. Machines (both A and B)
operate 12 hours a day, 250 days a year.
Which machine will have the lower total cost, how many of the machine will be needed?
Note that you could not buy a portion/part of a machine!!
Capactiy Available = 250 days * 12 hours/day * 60 min/hour = 180,000 minutes
Equations
# of machines needed: Sum/Capactity Available
Toatl Cost: # of machines * cost

Product
1
2
3
4
Sum
# needed
Rounded
Total Cost:

Machine A
Machine B
Annual Demand * Processing Time for Machine
80000
100000
30000
45000
22500
37500
40000
120000
172500
302500
0.958333333
1.68055556
1 machine
2 machines
$100,000
$80,000

Machine B has the lower cost by $20,000. It would require 2 machines.