Assignment 5.

1
CAPACITY PLANNING

Problem Solving:

1. An investment proposal will have annual fixed costs of $60,000, variable costs of
$35 per unit of output, and revenue of $55 per unit of output.

a. Determine the break-even quantity.

b. What volume of output will be necessary for an annual profit of $60,000?

Solution:
a.) Break-even at profit = 0
0 = Q(R - v) – FC
Q(R - v) = FC
Q x 20 = 60,000
Q = 3,000

b.) P = Q(r – V) – FC
60,000 = Q x 20 – 60,000
120,000 = Q x 20
Q = 6,000

2. Given the following information, what would efficiency be?

Effective capacity = 50 units per day
Design capacity = 100 units per day
Actual output = 30 units per day

30
Efficiency = × 100
50
Efficiency = 0.6 × 100
Efficiency = 60%

3. Given the following information, what would utilization be?

Effective capacity = 20 units per day
Design capacity = 60 units per day
Actual output = 15 units per day

4. A computer firm has a group of 50 computer consultants. These individuals visit

firms in the area on or prearranged visits or are called in for emergency
repairs.A call out fee is charged that covers the first hour of their visit. Beyond
the first hour they charge inminimum blocks of 30 minutes. The average call out
is 2 hours long.The working day is usually eight hours long but allows 2 breaks
of 15 minutes each and a half hourlunch break, leaving a 7 hour day. If holidays
and illness are accounted for at 25% the 7 hours perday is actually 5 ¼ hour
day.
If actual work is only 500 hours billed in the week then:
a. What is the capacity utilisation of the team?
b. What is their efficiency?