Basic Capacity, Utilisation, Efficiency and Advanced

Capacity Questions
Question 1. A pizza making machine is designed to operate 24 hours a day, 6 days
a week, but has planned downtime of 16 hours per week due to product
changeovers and maintenance. In addition there is a further loss of output due to
quality concerns and material shortages totalling a further 15 hours per week.
Calculate the following for the pizza making machine:
(i) Design capacity
(ii) Effective capacity
(iii) Achieved capacity
(iv) Machine utilisation
(v) Efficiency
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Question 2. A bread making machine is designed to operate 12 hours a day, 5 days
a week, but has planned downtime of 5 hours per week due to product changeovers,
cleaning and maintenance. In addition there is a further loss of output due to quality
concerns and material shortages totalling a further 15 hours per week. Calculate the
following for the bread making machine:
(i) Design capacity
(ii) Effective capacity
(iii) Achieved capacity
(iv) Machine utilisation
(v) Efficiency
Comment on your answers.
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Question 3. A food canning machine is designed to operate 24 hours a day, 7 days
a week, but has planned downtime of 28 hours per week due to product
changeovers and maintenance. In addition there is a further loss of output due to
quality concerns and material shortages totalling a further 40 hours per week.
Calculate the following for the canning machine:
(i) Design capacity
(ii) Effective capacity
(iii) Achieved capacity
(iv) Machine utilisation
(v) Efficiency

1
Answers to Basic Capacity Questions
Question 1. A pizza making machine is designed to operate 24 hours a day, 6 days
a week, but has planned downtime of 16 hours per week due to product
changeovers and maintenance. In addition there is a further loss of output due to
quality concerns and material shortages totalling a further 15 hours per week.
Calculate the following for the pizza making machine:
(i) Design capacity
(ii) Effective capacity
(iii) Achieved capacity
(iv) Machine utilisation
(v) Efficiency
Answer
(i) Design capacity = 24hours x 6 days = 144 hours
(ii) Effective capacity = Design capacity (144 hours) - Planned downtime (16 hours)
Effective capacity = (144 - 16) = 128 hours
(iii) Achieved capacity = Effective capacity (128 hours) - Avoidable downtime (15 hours)
Achieved capacity = (128 - 15) = 113 hours
Therefore:
(iv) Machine utilisation = Achieved capacity/Design capacity
Machine utilisation = (113/144) x 100% = ~78.5% (78.47%)
(v) Efficiency = Achieved capacity/Effective capacity
Efficiency = (113/128) x 100% = ~88.3% (88.28%)
Comment
Both of these figures, utilisation (78.4%) and efficiency (88.3%) are relatively high for a
manufacturing business. This is good news for the business given that the unplanned or
avoidable downtime seems to be relatively high (15 hours for quality concerns and material
shortages). The planned downtime (product changeovers and maintenance) spread over six
days is reasonable at approximately 2.7 hours per day when running a machine or operating a
business twenty-four hours a day.
However the figure for the avoidable downtime is quite high but could be better. Specifically
the quality issues should be addressed and corrected and the purchasing of raw materials done
in such a way that the facility does not have shortages of raw materials or stock outs. This
would improve the machine utilisation and the efficiency of the operation.

2
Question 2. A bread making machine is designed to operate 12 hours a day, 5 days
a week, but has planned downtime of 5 hours per week due to product changeovers,
cleaning and maintenance. In addition there is a further loss of output due to quality
concerns and material shortages totalling a further 15 hours per week. Calculate the
following for the bread making machine:
(i) Design capacity
(ii) Effective capacity
(iii) Achieved capacity
(iv) Machine utilisation
(v) Efficiency
Comment on your answers.
Answer
(i) Design capacity = 12 hours x 5 days = 60 hours per week
(ii) Effective capacity = Design capacity (60 hours) - Planned downtime (5 hours)
Effective capacity = (60 - 5) = 55 hours per week
(iii) Achieved capacity = Effective capacity (55 hours) - Avoidable downtime (15 hours)
Achieved capacity = (55 - 15) = 40 hours per week
Therefore:
(iv) Machine utilisation = Achieved capacity/Design capacity
Machine utilisation = (40/60) x 100% = ~66.7% (66.66%)
(v) Efficiency = Achieved capacity/Effective capacity
Efficiency = (40/55) x 100% = ~72.7% (72.72%)
Comment
The machine utilisation (66.7%) is relatively low because there is approximately 20 hours a
week lost due planned downtime (5 hours) and unplanned or avoidable downtime (15 hours)
each week. The bread making machine is expected to be working 60 hours a week but in fact
is only working 40 hours a week which leads to the machine utilisation of approximately two
thirds the design capacity.
The efficiency (72.7%) tells us that of the time available after the planned downtime is
accounted for some 72.7% of the time is used. This figure is quite high but it could be better
if the avoidable downtime were eliminated; specifically the quality issues should be
addressed and corrected and the purchasing of raw materials done in such a way that the
facility does not have shortages of raw materials or stock outs.

3
Question 3. A food canning machine is designed to operate 24 hours a day, 7 days
a week, but has planned downtime of 28 hours per week due to product
changeovers and maintenance. In addition there is a further loss of output due to
quality concerns and material shortages totalling a further 40 hours per week.
Calculate the following for the canning machine:
(i) Design capacity
(ii) Effective capacity
(iii) Achieved capacity
(iv) Machine utilisation
(v) Efficiency
Answer
(i) Design capacity = 24 hours x 7 days = 168 hours per week
(ii) Effective capacity = Design capacity (168 hours) - Planned downtime (28 hours)
Effective capacity = (168 - 28) = 140 hours per week
(iii) Achieved capacity = Effective capacity (140 hours) - Avoidable downtime (40 hours)
Achieved capacity = (140 - 40) = 100 hours per week
Therefore:
(iv) Machine utilisation = Achieved capacity/Design capacity
Machine utilisation = (100/168) x 100% = ~59.5% (59.52%)
(v) Efficiency = Achieved capacity/Effective capacity
Efficiency = (100/140) x 100% = ~71.4% (71.42%)
Comment
The machine utilisation (59.5%) is relatively low because there is approximately 68 hours a
week lost due planned downtime (20 hours for product changeovers and maintenance) and
unplanned or avoidable downtime (40 hours for ) each week. The bread making machine is
expected to be working 168 hours a week but in fact is only working 100 hours a week which
leads to the relatively low machine utilisation (59.5%).
The efficiency (71.4%) tells us that of the time available after the planned downtime is
accounted for some 71.4% of the time is used. This figure is quite high but could be better if
the relatively large amount of avoidable downtime (40 hours for quality concerns and
material shortages) were eliminated; specifically the quality issues should be addressed and
corrected and the purchasing of raw materials done in such a way that the facility does not
have shortages of raw materials or stock outs.

4
Advanced Capacity Questions
AQ1. A trainer manufacturer produces three types of trainers in its factory: Basis,
Flash and Gold Rush. Basis can be assembled in 1.5 minutes, Flash in 2 minutes
and Gold Rush in 3 minutes. There are 700 assembly hours available each week on
a variety of machines. The market demand for Basis, Flash and Gold Rush is in the
ratio of 6:5:3. (Note: the assembly time is per pair of trainer, thus one unit is a pair of
trainers).
(i) How long does it take to assemble 14 units (i.e. pairs) and how many units (i.e.
pairs) are produced per week?
(ii) How many units (i.e. pairs) are made each week of Basis, Flash and Gold Rush
trainers?
The company is thinking of introducing a higher specification trainer called the
Olympic. The Olympic can be assembled in 3.5 minutes and must be fitted in on the
same production line as the Basis, Flash and Gold Rush using 700 hours of
assembly time each week. The new market demand for Basis, Flash, Gold Rush and
the Olympic trainers is in the ratio of 6:5:3:2.
(iii) Given this new information how long does it take to assemble 16 units (i.e. pairs)
and how many units (i.e. pairs) are produced per week?
(iv) How many units (i.e. pairs) are made each week of Basis, Flash, Gold Rush and
Olympic trainers?
(v) Comment on your answer.
---------------------------------------------------------------------------------------------------------------
AQ2. A shoe manufacturer produces three types of shoe in its factory: Casual,
Business and Executive. Casual can be assembled in 2 minutes, Business in 3
minutes and Executive in 4 minutes. There are 600 assembly hours available each
week. If demand for Casual, Business and Executive shoes is in the ratio of 8:4:3,
how long does it take to assemble 15 units and how many units are produced per
week?
----------------------------------------------------------------------------------------------------------------
AQ3. A carburettor manufacturer produces three types of carburettor in its factory:
Type 1, Type 2 and Type 3. Type 1 can be assembled in 3.5 minutes, Type 2 in 4
minutes and Type 3 in 5 minutes. There are 800 assembly hours available each
week. If demand for Type 1, Type 2 and Type 3 is in the ratio of 9:4:3, how long does
it take to assemble 16 units and how many units are produced per week?
----------------------------------------------------------------------------------------------------------------

5
AQ4. A company manufactures stuffed animals and toys 5 days a week and working
8 hours a day. The company makes a range of teddy bears in a dedicated Teddy
Bear production area with numerous machines. Three teddy bears are made on the
same production line; these are large, medium and small. The large teddy bear takes
5 minutes to produce, the medium teddy bear takes 4 minutes to produce and small
teddy bear takes 3 minutes to produce. In an average month 1000 large teddy bears
are produced and sold, 3000 medium teddy bears are produced and sold, and 9000
small teddy bears are produced and sold to meet the market requirements. As a
result of matching supply to demand the company carries very little stock.
A film company is making a special teddy bear called a “Super Teddy” as part of its
marketing activities and expects to sell 12,000 Super Teddies per month over the
next six months. The film company has asked the stuffed animals and toys company
if they would be able to produce the 12,000 Super Teddies per month for the next six
months.
As an operations management specialist you have been asked by the company to
assess the possibility of taking this contract and have been asked to look at several
options for the company. Data is provided in the table below. The options the
company are considering are as follows:
(i) What is the capacity needed in order to make the usual number of teddy bears
(large, medium and small teddy bears) per month? What is the current sales of teddy
bears (in £s) per month?
(ii) The company is considering taking the order for the 12,000 Super Teddies per
month and would like to know what additional capacity is required per month in order
to make all the teddies (large, medium, small and the Super Teddies).
(iii) The company is considering suspending manufacture or at least reducing the
number of teddies made per month in the normal range (large, medium and small) in
order to avoid investing in excess capacity which may not be used after the six
months contract with the film company. What in your view do you make of this
particular option?
(iv) Comment on your answers.
Table Z. Data on the Manufacture of the Various Teddies
Assembly time Quantity per month Selling Price (£s)
Teddy Bears (mins)
Large 5 1000 30
Medium 4 3000 20
Small 3 9000 10
Super Teddy 4.5 12000 20
Film sponsored

6
AQ5. Question with Trainers and with Selling Prices Added
A trainer manufacturer produces three types of trainers in its factory: Basis, Flash
and Gold Rush. Basis can be assembled in 1.5 minutes, Flash in 2 minutes and Gold
Rush in 3 minutes. There are 700 assembly hours available each week on a variety
of machines. The market demand for Basis, Flash and Gold Rush is in the ratio of
6:5:3. (Note: the assembly time is per pair of trainers, thus one unit is a pair of
trainers).
(i) How many assembly minutes does it take to assemble 14 units (i.e. pairs) in the
ratio 6:5:3 and how many units (i.e. pairs) are produced per week?
(ii) How many units (i.e. pairs) are made each week of Basis, Flash and Gold Rush
trainers?
The company is thinking of introducing a higher specification trainer called the
Olympic. The Olympic can be assembled in 3.5 minutes and must be fitted in on the
same production line as the Basis, Flash and Gold Rush using 700 hours of
assembly time each week. The new market demand for Basis, Flash, Gold Rush and
the Olympic trainers is expected to be in the ratio of 6:5:3:2.
(iii) Given this new information how many assembly minutes does it take to assemble
16 units (i.e. pairs) in the ratio 6:5:3:2 and how many units (i.e. pairs) can be
produced per week?
(iv) How many units (i.e. pairs) can be made each week of Basis, Flash, Gold Rush
and Olympic trainers?
(v) Given the selling price of the trainers shown in the table X below, calculate the
sales per week if all the trainers are sold.
(vi) Comment on your answer.

Table X. Selling Price of Trainers

Trainer Selling Price per pair
type of Trainers (£s)
Basis 60
Flash 70
Gold Rush 90
Olympic 100

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AQ6 Capacity and Product Mix
A manufacturer produces three types of outdoor walking boots in its factory:
Weekend Walker, Westwood and Peak Walker. A pair of Weekend Walker can be
assembled in 3 minutes, Westwood in 4 minutes and Peak Walker in 5 minutes.
There are 900 assembly hours available each week. Demand for Weekend Walker,
Westwood and Peak Walker boots is in the ratio of 7:4:3 respectively.
(i) How long does it take to assemble 14 pairs (units) of boots?
(ii) How many pairs (units) are produced each week?
(iii) How many pairs (units) of each type of boot (i.e. Weekend Walker, Westwood
and Peak Walker) are made each week?
(iv) What would happen to the manufacturing if another pair of boots called the High
Peak Walker were added giving a demand ratio of 7:4:3:2 for Weekend Walker,
Westwood, Peak Walker and High Peak Walker respectively. The High Peak Walker
takes 6 minutes to assemble a pair of boots (i.e. a unit).
(v) Comment on your answer. Note: a unit is a pair of boots.

8
Answers to Advanced Capacity Questions
AQ1. A trainer manufacturer produces three types of trainers in its factory: Basis,
Flash and Gold Rush. Basis can be assembled in 1.5 minutes, Flash in 2 minutes
and Gold Rush in 3 minutes. There are 700 assembly hours available each week on
a variety of machines. The market demand for Basis, Flash and Gold Rush is in the
ratio of 6:5:3. (Note: the assembly time is per pair of trainers, thus one unit is a pair
of trainers).
(i) How long does it take to assemble 14 units (i.e. pairs) and how many units (i.e.
pairs) are produced per week?
(ii) How many units (i.e. pairs) are made each week of Basis, Flash and Gold Rush
trainers?
The company is thinking of introducing a higher specification trainer called the
Olympic. The Olympic can be assembled in 3.5 minutes and must be fitted in on the
same production line as the Basis, Flash and Gold Rush using 700 hours of
assembly time each week. The new market demand for Basis, Flash, Gold Rush and
the Olympic trainers is in the ratio of 6:5:3:2.
(iii) Given this new information how long does it take to assemble 16 units (i.e. pairs)
and how many units (i.e. pairs) are produced per week?
(iv) How many units (i.e. pairs) are made each week of Basis, Flash, Gold Rush and
Olympic trainers?
(v) Comment on your answer.
Answer
(i) How long does it take to assemble 14 units (i.e. pairs) and how many units
(i.e. pairs) are produced per week?
There are 700 hours of assembly time available each week on a variety of machines
with several operatives. Given that the market demand for trainers is in the ratio
6:5:3 (i.e. 14 units) we should see how long it takes to make 14 units.
(6 x 1.5) + (5 x 2) + (3 x 3) = 9+10+9 = 28 minutes to assemble 14 units.
Note: the 700hours assembly time need to be converted to minutes. The number of
units that can be produced per week is:
Number of minutes x number of units = 700 x 60 x 14units = 21,000 units per week
Assembly time for the specified units 28minutes
Thus, the capacity of the factory is 21,000 units (i.e. pairs) per week of trainers
can be made in the ratio 6:5:3
(ii) How many units (i.e. pairs) are made each week of Basis, Flash and Gold
Rush trainers?
The actual number of each pair of trainers (i.e. a unit is a pair of trainers) is:
Basis: 21,000 x 6 = 9000 units of trainers (i.e. pairs of trainers)
14
Flash: 21,000 x 5 = 7500 units of trainers (i.e. pairs of trainers)
14

9
Gold Rush: 21,000 x 3 = 4500 units of trainers (i.e. pairs of trainers)
14
Check line: Total = 9000+7500+4500 = 21,000 units of trainers (i.e. pairs of
trainers)
The company is thinking of introducing a higher specification trainer called the
Olympic. The Olympic can be assembled in 3.5 minutes and must be fitted in on the
same production line as the Basis, Flash and Gold Rush using 700 hours of
assembly time each week. The new market demand for Basis, Flash, Gold Rush and
the Olympic trainers is in the ratio of 6:5:3:2.
(iii) Given this new information how long does it take to assemble 16 units (i.e.
pairs) and how many units (i.e. pairs) are produced per week?
Basis Flash Gold Rush Olympic
(6 x 1.5) + (5 x 2) + (3 x 3) + (2 x 3.5) = 9 + 10 + 9 + 7 = 35 minutes
It takes 35 minutes to assemble 16 units.
Note: the 700hours assembly time need to be converted to minutes. The number of
units that can be produced per week is:
Number of minutes x number of units = 700 x 60 x 16units = 19,200 units per week
Assembly time for the specified units 35minutes
Thus, the capacity of the factory is now 19,200 units (i.e. pairs) per week of
trainers can be made in the ratio 6:5:3:2.
(iv) How many units (i.e. pairs) are made each week of Basis, Flash, Gold Rush
and Olympic trainers?
The actual number of each pair of trainers (i.e. a unit is a pair of trainers) is:
Basis: 19,200 x 6 = 7200 units of trainers (i.e. pairs of trainers)
16
Flash: 19,200 x 5 = 6000 units of trainers (i.e. pairs of trainers)
16
Gold Rush: 19,200 x 3 = 3600 units of trainers (i.e. pairs of trainers)
16
Olympic: 19,200 x 2 = 2400 units of trainers (i.e. pairs of trainers)
16
Check line: Total = 7200+6000+3600+2400 = 19,200 units of trainers (i.e. pairs of
trainers)
(v) Comment on your answer.
The introduction of the Olympic trainers has reduced the overall capacity of the
factory to make any one pair of trainers. This is a common problem with a fixed
manufacturing capacity and the introduction of new products. There are only 700
assembly hours available on a variety of machines and therefore the new product
will take away time that was originally used for the manufacture of Basis, Flash and
Gold Rush trainers. If the company has sufficient money and the demand is
sufficiently high the company might consider investing in more equipment and more
people to continue to make a higher volume of the various designs of trainers.

10
AQ2. A shoe manufacturer produces three types of shoe in its factory: Casual,
Business and Executive. Casual can be assembled in 2 minutes, Business in 3
minutes and Executive in 4 minutes. There are 600 assembly hours available each
week. If demand for Casual, Business and Executive shoes is in the ratio of 8:4:3,
how long does it take to assemble 15 units and how many units are produced per
week?
Answer
Casual can be assembled in 2 minutes, Business in 3 minutes and Executive in
4 minutes. How long does it take to assemble 15 units in the ratio of 8:4:3 for
Casual, Business and Executive shoes?
Note the ratios of 8:4:3 if added give 15 which allows us to calculate the assembly
time for 15 units as follows:
Casual Business Executive
Assembly time for 15 units = (8 x 2mins) + (4 x 3mins) + (3 x 4mins) = 16+12+12
Assembly time for 15 units = 40 minutes to assemble 15 units.
How many units are produced per week?
There are 600 hours of assembly time and needs to be converted to minutes (x 60)
Note: the 600hours assembly time need to be converted to minutes. The number of
units that can be produced per week is:
Number of minutes x number of units = 600hrs x 60mins x 15units = 13,500 units
Assembly time for the specified units 40 minutes
Thus, the capacity of the factory is 13,500 units (i.e. pairs) per week of shoes
can be made in the ratio 8:4:3
We can also calculate how many of each type of shoe (Casual, Business and
Executive) are made each week as follows:
The actual number of each pair of trainers (i.e. a unit is a pair of trainers) is:
Casual: 13,500 x 8 = 7200 units of Casual shoes (i.e. pairs)
15
Business: 13,500 x 4 = 3600 units of Business shoes (i.e. pairs)
15
Executive: 13,500x 3 = 2700 units of Executive shoes (i.e. pairs)
15
Check line: Total = 7200 + 3600 + 2700 = 13,500 units of shoes (i.e. pairs)
Comment
This is a relatively straightforward calculation for the ratio of casual to business to
executive shoes of the ratio of 8:4:3. The company can produce 13,500 units (i.e.
pairs of shoes) each week given the assembly time available (600 hours per week).
If the ratios were to change then the values could be recalculated for each type of
shoe and the overall number of units per week could be re-calculated accordingly.
Similarly, if the capacity of the factory or production line were to increase or indeed

11
decrease the number of units that could be produced each week could be re-
calculated.

12
AQ3. A carburettor manufacturer produces three types of carburettor in its factory:
Type 1, Type 2 and Type 3. Type 1 can be assembled in 3.5 minutes, Type 2 in 4
minutes and Type 3 in 5 minutes. There are 800 assembly hours available each
week. If demand for Type 1, Type 2 and Type 3 is in the ratio of 9:4:3, how long does
it take to assemble 16 units and how many units are produced per week?
Answer
Type 1 carburettors can be assembled in 3.5 minutes, Type 2 carburettors in 4
minutes and Type 3 carburettors in 5 minutes. How long does it take to
assemble 16 units?
Note the ratios of 9:4:3 if added give 16 which allows us to calculate the assembly
time for 16 units as follows:
Type 1 Type 2 Type 3
Assembly time for 16 units = (9 x 3.5mins) + (4 x 4mins) + (3 x 5mins) = 31.5+16+15
Assembly time for 16 units = 62.5 minutes to assemble 16 carburettor units.
How many carburettor units are produced per week?
There are 800 hours of assembly time and needs to be converted to minutes (x 60)
The number of units that can be produced per week is:
Number of minutes x number of units = 800hrs x 60mins x 16units = 12,288 units
Assembly time for the specified units 62.5 minutes
Thus, the capacity of the factory is 12,288 units (i.e. carburettors) per week of
can be made in the ratio 9:4:3
We can also calculate how many of each type of carburettor (Type 1, Type 2
and Type 3) are made each week as follows:
The actual number of each pair of trainers (i.e. a unit is a pair of trainers) is:
Type 1: 12,288 x 9 = 6912 units of Type 1 carburettor
16
Type 2: 12,288 x 4 = 3072 units of Type 2 carburettor
16
Type 3: 12,288 x 3 = 2304 units of Type 3 carburettor
16
Check line: Total = 6912 + 3072 + 2304 = 12,288 carburettors
Comment
This is a relatively straightforward calculation for the production of three types of
carburettor of the ratio of 8:4:3. The company can produce 12,288 units (i.e.
carburettors) each week given the assembly time available (800 hours per week). If
the ratios were to change then the values could be recalculated for each type of
carburettor and the overall number of units per week could be re-calculated
accordingly. Similarly, if the capacity of the factory or production line were to
increase or indeed decrease the number of units that could be produced each week
could be re-calculated using this method.

13
AQ4. A company manufactures stuffed animals and toys 5 days a week and working
8 hours a day. The company makes a range of teddy bears in a dedicated Teddy
Bear production area with numerous machines. Three teddy bears are made on the
same production line; these are large, medium and small. The large teddy bear takes
5 minutes to produce, the medium teddy bear takes 4 minutes to produce and small
teddy bear takes 3 minutes to produce. In an average month 1000 large teddy bears
are produced and sold, 3000 medium teddy bears are produced and sold, and 9000
small teddy bears are produced and sold to meet the market requirements. As a
result of matching supply to demand the company carries very little stock.
A film company is making a special teddy bear called a “Super Teddy” as part of its
marketing activities and expects to sell 12,000 Super Teddies per month over the
next six months. The film company has asked the stuffed animals and toys company
if they would be able to produce the 12,000 Super Teddies per month for the next six
months.
As an operations management specialist you have been asked by the company to
assess the possibility of taking this contract and have been asked to look at several
options for the company. Data is provided in the table below. The options the
company are considering are as follows:
(i) What is the capacity needed in order to make the usual number of teddy bears
(large, medium and small teddy bears) per month? What is the current sales of teddy
bears (in £s) per month?
(ii) The company is considering taking the order for the 12,000 Super Teddies per
month and would like to know what additional capacity is required per month in order
to make all the teddies (large, medium, small and the Super Teddies).
(iii) The company is considering suspending manufacture or at least reducing the
number of teddies made per month in the normal range (large, medium and small) in
order to avoid investing in excess capacity which may not be used after the six
months contract with the film company. What in your view do you make of this
particular option?
(iv) Comment on your answers.
Table Z. Data on the Manufacture of the Various Teddies
Assembly time Quantity per month Selling Price (£s)
Teddy Bears (mins)
Large 5 1000 30
Medium 4 3000 20
Small 3 9000 10
Super Teddy 4.5 12000 20
Film sponsored

14
Answer
(i) What is the capacity needed in order to make the usual number of teddy
bears (large, medium and small teddy bears) per month? What is the current
sales of teddy bears per month (in £s)?
The Current Situation
Assembly Quantity Selling Manufacturing Sales
time (mins) per month Price time (mins per (£s per
(£s) month) month)
Teddy Bears
Large 5 1000 30 5,000 30,000
Medium 4 3000 20 12,000 60,000
Small 3 9000 10 27,000 90,000
Total 44,000 mins 180,000
(mins)
Total 733.33 hours
(Hours)
Thus the manufacturing capacity required to make the current (large, medium and
small) teddy bears range is 733.33 hours per month.
The sales per month of the large, medium and small teddy bears is calculated to be
approximately £180,000 per month.
(ii) The company is considering taking the order for the 12,000 Super Teddies
per month and would like to know what additional capacity is required per
month in order to make all the teddies (large, medium, small and the Super
Teddies).
Assembly Quantity Selling Manufacturing Sales
time (mins) per month Price time (mins per (£s per
(£s) month) month)
Teddy Bears
Large 5 1,000 30 5,000 30,000
Medium 4 3,000 20 12,000 60,000
Small 3 9,000 10 27,000 90,000
Super 4.5 12,000 20 54,000 240,000
Teddies
Total 98,000 mins 420,000
(mins)
Total 1633.33 hours
(Hours)
Thus the manufacturing capacity required to make the current (large, medium, small
and Super Teddies) teddy bears range is 1633.33 hours per month.
The projected sales per month of the large, medium, small and Super Teddies teddy
bears is £420,000 per month of which £240,000 comes from the sale of super
teddies.
The increased sales per month could be most welcome if we knew the profit on each
Teddy and could work out the overall profit per month. However, the additional
capacity required to make these Super Teddies is:

15
Additional Capacity = Total time for all teddies minus the time for the usual 3 sizes
Additional Capacity = 1633.33 - 733.33 = 900 hours per month
Thus, the additional capacity is 900 hours per month (54,000 minutes) and is more
than doubling the current capacity of the teddy bear production area. This could
involve a substantial capital expenditure or a move to a shift working system in order
to create the additional 900 hours per month of capacity. Overall production capacity
needs to be more than doubled (1633.33/733.33 = 2.22 times).
(iii) The company is considering suspending or at least reducing the number
of teddies made per month in the normal range (large, medium and small) in
order to avoid investing in excess capacity which may not be used after the six
months contract with the film company. What in your view do you make of this
particular option?
The current capacity requires 44,000 minutes per month (733.33 hours per month)
and to just make Super Teddies alone would require 54,000 minutes per month (900
hours per month).
The additional capacity required just to make the Super Teddies only is:
Additional Capacity (Super Teddies only) = 900 - 733.33 = 166.67 hours/month
Working out the Number of Employees in the Teddy Bear Production Area
Given that the current capacity is 733.33 hours per month or approximately 183.33
hours per week in the teddy bear production area we can work out how many
employees are working in the teddy bear production area. We know that each
employee works a 5 day week of 8 hours a day which is a 40 hour working week.
Thus a number of employees working in the teddy bear production area is given by:
Number of Employees = 183.33 hours per week = 4.58 employees approximately.
40 hours per week
The overtime required can also be calculated:
(a) Dealing with the Super Teddies only at 900 hours per month:
Overtime per month required = 900 hours per month - 733.33 hours per month
Overtime per month required = 166.67 hours per month = 41.66 hours per week
Overtime per employee = 41.66 hours per week = 9.1 hours per week per employee
4.58 employees
Thus the overtime over five days is approximately 1.82 hours per day per employee
to deal with the order for super teddies only. This seems reasonable and perhaps
could be accommodated to some extent by occasionally working on a Saturday.
(b) Dealing with the Super Teddies and Some of their Own Business
One might think of moving towards a two shift system with two 8 hour shifts per day,
5 days a week and thereby doubling the current capacity to 1466.66 hours per month
without buying any extra equipment. This would allow the Super Teddies to be made
(900 hours per month) and leave some capacity for making the large, medium and
small teddies currently produced (1466.66 - 900 = 566.66 hours per month). This
would need a doubling of the workforce in the teddy production area to

16
approximately 9 or 10 operatives (i.e. 5 operatives per shift) and would not present
too many problems operationally.
If the current teddies are made in the ratio of 1:3:9 then with 566.66 hours per month
available we can calculate how many of the large, medium and small teddies can be
made.
Time to make 13 teddies in the ratio of 1:3:9 is:
Small Medium Large
(1 x 5mins) + (3 x 4mins) + (9 x 3mins) = 5+12+27 = 44 minutes to assemble 13
teddies in the ratio of 1:3:9.
Note: the 566.66 hours assembly time needs to be converted to minutes. The
number of units that can be produced per week is:
Number of minutes x number of units = 566.66 x 60 x 13units = ~10,045 units
Assembly time for the specified units 44minutes
Thus, the remaining capacity of the factory is 10,045 units (i.e. for large,
medium and small teddies) per month can be made in the ratio 1:3:9. That is:
Large Teddies: 10,045 x 1 = ~772 units of Large Teddies
13
Medium Teddies: 10,045 x 3 = ~2318 units of Medium Teddies
13
Small Teddies: 10,045 x 9 = ~6954 units of Small Teddies
13
Check line: Total = 772 + 2318 + 6954 = ~10,044 units of Teddies
The sales income from these teddies can be calculated:
Teddy Quantity Selling Sales (£s Original Original
Bears per Price (£s) per quantity Sales (£s)
month month) per month per month
Large 772 30 23,160 1000 30,000
£30
Medium 2318 20 46,360 3000 60,000
£20
Small 6954 10 69,540 9000 90,000
£10
Total 10,044 Total 139,060 13,000 180,000
The manufacture of the company’s own sizes of teddies is less than that originally
and the sales figures are lower.
The sales income from making the 12,000 Super Teddies £240,000. This is more
than the current monthly sales of large, medium and small teddies of £180,000. The
total sales with a 2 shift system (effectively doubling the capacity of the company) is
£139,060 plus £240,000 equals £379,060.
This projected sales figure falls short of the original projected figure (£420,000)
making all the teddies to the capacity required but is a good compromise.
(iv) Comment on your answers.

17
The company is stuck between a hard decision to take on new business and a
commitment to its own product range and own customers. The capacity required to
produce all the teddies is 1633.33 hours per month and is more than double the
current capacity. The 12,000 Super Teddies per month alone require 900 hours per
month of production time.
Simply making the Super Teddies only, requires additional capacity of 166.67
hours per month (41.67 hours per week) but means suspending the manufacture of
their own range of teddies. However the overtime required in one week is not
excessive at ~1.82 hours per employee (4.58 employees; working 5 days) and might
be partially accommodated by working a Saturday.
An alternative solution could be to move to a 2 shift system and work 5 days a
week, 8 hours each shift (total is 80 hours a week) and make some of their own
teddies and the Super Teddy. As shown above this would double the current
capacity from 733.33 hours per month to 1466.66 hours per month and would allow
the company to make the Super Teddies (12,000 units) and also make some of its
own product range of large (~772 units), medium (~2318 units) and small teddies
(~6954 units).
The disadvantage of this approach is that the company needs to move to a 2 shift
working system and effectively double the number of employees in order to double
the capacity in the teddy bear production area. However, doubling the number of
operatives to 9 or 10 with 5 on each shift in the Teddy Bear production area seems a
reasonable approach.
At the end of the six months of making the Super Teddies a decision will need to
be made on whether to return to the original manufacturing system working a normal
8 hour day 5 days a week (and potentially firing some employees) or attempting to
find some other business given the excessive capacity they have created by moving
to a two shift working system. One suggestion is that the Marketing and Sales
department should be informed that new business will be required at the end of the 6
months of making the Super Teddies in the hope that new business can be found.
Obvious solutions such as selling the teddies online could be suggested. Retaining
the option to make the Super Teddies under licence in future might be worth
considering but it may be that the film company only expect the Super Teddies sales
to be a short lived fad.
Whatever, at the end of 6 months another hard decision is expected to be made
which could, inter alia, include:
(a) Returning to make more of their own teddies.
(b) Making the Super Teddies under licence.
(c) Selling all products direct via online sales as well as via previous channels.
(d) Finding new business making teddies and possibly new products to make.
This is a good example of a large order problem with limited production
capacity. Such problems affect small and medium-sized businesses more
dramatically than larger companies. Nevertheless these problems need to be
carefully analysed before accepting an order (large order in this case) for a
relatively short period of time (6 months).

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AQ5. Question with Trainers and with Selling Prices Added
A trainer manufacturer produces three types of trainers in its factory: Basis, Flash
and Gold Rush. Basis can be assembled in 1.5 minutes, Flash in 2 minutes and Gold
Rush in 3 minutes. There are 700 assembly hours available each week on a variety
of machines. The market demand for Basis, Flash and Gold Rush is in the ratio of
6:5:3. (Note: the assembly time is per pair of trainers, thus one unit is a pair of
trainers).
(i) How many assembly minutes does it take to assemble 14 units (i.e. pairs) in the
ratio 6:5:3 and how many units (i.e. pairs) are produced per week?
(ii) How many units (i.e. pairs) are made each week of Basis, Flash and Gold Rush
trainers?
The company is thinking of introducing a higher specification trainer called the
Olympic. The Olympic can be assembled in 3.5 minutes and must be fitted in on the
same production line as the Basis, Flash and Gold Rush using 700 hours of
assembly time each week. The new market demand for Basis, Flash, Gold Rush and
the Olympic trainers is expected to be in the ratio of 6:5:3:2.
(iii) Given this new information how many assembly minutes does it take to assemble
16 units (i.e. pairs) in the ratio 6:5:3:2 and how many units (i.e. pairs) can be
produced per week?
(iv) How many units (i.e. pairs) can be made each week of Basis, Flash, Gold Rush
and Olympic trainers?
(v) Given the selling price of the trainers shown in the table X below, calculate the
sales per week if all the trainers are sold.
(vi) Comment on your answer.

Table X. Selling Price of Trainers

Trainer Selling Price per pair
type of Trainers (£s)
Basis 60
Flash 70
Gold Rush 90
Olympic 100

19
Answer:
(i) How many assembly minutes does it take to assemble 14 units (i.e. pairs) in
the ratio 6:5:3 and how many units (i.e. pairs) are produced per week?
There are 700 hours of assembly time available each week on a variety of machines
with several operatives. Given that the market demand for trainers is in the ratio
6:5:3 (i.e. 14 units) we should see how long it takes to make 14 units.
(6 x 1.5) + (5 x 2) + (3 x 3) = 9+10+9 = 28 minutes to assemble 14 units.
Note: the 700hours assembly time need to be converted to minutes. The number of
units that can be produced per week is:
Number of minutes x number of units = 700 x 60 x 14units = 21,000 units
Assembly time for the specified units 28minutes
Thus, the capacity of the factory is 21,000 units (i.e. pairs) per week of trainers
can be made in the ratio 6:5:3
(ii) How many units (i.e. pairs) are made each week of Basis, Flash and Gold
Rush trainers?
The actual number of each pair of trainers (i.e. a unit is a pair of trainers) is:
Basis: 21,000 x 6 = 9000 units of trainers (i.e. pairs of trainers)
14
Flash: 21,000 x 5 = 7500 units of trainers (i.e. pairs of trainers)
14
Gold Rush: 21,000 x 3 = 4500 units of trainers (i.e. pairs of trainers)
14
Check line: Total = 9000+7500+4500 = 21,000 units of trainers (i.e. pairs of
trainers)
The company is thinking of introducing a higher specification trainer called the
Olympic. The Olympic can be assembled in 3.5 minutes and must be fitted in on the
same production line as the Basis, Flash and Gold Rush using 700 hours of
assembly time each week. The new market demand for Basis, Flash, Gold Rush and
the Olympic trainers is in the ratio of 6:5:3:2.
(iii) Given this new information how many assembly minutes does it take to
assemble 16 units (i.e. pairs) in the ratio 6:5:3:2 and how many units (i.e. pairs)
can be produced per week?
Basis Flash Gold Rush Olympic
(6 x 1.5) + (5 x 2) + (3 x 3) + (2 x 3.5) = 9 + 10 + 9 + 7
= 35 minutes to assemble 16 units.
The number of units that can be produced per week is:
Number of minutes x number of units = 700 x 60 x 16units = 19,200 units
Assembly time for the specified units 35minutes
Thus, the capacity of the factory is now 19,200 units (i.e. pairs) per week of
trainers which can be made in the ratio 6:5:3:2.

20
(iv) How many units (i.e. pairs) can be made each week of Basis, Flash, Gold
Rush and Olympic trainers?
The actual number of each pair of trainers (i.e. a unit is a pair of trainers) is:
Basis: 19,200 x 6 = 7200 units of trainers (i.e. pairs of trainers)
16
Flash: 19,200 x 5 = 6000 units of trainers (i.e. pairs of trainers)
16
Gold Rush: 19,200 x 3 = 3600 units of trainers (i.e. pairs of trainers)
16
Olympic: 19,200 x 2 = 2400 units of trainers (i.e. pairs of trainers)
16
Check line: Total = 7200+6000+3600+2400 = 19,200 units of trainers (i.e. pairs of
trainers)
(v) Given the selling price of the trainers shown in the Table X below, calculate
the sales per week if all the trainers are sold.
Table X with Numbers Made and Revenues (per week)
Trainer Selling Number Revenue per Number Revenue
type Price per pairs made week with pairs per week
pair of Basis, only Basis, made with
Trainers Flash and Flash and with Olympic
(£s) Gold Rush Gold Rush Olympic added (£s)
per week (£s) Added
Basis 60 9000 £ 540,000 7200 £ 432,000
Flash 70 7500 £ 525,000 6000 £ 420,000
Gold Rush 90 4500 £ 405,000 3600 £ 324,000
Olympic 100 0 0 2400 £ 240,000
Totals 21000 £1,470,000 19200 £1,416,000
Thus, in the first instance (with Basis, Flash and Gold Rush) the number of units
which can be made in 700 hours per week of manufacturing time is 21,000 units (i.e.
pairs) the sales figures are £1,470,000 per week selling just these 3 styles of
trainers.
The introduction of the Olympic Trainer reduces the overall number of items that can
be made to 19,200 units; and reduces (by £54,000) the sales figure to £1,416,000
per week. This is despite the higher price of the Olympic trainer.
(vi) Comment on your answer.
The introduction of the Olympic trainers has reduced the overall capacity and sales
income of the factory. This is a common problem with a fixed manufacturing capacity
and the introduction of new products. There are only 700 assembly hours available
on a variety of machines and therefore the new product will take away time that was
originally used for the manufacture of Basis, Flash and Gold Rush trainers. Even
though the selling price of the Olympic is higher the weekly sales figures are
reduced. If the company has sufficient money and the demand is sufficiently high the
company might consider investing in more equipment and more people to continue
to make a higher volume of the various designs of trainers.

21