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AlwaysRain Irrigation, Inc. wants to establish the capacity it will require over the next four
years. It currently has two production lines for bronze and plastic sprinklers. The brass and
plastic sprayers come in three presentations: sprayers with 90-degree nozzle, sprayers with
180-degree nozzle and sprayers with 360-degree nozzle.
Management has forecast the following demand for the next four years:
The above table allows forecasting the total product lines by summing the annual demand
for each machine.
ANNUAL DEMAND
1 2 3 4
Plastic 97,000 115,000 136,000 141,000
Bronze 21,000 24,000 29,000 34,000
The two production lines can manufacture all types of nozzles. Each bronze machine requires
two operators and can produce a maximum of 12,000 sprays. The plastic injection molder
requires four operators and can produce a maximum of 200,000 sprays. The company has
three bronze machines and only one injection molder. What capacity will you require for the
next four years?
PLASTIC BRONZE
Operators 4 2
Maximum Production 200,000 12,000
Machinery 1 3
Calculation of labor projection, machines required and percentage of capacity utilization for
the four years.
Percentage utilized of capacity (%) = Forecast annual machine demand / CTD X 100
Percentage used of capacity (%) = 97,000 / 200,000 X 100 = 48.5%.
Machines Required = Forecasted annual machine demand / CTD X Number of machines
Machines Required = 97,000 / 200,000 X 1 = 0.485
Manpower = Machinery required X Operator
Labor = 0.485 X 4 =1.94
*The above calculations are repeated for the remaining years (year 2, year 3, year 4).
Percentage utilized of capacity (%) = Forecast annual machine demand / CTD X 100
Percentage used of capacity (%) = 21,000 / 36,000 X 100 = 58.33%.
Machines Required = Forecasted annual machine demand / CTD X Number of machines
Machines Required = 21,000 / 36,000 X 4 = 1.75
Manpower = Machinery required X Operator
Labor = 1.75 X 2 =1.94
*The above calculations are repeated for the remaining years (year 2, year 3, year 4).
2. Suppose ALWAYSRAIN IRRIGATION's marketing department starts an intensive campaign for
brass sprayers, which are more expensive but also last longer than plastic sprayers. Forecasted
demand for the next four years is:
Forecast of the total product lines by adding the annual demand of each machine.
ANNUAL DEMAND
1 2 3 4
Plastic 97,000 115,000 136,000 141,000
Bronze 25,000 26,000 31,000 52,000
PLASTIC BRONZE
Operators 4 2
Maximum Production 200,000 12,000
Machinery 1 3
PLASTIC BRONZE
Operators 4 2
Maximum Production 200,000 12,000
Machinery 1 4
4. Assume that the operators have sufficient training to operate the bronze machines and the
plastic spray injection molder. AlwaysRain currently has 10 such employees. In anticipation of
the advertising campaign described in problem 2, management authorized the purchase of
two additional bronze machines.
5. Expando Inc. is considering the possibility of building an additional factory to produce a new addition to its product
line. The company is currently considering two options.
which could be built at a cost of $6 million. If demand for new products is low, the company expects to receive $10
million in discounted revenues (present value of future revenues) from the small facility. On the other hand, if demand
is high, $12 million in discounted revenues are expected using small facilities.
The second option is to build a large factory at a cost of $9 million. If demand were low, the company would expect $10
million in discounted revenues with the large plant. If demand is high, the company estimates that discounted revenues
would be $14 million.
In either case, the probability of the demand being high is 0.40, and the probability of it being low is 0.60. If a new
factory is not built, no additional revenue will be generated, as the current factories cannot produce these new
products. Build a decision tree to help Expando make the best decision.
Small installation 6,000,000 Large installation 9,000,000
Low demand 10,000,000 Low demand 10,000,000
High demand 12,000,000 High demand 14,000,00
Probability of high demand 0.40 Probability of high demand 0.40
Probability of low demand 0.60 Probability of low demand 0.60
We solve the decision tree from right to left and we obtain
The best option would be to build a small facility which would allow you to have a higher
income.