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Capacity Planning
Capacity Planning
Management
Capacity Planning
© 2006
© 2006 Prentice
Prentice Hall, Inc. Hall, Inc. S7 – 1
Capacity
Schedule jobs
Short-range
planning
* Schedule personnel
Allocate machinery
25 - Room 75 - Room
Roadside Motel 50 - Room Roadside Motel
Roadside Motel
Economies Diseconomies
of scale of scale
25 50 75
Number of Rooms
Figure S7.2
© 2006 Prentice Hall, Inc. S7 – 15
Capacity Considerations
Demand
Demand
Expected Expected
demand demand
Figure S7.4
© 2006 Prentice Hall, Inc. S7 – 17
Break-Even Analysis
800 –
Break-even point Total cost line
700 – Total cost = Total revenue
Cost in dollars
600 –
500 –
300 –
200 –
Break-even point
occurs when
TR = TC F
or BEPx =
P-V
Px = F + Vx
BEP$ = BEPx P
= F P Profit = TR - TC
P-V = Px - (F + Vx)
= F
= Px - F - Vx
(P - V)/P
F = (P - V)x - F
=
1 - V/P
© 2006 Prentice Hall, Inc. S7 – 23
Break-Even Example
Fixed costs = $10,000 Material = $.75/unit
Direct labor = $1.50/unit Selling price = $4.00 per unit
F $10,000
BEP$ = =
1 - (V/P) 1 - [(1.50 + .75)/(4.00)]
F $10,000
BEP$ = =
1 - (V/P) 1 - [(1.50 + .75)/(4.00)]
$10,000
= = $22,857.14
.4375
F $10,000
BEPx = = = 5,714
P-V 4.00 - (1.50 + .75)
∑ 1 - P x (W )
V i
i
i
$0
© 2006 Prentice Hall, Inc. S7 – 30
Strategy-Driven Investment
F
P=
(1 + i)N
Year 5% 6% 7% … 10%
Portion of
1 .952 .943 .935 .909
Table S7.1 2 .907 .890 .873 .826
3 .864 .840 .816 .751
4 .823 .792 .763 .683
5 .784 .747 .713 .621
© 2006 Prentice Hall, Inc. S7 – 33
Present Value of an Annuity
An annuity is an investment which
generates uniform equal payments
S = RX
where X = factor from Table S7.2
S = present value of a series of
uniform annual receipts
R = receipts that are received every
year of the life of the investment
Year 5% 6% 7% … 10%
1 .952 .943 .935 .909
2 1.859 1.833 1.808 1.736
3 2.723 2.676 2.624 2.487
4 4.329 3.465 3.387 3.170
5 5.076 4.212 4.100 3.791