DEVELOPING

CAPACITY
ALTERNATIVES
1. Design flexibility into system
2. Take of stage of life cycle into account
• Introduction phase- difficult to determine
• Growth phase – is the over all market experience rapid growth
• Maturity phase- size of market levels off, and organizations tend to have stable market shares.
• Decline phase- an organization is faced with underutilization of capacity due to declining demand
3. Take a “big picture” (i.e., systems) approach to capacity changes
• Bottleneck- an operation in a sequence of operations whose capacity is lower that of the other
operations
4. Prepare to deal with capacity “chunks”
5. Attempt to smooth out capacity requirements
6. Identify the optimal operating level
7. Choose a strategy if expansion is involved
 EVALUATING ALTERNATIVES

• Cost-Volume Analysis- focuses on relationships between cost, revenue, and volume of

out-put
Cost-volume symbols
FC= Fixed cost TR=Total revenue P= Profit
VC-=Total variable cost R= Revenue per unit
v= Variable cost per unit Q= Quantity or volume of output
TC=Total cost QBEP= Break-even quantity
COST-VOLUME RELATIONSHIP
 FORMULA
• TC=FC+VC
• VC=Q×v
• TR=R×Q
• P=TR-TC= R×Q- (FC+v×Q)
• P= Q(R-v) –FC
• Q= P+FC
R-v
• QBED =FC
R-v