Practice Problems: Supplement 7, Capacity Planning

Problem 1:
The design capacity for engine repair in our company is 80 trucks/day. The effective capacity is 40
engines/day and the actual output is 36 engines/day. Calculate the utilization and efficiency of the
operation. f the efficiency for ne!t month is e!pected to "e 8#$% &hat is the e!pected output'
Problem 2:
(iven) fi!ed cost *+000 F = =
varia"le cost *#/ unit V = =
selling price *4/ unit P = =
,ind the "reak-even point in * and in units.
Problem 3:
.evelop the "reak-even chart for /ro"lem #.
Problem 4:
0ack1s (rocery is manufacturing a 2store "rand3 item that has a varia"le cost of *0.45 per unit and a
selling price of *+.#5 per unit. ,i!ed costs are *+#%000. Current volume is 50%000 units. The
(rocery can su"stantially improve the product 6uality "y adding a ne& piece of e6uipment at an
additional fi!ed cost of *5%000. 7aria"le cost &ould increase to *+.00% "ut their volume should
increase to 40%000 units due to the higher 6uality product. 8hould the company "uy the ne&
e6uipment'
Problem 5:
9hat are the "reak-even points :* and units; for the t&o processes considered in /ro"lem 4'
Problem 6:
.evelop a "reak-even chart for /ro"lem 4.
Problem 7:
(ood <e&s= >ou are going to receive *6%000 in each of the ne!t 5 years for sale of used machinery.
? "ank is &illing to lend you the present value of the money in the meantime at discount of +0$
per year. @o& much cash do you receive no&'
+
ANS!"S:
Problem 1:
?ctual output 36
Atilization B 45$
.esign capacity 80
= =
?ctual output 36
Cfficiency B D0$
Cffective capacity 40
= =
C!pected Eutput :Cffective capacity; :Cfficiency;
:40;:0.8#; 3#.8 engines/day
=
= =
Problem 2:
+000 +000
Freak-even point:*; :*; *#% 000
#
0.5
+- +-
4
F
BEP
V
P
= = = = =
+000
Freak-even point: ; : ; 500
- 4 #
F
x BEP x
P V
= = = =

Problem 3:
#
Problem 4:
/rofit B TR TC
Eption ?) 8tay as is)
/rofit 50% 000G:+.#5 .45; +#% 000 *+3% 000. = =
Eption F) ?dd e6uipment)
/rofit 40% 000 G:+.#5 +.00; +4% 000 *500. = =
Therefore the company should continue as is &ith the present e6uipment as this returns a higher
profit..
Problem 5:
Asing current e6uipment)
+#% 000 +#% 000 +#% 000
:*; *30% 000
0.45
+ 0.60 0.40
+ +
+.#5
F
BEP
V
P
= = = = =

+#% 000
: ; #4% 000
+.#5 0.45
F
BEP x
P V
= = =

Asing the ne& e6uipment
+4% 000 +4% 000 +4% 000
:*; *85% 000.
+.00
+ .80 0.#
+ +
+.#5
F
BEP
V
P
= = = = =

FC/ !
,
/ 7
: ;
%
. .
%
.
% . =

= =
+4 000
+#5 +00
+4 000
0 #5
68 000
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Problem 6:
Problem 7:
The net present value factor for +0$ and 5 years is 3.4D
: . . . . . . ; 34D 0 D0D 08#6 0 45+ 0 683 0 6#+ = + + + +

Therefore% the present value is) 34D 000 440 . G *6% *##% =
The Fad <e&s is you do have to pay "ack the loans=
4