Exam 6: Capacity Planning

________ is the maximum rate of output for a process.

A ________ is the difference between demand and current capacity.

A printing company works on three types of printing jobs,each of which could be produced on the same model printing machine.The predicted annual demands and typical order sizes are shown in the table.The company has 2000 production hours available each year and requires a 10% capacity cushion to allow for preventive maintenance,breakdowns,and other unforeseen circumstances.How many printing machines must they have under these circumstances?

Figure 6.1 -A manager weighs three options for capacity cushion as depicted in Figure 1.If the dollar amounts expressed in the Figure 9.1 are costs,what is the optimal decision?

Table 6.5 The T.H.King Company has introduced a new product line that requires two work centers,A and B for manufacture.Work Center A has a current capacity of 10,000 units per year,and Work Center B is capable of 12,500 units per year.This year (year 0),sales of the new product line are expected to reach 10,000 units.Growth is projected at an additional 1,000 units each year through year 5.Pre-tax profits are expected to be $30 per unit throughout the 5-year planning period.Two alternatives are being considered: -Use the information in Table 6.5.What is the pre-tax cash flow (net present value)for alternative #2 compared to the base case of doing nothing for the next five years?

An expansionist capacity strategy:

Table 6.4 Mr.Lee is considering a capacity expansion for his supermarket.The annual sales projected for the next five years follow.The current capacity is equivalent to $300,000 sales.Assume a 20 percent pretax profit margin. -Using the information in Table 6.4,if Lee expands the capacity to an equivalent of $360,000 sales now (year 0),how much would pretax cash flow in year 1 increase because of this expansion?

Table 6.5 The T.H.King Company has introduced a new product line that requires two work centers,A and B for manufacture.Work Center A has a current capacity of 10,000 units per year,and Work Center B is capable of 12,500 units per year.This year (year 0),sales of the new product line are expected to reach 10,000 units.Growth is projected at an additional 1,000 units each year through year 5.Pre-tax profits are expected to be $30 per unit throughout the 5-year planning period.Two alternatives are being considered: -Use the information in Table 6.5.What is the pre-tax cash flow (net present value)for alternative #1 compared to the base case of doing nothing for the next five years?

Table 6.2 High Tech,Inc.is producing two types of products: A and B.Both are produced at the same sawing operation.Because of demand uncertainties,the operations manager obtained three demand forecasts (pessimistic,expected,and optimistic).The demand forecasts,batch sizes (units/batch),processing times (hr/unit),and setup times (hr/batch)follow. The sawing machines operate on two 8-hour shifts,5 days per week,and 50 weeks per year.The manager wants to maintain a 10 percent capacity cushion. -Using the information from Table 6.2,what is the minimum number of machines needed (assuming no reliance on short-term options)?

What is a waiting line model,and what information can it provide?

Table 6.6 Burdell Labs is a diagnostic laboratory that does various tests (blood tests,urine tests,etc. )for doctors' offices in the Indianapolis area.Test specimens are picked up at the doctors' offices and are transported to the testing facility,with uniform arrivals throughout the day.All tests go through two testing centers in the testing facility,Test Center A and Test Center B.A has a current capacity of 1,000 units per week,and B is capable of 1,500 units per week.The facility operates 50 weeks per year.This year (year 0),test volumes are expected to reach 1,000 units per week.Growth per week is projected at an additional 200 units through year 5 (i.e. ,1,200 per week in year #1,1,400 per week in year #2,etc. ).Pre-tax profits are expected to be $5 per test throughout the 5-year planning period.Two alternatives are being considered: -Use the information in Table 6.6.What action,if any,should the Burdell Labs take?

Expand Test Center A at the end of year 0 to 1,500 units per week,matching Test Center B,at a cost of $100,000,then expanding both Test Centers to 2,000 units per year at the end of year 3,at an additional cost at that time of $250,000. Burdell Labs will not consider projects that don't show a 5th year positive net present value using a discount rate of 15%.What are the pre-tax cash flows for the two alternatives compared to the base case of doing nothing for the next five years,and what action,if any,should Burdell take?

The lock box department at Bank 21 handles the processing of monthly loan payments to the bank,monthly and quarterly premium payments to a local insurance company,and bill payments for 85 of the bank's largest commercial customers.The payments are processed by machine operators,with one operator per machine.An operator can process one payment in 0.25 minute.Setup times are negligible in this situation.A capacity cushion of 20 percent is needed for the operation.The average monthly (not annual)volume of payments processed through the department currently is 400,000.However,it is expected to increase by 20 percent.The department operates eight hours per shift,two shifts per day,260 days per year.How many machines (not operators)are needed to satisfy the new total processing volume? (Round up to the next whole integer. )

Innovative Inc.is experiencing a boom for the products it has introduced recently.The estimated annual sales projected for the next five years are given in the following table.The current capacity is equivalent to only $100 million sales.The company is considering the alternative of expanding capacity to an equivalent of $250 million sales.Assume a 25 percent pretax profit margin.What is the increase in total pretax cash flow (summed over all years)that would be enjoyed because of the expansion?

________ are useful capacity analysis tools when the future is uncertain and capacity decisions can be made in a sequential fashion.

The Southeast Manufacturing Company is producing two types of products: A and B.Demand forecasts for next year and other production-related information are provided in the following table: Both of these products are produced at the same workstation,called the Automatic Lathe.Currently,the company has 12 automatic lathes,and financial constraints prevent any expansion for the next year.It works 250 days per year with two 8-hour shifts and desires a 25 percent capacity cushion.Which one of the following alternatives will allow next year's demand to be fully covered?

Capacity decisions should be made separately from strategic decisions.

A manufacturing plant is capable of producing 10 tons of product per day when it runs three shifts with no breakdowns and plenty of raw materials.Over the past week,the plant has produced an average of 7.3 tons per day since the third shift has devoted much of their time to preventive maintenance.What is the capacity of the plant?

A lumber mill is capable of producing 10,000 board feet of lumber per day when it runs ten hours per day with minimal breaks.Over the past year,forestry legislation has reduced the availability of raw materials,so the mill has produced an average of 4,575 board feet per day.What is the capacity of the plant?

A capacity decision in a call center,such as the number of customer service representatives to answer the phone during a peak period,can be addressed using a(n)________.