Exam 4: Capacity Planning

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 2,000 production hours available each year and requires a 10% capacity cushion to allow for preventive maintenance, breakdowns, and other unforeseen circumstances. They have floor space for five printing machines. If the time needed to set up a printing machine to switch from one job to the next is identical for all three job types, what must their setup time be to achieve their required output?

Depict the expansionist strategy graphically as a plot of capacity against time and discuss the benefits of adopting this strategy.

The Union Manufacturing Company is producing two types of products: A and B. The demand forecasts, batch size, and time standards for the Mark I operation follow: The company works 250 days per year and operates 2 shifts, each covering 8 hours. If a 20 percent capacity cushion is maintained, how many new Mark I machines are required if Union does not resort to any short-term capacity options?

Scenario 4.5 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: 1) Expand both Work Centers A and B at the end of year 0 to a capacity of 15,000 units per year, at a total cost for both Work Centers of $200,000; 2) Expand Work Center A at the end of year 0 to 12,500 units per year, matching Work Center B, at a cost of $100,000, then expanding both Work Centers to 15,000 units per year at the end of year 3, at an additional cost at that time of $200,000. The King Company will not consider projects that don't show a 5th year positive net present value using a discount rate of 15%. -Use the information in Scenario 4.5. 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?

________ is the degree to which equipment, space, or labor is currently being used.

A standard work year is 2,000 hours at the Luther Mill and it takes about an hour and a half to fill a customer order. Last year saw 25,000 customer orders at the mill and the manager has a rebuilt Ford 9N in mind as a company car, so he hopes that there is an increase of 2% in customer orders for next year. If the manager hires twenty workers, what is the capacity cushion?

A company's production facility, consisting of two identical machines, currently caters only to product A. The annual demand for the product is 4,000 units. Management has now decided to introduce another product, B, which uses the same facilities as that of product A. Product B has an annual demand of 2,000 units. In view of the uncertainties involved in producing two products, management desires to have an overall 10 percent capacity cushion. Given the following additional information, how many more machines are required? (Assume 8 hours/shift, 2 shifts/day, 250 days/year, and that no overtime is allowed).

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?

Scenario 4.8 The Summerville Vitamin Company manufactures bottles of animal-shaped chewable vitamins for children. This product line requires two work centers, tablet manufacturing and packaging. The tablet manufacturing work center has a current capacity of 140,000 bottles per month, and packaging is capable of 100,000 units per month. This year (year 0), monthly sales of the product line are expected to reach 100,000 units. Growth per month is projected at an additional 25,000 units through year 4 (i.e., 125,000 per month in year #1, 150,000 per month in year #2, etc.). Pre-tax profits are expected to be $5 per unit throughout the 4-year planning period. Two alternatives are being considered: 1) Expand both tablet manufacturing and packaging at the end of year 0 to a capacity of 200,000 units per month, at a total cost for both work centers of $2,250,000; 2) Expand packaging at the end of year 0 to 140,000 units per year, matching tablet manufacturing, at a cost of $1,200,000, then expanding both work centers to 200,000 units per month at the end of year 2, at an additional cost at that time of $1,400,000. Summerville will not consider projects that don't show a 4th year positive net present value using a discount rate of 25%. -Use the information in Scenario 4.8. What is the pre-tax cash flow (net present value) for alternative #1 compared to the base case of doing nothing for the next four years?

The test bank author abandoned his teaching duties when he was in the zone working on a test bank. Normally scheduled to teach nine hours per week during the semester, he generally made his way to one three hour class a week, one where his students could propose devious problems that were sure to confound generations of test takers. What is the test bank author's utilization for his teaching duties?

If a system is well balanced, which one of the following changes usually calls for a larger capacity cushion?

What is a capacity cushion? Provide examples of capacity cushions in a university setting and an automotive producer.

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.)

Scenario 4.7 The B. Sharp Company has a rapidly growing product line that requires two work centers, X and Y for manufacture. Work Center X has a current capacity of 50,000 units per year, and Work Center Y is capable of 55,000 units per year. This year (year 0), sales of the product line are expected to reach 50,000 units. Growth is projected at an additional 3,000 units each year through year 3. Pre-tax profits are expected to be $60 per unit throughout the 3-year planning period. Two alternatives are being considered:1) Expand both Work Centers X and Y at the end of year 0 to a capacity of 60,000 units per year, at a total cost for both Work Centers of $500,000; 2) Expand Work Center X at the end of year 0 to 55,000 units per year, matching Work Center Y, at a cost of $300,000, then expanding both Work Centers to 60,000 units per year at the end of year 2, at an additional cost at that time of $350,000. The Sharp Company will not consider projects that don't show a 3rd year positive net present value using a discount rate of 20%. -Use the information in Scenario 4.7. 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?

When future demand is uncertain and sequential decisions are involved in capacity planning, a manager should use a:

Scenario 4.8 The Summerville Vitamin Company manufactures bottles of animal-shaped chewable vitamins for children. This product line requires two work centers, tablet manufacturing and packaging. The tablet manufacturing work center has a current capacity of 140,000 bottles per month, and packaging is capable of 100,000 units per month. This year (year 0), monthly sales of the product line are expected to reach 100,000 units. Growth per month is projected at an additional 25,000 units through year 4 (i.e., 125,000 per month in year #1, 150,000 per month in year #2, etc.). Pre-tax profits are expected to be $5 per unit throughout the 4-year planning period. Two alternatives are being considered: 1) Expand both tablet manufacturing and packaging at the end of year 0 to a capacity of 200,000 units per month, at a total cost for both work centers of $2,250,000; 2) Expand packaging at the end of year 0 to 140,000 units per year, matching tablet manufacturing, at a cost of $1,200,000, then expanding both work centers to 200,000 units per month at the end of year 2, at an additional cost at that time of $1,400,000. Summerville will not consider projects that don't show a 4th year positive net present value using a discount rate of 25%. -In the context of capacity requirements planning, which of these phrases best describes the term base case?

An expansionist capacity strategy minimizes the risks of overexpansion due to overly optimistic demand forecasts.

The transition from economies of scale to diseconomies of scale:

A wait-and-see capacity strategy minimizes the chances of lost sales due to insufficient capacity.

The time required to change a machine from making one product or service to the next is called: