In a job shop, effective capacity is only 43 percent of design capacity, and act

ID: 391367 • Letter: I

Question

In a job shop, effective capacity is only 43 percent of design capacity, and actual output is 71 percent of effective output. What design capacity would be needed to achieve an actual output of 11 jobs per week? What is its effective capacity? a The Design Capacity needed to achieve the required actual job outputs 36 b. The Effective Capacity needed to achieve the required actual job outputs 15 (round to whole number) (round to whole number) QUESTION 2 A producer of pottery is considering the addition of a new plant to absorb the backlog of demand that now exists. The primary location being considered will have fixed costs of $8,052 per month and variable costs of $1.96 per unit produced. Each item is sold to retailers at a price that averages $2.05 a) The volume per month is required in order to break even b) The profit or loss would be realized on a monthly volume of 61,000 units c) The volume is needed to obtain a profit of $16,000 per month d) The volume is needed to provide revenue of $23,000 per month n whole mumbe) (in whole number) (in whole number) QUESTION3 A producer of pottery is considering the addation of a new plant to absorb the backlog of demand that now exists. The primary location being considered will have the following cost structures as shows in the table. The WalWal The producer is not certain as what capacity production is to produce. It all depends on WalWal's contract The producer has also been informed, the first batch of pottery is required to ship in a very tight time frame from the first production run. The producer decides to plan abead and select the best er knows there is a big order or order contract that will be awarded by the giant retail 068054 The produces wants you to help thens to idenify at what cange of production Q(quannity) in Best to adopt Process 1, Process 2, and Process 3

Explanation / Answer

Looks like the solution is needed only for question 2.

a) Break even number is calculated by

BE = Fixed cost / (unit selling price – unit variable cost)

BE = 8052 / (2.05 – 1.96) = 89466.67

Rounding up we have 89467 units as the break-even volume

b) At 61000 units, we will have a revenue of

61000*2.05 = 125050

And we will incur a cost of

8052 + 119560 = 127612

Since the cost is more than revenue we will incur a loss of 127612 – 125050 = 2562

c) In order to make a profit of 16000 per month let the quantity be X then we have a satisfied equation at

16000 = 2.05X – (8052 + 1.96X)

16000 = (2.05 – 1.96)X – 8052

(16000 + 8052 )/ (2.05 – 1.96) = X

267244.44 = X

Rounding up we have 267245

The volume needed to obtain a profit of 16000 is 267245

d) Revenue is the product of number of units and the unit selling price. Thus for a revenue of 23000 per month the volume must be

23000 / 2.05 = 11219.5

Rounding up we have 11220

A volume of 11220 units is needed to obtain revenue of 23000

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In a job shop, effective capacity is only 43 percent of design capacity, and act

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In a job shop, effective capacity is only 43 percent of design capacity, and act

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