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Practice Problems Supplement 7-Capacity Planning: Problem 1
Practice Problems Supplement 7-Capacity Planning: Problem 1
Practice Problems Supplement 7-Capacity Planning: Problem 1
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. If the efficiency for next month is expected to be 82%, what is the expected
output?
Problem 2:
Given: F fixed cost $1000
V variable cost $2 / unit
P selling price $4 / unit
Find the break-even point in $ and in units.
Problem 3:
Develop the break-even chart for Problem 2.
Problem 4:
Jack’s Grocery is manufacturing a “store brand” item that has a variable cost of $0.75 per unit
and a selling price of $1.25 per unit. Fixed costs are $12,000. Current volume is 50,000 units.
The Grocery can substantially improve the product quality by adding a new piece of equipment
at an additional fixed cost of $5,000. Variable cost would increase to $1.00, but their volume
should increase to 70,000 units due to the higher quality product. Should the company buy the
new equipment?
Problem 5:
What are the break-even points ($ and units) for the two processes considered in Problem 4?
Problem 6:
Develop a break-even chart for Problem 4.
Problem 7:
1
Good News! You are going to receive $6,000 in each of the next 5 years for sale of used
machinery. A bank is willing to lend you the present value of the money in the meantime at
discount of 10% per year. How much cash do you receive now?
ANSWERS:
Problem 1:
Actual output 36
Utilization = 45%
Design capacity 80
Actual output 36
Efficiency = 90%
Effective capacity 40
Problem 2:
F 1000 1000
Break-even point($) BEP($) $2, 000
V 2 0.5
1- 1-
P 4
F 1000
Break-even point( x) BEP( x) 500
P-V 4 2
Problem 3:
2
3
Problem 4:
Profit = TR – TC
Therefore the company should continue as is with the present equipment as this returns a higher
profit.
Problem 5:
4
Problem 6:
Problem 7:
The net present value factor for 10% and 5 years is 3.79
(3.79 0.909 0.826 0.751 0.683 0.621)
Therefore, the present value is: 3.79 * $6,000 $22,740