OPMAN - CAPACITY PLANNING PDF

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EXERCISE IN CAPACITY PLANNING...

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DE JESUS, DIANNE TRISHA B.

IA -331

EXERCISE ON CAPACITY PLANNING A firm is considering three capacity alternatives: A, B, C. Alternative A would have an annual fixed cost of Php 100,000 and variable cost of Php 22 per unit. Alternative B annual fixed cost is 120,000 and variable cost is 20 per unit. On the other hand, alternative C fixed cost is 80,000 with a variable cost of 30 per unit. Revenue is expected to be 50 per unit.

1. Which alternative has the lowest break-even point? - Alternative A has the lowest breaking point. SOLUTION: Break Even Point:

fixed cost revenue – variable cost

Alternative A: • BEP = 100,000 / 50 – 22 = 3,571.43 or 3,571 units Alternative B: • BEP = 120,000 / 50 – 20 = 4,000 units Alternative C: • BEP = 80,000 / 50 – 30 = 4,000 units

2. Which alternative will produce the highest profits for an annual output of 10,000 units? - Alternative A and B would yield higher profit. SOLUTION: Total Profit (P) = number of outputs (q) (revenue – variable cost) – fixed cost Alternative A: TPA = 10,000 (50 – 22) – 100,000 = 280,000 – 100,000 = 180,000

Alternative B: TPA = 10,000 (50 – 20) – 120,000 = 300,000 – 120,000 = 180,000

Alternative C: TPA = 10,000 (50 – 30) – 80,000 = 200,000 – 80,000

= 120,000...