Strategic decision of determining the production capacity

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Reference no: EM132302386

A company is faced with the strategic decision of determining the production capacity, in terms of pounds per month, that it should deploy at a new facility. The company wants to match production to demand in each month, to avoid shortages and inventory accumulation. In the contemplated operational regime, any excess demand that cannot be met through the planned capacity will have to be met through overtime, at the differential cost of $100 per pound. On the other hand, the accounting department estimates that under-utilized capacity translates to an opportunity cost of $200 per pound. If monthly demand is expected to be normally distributed with a mean of 100,000 pounds and a st. deviation of 5,000 pounds, what is an optimal selection of the plant capacity, based on the above information?

Reference no: EM132302386

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