Optimal capacity determination, Operation Management

Assignment Help:

Optimal Capacity Determination

For a given capacity of a plant the average unit cost of production of a product decreases as the output rate( say in number of units produced per year.) in increases figure . this happens because we known that the fixed cost incurred in the plant, machinery equipment. Remains constant through changes in the volume of output. When a large number of units of the product are produced. These fixed costs get divided uniformly in the large number of units. Therefore the average cost per unit of the product decreases.

When the rate of output is increased beyond a particular limit, the average unit cost start rising because of more frequent equipment breakdowns, fatigue in workers resulting in more defective items, scheduling problems inventory problems, etc. This particular limit of the output rate is called the optimum output rate, for which the average unit cost of the product is the minimum.

1971_Optimal Capacity Determination.png

Figure: Optimal Capacity Determination

There is a relationship between the optimum output rate , minimum average unit cost of a product and the capacity of the plant. As shown in figure (b) for plants with small design capacity (small sized plant ) the optimum output rate is the lowest and the minimum average unit cost of product is the highest compared to medium sized and large sized plants.

Thus while determining the optimal capacity of a new facility three important factors have to be kept in min. These are the demand forecast available capital and other resources, and the minimum average unit cost desired to keep the competitors at bay.


Related Discussions:- Optimal capacity determination

Explain why organizations need correct performance metrics, Discuss why org...

Discuss why organizations need to have the correct performance metrics to drive quality. Think of examples in the news and their outcomes.

Explain assess how southwest airlines culture is different, "Southwest Airl...

"Southwest Airlines" Please respond to the following: Assess how Southwest Airlines culture is different from other airline competitors and the resulting impact on business perf

Determine how a contract is enforceable, Having a clear understanding of th...

Having a clear understanding of the courts and where to file specific claims has provided your department with a good basis for where to start when a claim arises. With so many out

How to compute capacity utilization rate last of a month, 1. A manufacturin...

1. A manufacturing shop is designed to operate most efficiently at an output of 550 units per day. In the past month the plant produced 490 units. What was its capacity utilization

Explain bp''s first problem, Describe BP'S first problem, which involved th...

Describe BP'S first problem, which involved the firms IT function. Discuss BP'S solution to this problem.

What are major and minor decisions, What are major and minor decisions? ...

What are major and minor decisions? Decision with regard to financial outlay can be minor or major. A decision concerned to the purchase of a CNC machine costing several lakhs

Describe contract types has the greatest risk with the buyer, Which of the ...

Which of the following contract types has the greatest risk with the buyer? Answer Cost sharing Cost-Plus-Incentive-Fee Firm-Fixed-Price Fixed-Price-Incentive-Fee

Show the importance of e-commerce in product design, Question 1: (a) Op...

Question 1: (a) Operations management is an integral part of an organisation. Show how operations management can contribute to the success of an organisation. (b) Differen

Describe line and staff organisation, Describe line and staff organisation....

Describe line and staff organisation. Line and Staff Organisation: As the industry grow in size and complexity, the line executives could not perform appropriately all other

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd