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 the importance of learning curves, Describe the importance of learn...

Describe the importance of learning curves in a services-based operation and how they can be used to increase organization efficiency. Please provide a specific example.

Explain the type of material handling systems, Describe the type of materia...

Describe the type of material handling systems used in warehouses?

Analyze the environment and processes and procedures, Analyze the environme...

Analyze the environment, processes, and procedures at your work or school to determine which aspects can be controlled and which cannot be controlled. Explain your rationale. •From

Rules related to the use the human body, Rules Related to the  use  the ...

Rules Related to the  use  the Human  Body: R elated to the  use  the Human  Body : a.   The two  hands should  beings  as well as  complete their  motions  at the same

Natural resource - factor affecting productivity improvement, Natural Resou...

Natural Resources - Factors Affecting Productivity Improvement Natural resources The manner in which countries use the resources at their disposal is of major importance,

Linear Programming, Solve the following Linear Programming Problem using Si...

Solve the following Linear Programming Problem using Simple method. Maximize Z= 3x1 + 2X2 Subject to the constraints: X1+ X2 = 4 X1+ X2 = 2 X1, X2 = 0

Explain economic order quantity and total cost, Explain Economic Order Quan...

Explain Economic Order Quantity and Total Cost. Economic Order Quantity and Total Cost: The total sum of Inventory procurement cost and inventory carrying cost is total cost.

Historical evolution, What is the historical evolution of operations manage...

What is the historical evolution of operations management?

Explain dummy activity, Explain Dummy Activity. Every project has a num...

Explain Dummy Activity. Every project has a number of job operations or tasks that are termed as activities.  An activity is a component of a project and this may be a process,

Explain the market testing stage of the new-product process, The market tes...

The market testing stage of the new-product process often involves test markets or purchase laboratories in which the dependent variable is consumer attitudes. price. adve

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