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 most appropriate form of ownership, Go to this website www.worl...

Go to this website www.worldfranchising.com . Select any of the hottest new franchises that interest you.. View the site and identify the information about the financial requiremen

Define what rrmc should do to counter its image, Describe what RRMC should ...

Describe what RRMC should do to counter its image problem in the community because of its decision to close the Women's Pavilion.

Explain this in relevance to uncertain events, Imagine the difficulties of ...

Imagine the difficulties of an employer whose decision context is choosing a new employee from a set of applicants whom he will interview. What do you think the employer's objectiv

Explain usefulness in that particular situation, The five types of leadersh...

The five types of leadership styles are most applicable in certain situations. Discuss the applicability of each of the five types in project leadership situations and its usefulne

Suppose the number of requests for week, An electrical contractor's records...

An electrical contractor's records during the last 5 weeks indicate the number of actual job requests. Predict the number of requests for week 6 using each of the below methods:

Calculate the average rate of installation of carpet, Carpet city recorded ...

Carpet city recorded the following data on carpet instalations over th past week. Use the data to calculate the average rate (in yards per hour) at which carpet can be installed

Depict a forecast on a graph with the actual data, Develop a forecast for y...

Develop a forecast for years 2 through 12 using exponential smoothing with %u03B1 = .4 and a forecast for year 1 of 6. Plot your new forecast on a graph with the actual data and th

Mba sem 2, Q3. What do you understand by “line balancing”? What happens if ...

Q3. What do you understand by “line balancing”? What happens if balance doesn’t exist?

Number of shiments and number of defective shiments, The quesstion is to de...

The quesstion is to develop a scattr diagram using total number of shiments and number of defective shiments. This is for Project management mgmt. can some one help me with this

Model of service quality - customer satisfaction, Model of Service Quality ...

Model of Service Quality - Customer Satisfaction Gap 1  Occurs due to management's lack of a clear understanding about how customers determine their expectations on the b

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