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

Briefly explain the matrix form of organization design, Briefly describe th...

Briefly describe the matrix form of organization design. List its advantages and disadvantages. This structural form is most likely to be used under what conditions?

Explain can we solve the problem of crime, Can we solve the problem of crim...

Can we solve the problem of crime? How much responsibility does society have? Are our policies enough? What would you do differently, if anything?

Define spread spectrum signalling over narrowband signalling, Which of the ...

Which of the following is an advantage of using spread spectrum signalling over narrowband signalling? a. Spread spectrum is easier to install b. Spread spectrum is more secu

Do research on maslow need hierarchy suggest, research on Maslow need hiera...

research on Maslow need hierarchy suggest which of the following statement to be true/ 1.high and lower needs equal important as individuals move up the corporate/2. high and lower

Why a project manager desires a work breakdown structure, A project manager...

A project manager desires a work breakdown structure that goes through 6 levels of detail. Level 3 through level 6 would most likely be prepared by: Answer Project sponsor

Describe three challenges that firms face, Identify and explain three chall...

Identify and explain three challenges that firms face in the future regarding quality

Explain technology have an impact on capacity planning, In what ways does t...

In what ways does technology have an impact on capacity planning?

What are two reasons project management is not good, What are two reasons p...

What are two reasons project management is not well done in corporations? Why? What are some specific examples?

Find what will the productivity of the bakery, If charles lackey's utility ...

If charles lackey's utility costs remain constant at $500 per month, labor at $8 per hour, and cost of ingredients at $0.35 per loaf, but Charles does not purchase the blender sugg

Explain cost savings by cutting the current price, A company has a new desi...

A company has a new design for their product in next year that can reduce their material cost of producing units from $8.14 to $7.32. The company passes on half of all cost savings

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