Lecture 9 (Capacity & constraint management)
Lecture 9 (Capacity & constraint management)
SUPPLEMENT
Constraint
Management
*
Short-range Schedule personnel
planning Allocate machinery
(scheduling)
Modify capacity Use capacity
* Difficult to adjust capacity as limited options exist
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Design and Effective Capacity
► Design capacity is the maximum
theoretical output of a system
► Normally expressed as a rate
► Effective capacity is the capacity a firm
expects to achieve given current
operating constraints
► Often lower than design capacity
A B C
Analysis
Order Wrap
30 sec
Bread Fill Toaster 37.5 sec
15 sec 20 sec 40 sec
Analysis
Order Wrap
30 sec
Bread Fill Toaster 37.5 sec
15 sec 20 sec 40 sec
Hygienist
cleaning
5 min/unit
24 min/unit
Dentist
Check
out
5 min/unit
8 min/unit 6 min/unit
800 – i dor
Break-even point rr Total cost line
t co
700 –
Total cost = Total revenue
rofi
P
Cost in dollars
600 –
500 –
Variable cost
400 –
300 –
oss or
200 – L rid
r
co
100 – Fixed cost
| | | | | | | | | | | |
0 100 200 300 400 500 600 700 800 900 1000 1100
Figure S7.5
Volume (units per period)
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Break-Even Analysis
Assumptions
► Costs and revenue are linear
functions
► Generally not the case in the real
world
► We actually know these costs
► Very difficult to verify
► Time value of money is often
ignored
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Break-Even Analysis
BEPx = x = number
break-even point of units produced
in units TR = total
BEP$ = revenue = Px
break-even point F = fixed
in dollars costs
P = V = variable
pricepoint
Break-even occurs when cost per unit
per unit
(after all TC = total
discounts) costs = F + Vx
TR = TC F
or BEP x =
P–V
Px = F + Vx
discounts) – (F + =Vx)
= Px TC total
F costs = F + Vx
= (P – V)/P = Px – F – Vx
= (P - V)x – F
F
= 1 – V/P
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Break-Even Example
Fixed costs = $10,000 Material = $.75/unit
Direct labor = $1.50/unit Selling price = $4.00 per unit
F $10,000
BEP$ = =
1 – (V/P) 1 – [(1.50 + .75)/(4.00)]
$10,000
= = $22,857.14
.4375
F $10,000
BEP$ = =
1 – (V/P) 1 – [(1.50 + .75)/(4.00)]
$10,000
= = $22,857.14
.4375
F $10,000
BEPx = = = 5,714
P–V 4.00 – (1.50 + .75)
30,000 –
20,000 –
Fixed costs
10,000 –
| | | | | |
0 2,000 4,000 6,000 8,000 10,000
Units
Break-even
point in dollars
(BEP$)
1 2 3 4 5 6 7 8 9
Sandwich
9,000 $5.00 $3.00 .60 .40 $45,000 .621 .248
Drinks
9,000 1.50 0.50 .33 .67 13,500 .186 .125
Baked 7,000
potato 2.00 1.00 .50 .50 14,000 .193 .097
Sandwich
9,000 $5.00 $3.00 .60 .40 $45,000 .621 .248
Drinks
9,000 1.50 0.50 .33 .67 13,500 .186 .125
Baked 7,000
potato 2.00 1.00 .50 .50 14,000 .193 .097
Demand
Demand
Expected Expected
demand demand
Solving for P:
F
P=
(1 + i)N
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Net Present Value (NPV)
In general:
F = P(1 + i)N
where F = future value
P While
= present value this works fine, it
i is cumbersome for
= interest rate
N = number oflarger
years values of N
Solving for P:
F
P=
(1 + i)N
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NPV Using Factors
F
P= = FX
(1 + i) N
S = RX
where X = factor from Table S7.3
S = present value of a series of
uniform
annual receipts
R = receipts that are received
every year
of the life of the investment
Portion of
Table S7.3
S = RX
S = $7,000(4.212) = $29,484