POM final revision.

Strategic Capacity Planning :

First Question :
An investment proposal will have annual fixed costs of $60,000, variable costs of $35 per unit of
output, and revenue of $55 per unit of output.
(A) Determine the break-even quantity.
(B) What volume of output will be necessary for an annual profit of $60,000?

FC = $60,000 per year

VC = $35 per unit
REV – $55 per unit

Second Question :

The Goode and Cooke Company produces several models of frying pans. There is little difference in the
production time required for the various models; the plant is designed to produce 160 frying pans per eight-
hour shift, and there are two shifts per working day. However, the plant does not operate for the full eight
hours: the employees take two 12-minute breaks in each shift, one in the first four hours and one in the second
four hours; two hours per week are devoted to cleaning the factory and performing maintenance on the
machines; one four-hour period every four weeks is devoted to the meeting of the quality circle. The plant
usually produces about 3,500 frying pans per four-week period. You may ignore holidays in solving this
problem. Answer the following questions by adjusting the data to a four-week time period.
a. What is the design capacity in frying pans?
b. What is the effective capacity in frying pans?
c. What is the actual output?
d. What is the efficiency?
e. What is the utilization?
f. Re-work the problem using a time period of one eight-hour shift.

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 Solution :

a. Design capacity = 160 frying pans x 2 shifts x 20 working days = 6,400 frying pans per four weeks.
b. 160/8 = 20 frying pans per hour.
8 hrs. x 2 shifts x 20 working days = 320 hrs. available.
Less
Breaks: (12 min. x 2 per shift x 2 shifts x 20 working days)/60 = 16 hrs.
Cleaning: 2 hrs. x 4 weeks 8 hrs.
Quality Circle 4 hrs.
Therefore, Net productive time is: 292 hrs.

Effective capacity = 292 hrs. x 20 frying pan per hour = 5,840 frying pans per four weeks.
c. Actual output = 3,500 frying pans.
d. Efficiency = Actual output/Effective Capacity = (100)(3500)/5840 = 59.93%.
e. Utilization = Actual output/Design capacity = (100)(3500)/6400 = 54.69%.
f. In terms of one 8-hour shift: Design capacity = 160 x 1 shifts x 20 working days = 3,200 frying pans
per four weeks.
160/8 = 20 frying pans per hour.
8 hrs. x 2 shifts x 20 working days = 320 hrs. available.
Less
Breaks: (12 min. x 2 per shift x 1 shift x 20 working days)/60 = 8 hrs.
Cleaning: 2 hrs. x 4 weeks 8 hrs.
Quality Circle 4 hrs.
Therefore, Net productive time is: 320 – (8+8+4) = 300 hrs.

Effective capacity = 300 hrs. x 20 frying pan per hour = 6,000 frying pans per four weeks.

Effective capacity = 5840/40 = 146 frying pans.

The percentage answers will be the same as above.

Third Question :

The efficiency of a productive unit is 60%. The unit produces an average of 20 forklift trucks per day.
Determine the effective capacity of the unit.

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 Forth Question :

The utilization of a machine is 50%. The machine has a design capacity of 70 units per hour and an
effective capacity of 60 units per hour. Find the efficiency of the machine.

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 Location Planning and analysis

First Question:

Q 9 (Text book) page 394:

9. Factor Wt. A B C
1. Conv. access .15 .15(80) = 12.00 .15(70) = 10.50 .15(60) = 9.0
2. Parking .20 .20(72) = 14.40 .20(76) = 15.20 .20(92) = 18.4
3. Display area .18 .18(88) = 15.84 .18(90) = 16.20 .18(90) = 16.2
4. Shopper traffic .27 .27(94) = 25.38 .27(86) = 23.22 .27(80) = 21.6
5. Operating costs .10 .10(98) = 9.80 .10(90) = 9.00 .10(82) = 8.2
6. Neighborhood .10 .10(96) = 9.60 .10(85) = 8.50 .10(75) = 7.5
1.00 87.02 82.62 80.9
On the basis of composite score, A seems the best.

Second Question :

Determine the center of gravity location for the destinations and shipping quantities shown below:

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Third Question :

Given the information below on scores of three location alternatives, which alternative would you
recommend? Why?

Composite scores are: A = 72, B = 69, and C = 69. If the criterion is highest composite, choose A.