5.1.
Capacity:
the upper limit or ceiling on the load that an operating unit can handle.
5.2.
Design capacity:
the maximum designed service capacity or output rate
5.3.
Effective capacity:
design capacity minus personal and other allowances
5.4.
Capacity cushion:
extra capacity used to offset demand uncertainty
5.5.
Long term capacity: needs require forecasting demand over a time horizon and then converting those forecasts into
capacity requirements
5.6.
Short term capacity:
needs are less concerned with cycles or trends with seasonal variations and other variations from
average.
These deviations are particularly important b/c they can place a severe strain on a system’s ability to satisfy
demand at some times and yet result in idle capacity at other times.
5.7.
Bottleneck operations:
an operation in a sequence of operations whose capacity is lower than that of other operations
5.8.
Economies of Scale:
if output rate is LESS than optimal level, increasing the output rate results in decreasing average
unit costs
5.9.
Diseconomies of Scale:
If the output rate is MORE than optimal level, increasing the output rate results in increasing
average unit costs
5.10.
Constraint:
something that limits the performance of a process or system in achieving its goals.
5.11.
Contribution margin:
the difference between revenue per unit and variable cost per unit ( Rv)
5.12.
Cash Flow:
the difference between cash received from sales and other resources, and cash outflow for labor, material,
overhead and taxes
5.13.
Present value:
the sum, in current value, of all future cash flows of an investment proposal
5.14.
Internal Rate of Return (IRR):
summarizes the initial cost, expected annual cash flows, and estimated future salvage
value of an investment proposal is an
equivalent interest rate.
This method identifies the rate of return that equates the
estimated future returns & the initial cost.
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 Fall '10
 C.SCHNIEDER
 Cycle Time, output rate

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