Capacity Expansion Strategy

Capacity Expansion Strategy - 1 Capacity Expansion Strategy...

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Unformatted text preview: 1 Capacity Expansion Strategy (d) Attempts to have an average capacity with incremental expansion Expected demand Figure S7.4 New capacity Demand Time (years) 1 2 3 2 Break-Even Analysis Technique for evaluating process and equipment alternatives Objective is to find the point in dollars and units at which cost equals revenue Requires estimation of fixed costs, variable costs, and revenue 3 Break-Even Analysis Fixed costs are costs that continue even if no units are produced Depreciation, taxes, debt, mortgage payments Variable costs are costs that vary with the volume of units produced Labor, materials, portion of utilities Contribution is the difference between selling price and variable cost 4 Break-Even Analysis Costs and revenue are linear functions Generally not the case in the real world We actually know these costs Very difficult to accomplish There is no time value of money Assumptions 5 P r o f i t c o r r i d o r L o s s c o r r i d o r...
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This note was uploaded on 01/20/2012 for the course MGT 3200 taught by Professor Moodie during the Spring '08 term at Kennesaw.

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Capacity Expansion Strategy - 1 Capacity Expansion Strategy...

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