requires reasonably accurate demand forecasts standard processing times and

Requires reasonably accurate demand forecasts

This preview shows page 21 - 27 out of 53 pages.

requires reasonably accurate demand forecasts, standard processing times, and available work time horizon planning the during available time processing horizon planning the during product for demand product for time processing standard machines required of number where 1 = = = = = = T i D i p N T D p N i i R k i i i R
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Page 194 Example A department works one 8-hour shift, 250 days per year, and has these figures for usage of a machine that is currently being considered: Product (1) D i Annual Demand (2) P i Standard processing time per unit .(Hr) (3) Processing time needed (Hr) (2)*(3) D i * P i 1 400 5.0 400*5 =2000 2 300 8.0 300*8 = 2400 3 700 2.0 700*2 =1400 5800 horizon planning the during available time processing horizon planning the during product for demand product for time processing standard machines required of number where 1 = = = = = = T i D i p N T D p N i i R k i i i R Working one 8-hour shift 250 days a year provides an annual capacity= 8 *250 = 2000 hours per year=T Required volume = 5800 hours/(2000hours/machine =2.90 machines = 5800/2000 22
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Calculating Processing Requirements (Example 2) 5-23 P r o d u c t A n n u a l D e m a n d S t a n d a r d p r o c e s s i n g t i m e p e r u n i t ( h r . ) P r o c e s s i n g t i m e n e e d e d ( h r . ) # 1 # 2 # 3 4 0 0 3 0 0 7 0 0 5 . 0 8 . 0 2 . 0 2 , 0 0 0 2 , 4 0 0 1 , 4 0 0 5 , 8 0 0 If annual capacity is 2000 hours, then we need three machines to handle the required volume: 5,800 hours/2,000 hours = 2.90 machines
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24 Page 202 Cost-Volume Analysis Cost-volume analysis Focuses on the relationship between cost, revenue, and volume of output Fixed Costs (FC) tend to remain constant regardless of output volume Variable Costs (VC) vary directly with volume of output VC = Quantity ( Q ) x variable cost per unit ( v ) Total Cost TC = Q x v Total Revenue (TR) TR = revenue per unit ( R ) x Q
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25 Break-Even Point (BEP) BEP The volume of output at which total cost and total revenue are equal Profit ( P ) = TR – TC = R x Q – (FC + v x Q ) = Q(R – v) – FC v R Q BEP - = FC v R FC P Q - + =
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The owner of Old-Fashioned Berry Pies, S. Simon, is contemplating adding a new line of pies, which will require leasing new equipment for a month payment of $6,000. Variable cost would be $2 per pie, and pies would retail for $7 each. 26 FCa.b.
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