Question

6. Hickory Manufacturing Company forecasts the following demand for a product (in thousande of units) over the next 5 years: 2 Year 5 81 60 79 84 Forecast demand 84 Currently the manufacturer has seven machines that operate on a two-shift (eight hours each) basis. Twenty days per year are available for scheduled maintenance of equipment with no process output. Assume there are 250 workdays in a year. Each manufactured good takes 25 minutes to produce. a. What is the capacity of the factory? b. At what capacity levels (percentage of normal capacity) would the firm be operating over the paper Mat SHARPWRTER 82 USA

Answer 1

a. Calculate the capacity of the factory: Capacity in machine hours = Number of days x Number of shifts per day * Number of hours per shift x Number of machines =(250-20)days x2 shifts per dayx Shours per day x 7 machines = 23 x 2x8x7 = 25,760 machine hours. As each manufactured good takes 30 minutes to produce, it means 2 units can be produced per one machine hour. Capacity in units = Number of machine hours x 2 units per hour = 25,760 machine hours x 2 units per hour = 51,520 units. Hence, the capacity of the factory in machine hours are 25,760 machine hours and in units are 51,520 units. b. Calculate the capacity levels for next five years (ratio of demand to capacity ratio): Forecast demand Capacity Year (units) (A) (Units) (B) 60,000 51,520 2 79,000 51,520 81,000 51,520 84,000 51,520 84,000 51,520 i Ratio (A/B) 1.16 1.53 1.57 1.63