# Chapter 8 Managing Capacity

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CHAPTER 8

Managing Capacity

PROBLEMS
Additional homework problems are available at www.prenhall.com/bozarth. These problems use Excel to generate customized problems for different class sections or even different students.
(* = easy; ** = moderate; *** = advanced)

1. (*) The Shelly Group has leased a new copier that costs \$700 per month plus \$0.10 for each copy. What is the total cost if Shelly makes 5,000 copies a month? 10,000 copies? What is the per-copy cost at 5,000 copies? At 10,000 copies?

TC = FC + VC*X Eq 8-1

FC = \$700 VC = \$.10/copy

TC = 700 + (.10*5000) TC = \$1200

TC = 700 + (.10*10,000) TC = \$1,700

Per copy price = TC/# of copies

PPC = 1200/5000 PPC = \$0.24 @ 5000 copies

PPC = 1700/10000 PPC = \$0.17 @ 10,000 copies
2. Arktec Manufacturing must choose between two capacity options, shown below:

| |Fixed cost (per year) |Variable cost (per unit) |
|Option 1 |\$500,000 |\$2 per unit |
|Option 2 |\$100,000 |\$10 per unit |

a. (*) What would the cost be for each option if the demand level is 25,000 units per year? 75,000?

TC = FC + VC*X Eq 8-1

Option 1 FC = \$500,000 VC = \$2.00 per unit

TC = 500,000 + (2*25,000) TC = \$550,000 for Option 1 (25,000 units)

TC = 500,000 + (2*75,000) TC = \$650,000 for Option 1 (75,000 units)

Option 2 FC = \$100,000 VC = \$10/unit

TC = 100,000 + 250,000 TC = \$350,000 for Option 2 (25,000 units)

TC = 100,000 + (10*75,000) TC = \$850,000 for Option 2 (75,000 units)

b....

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