A 60 B C D E F G H J K 61 Capacity Expansion Model 62 Product A and B require the same amount of capacity to manufacture. That simplifies the analysis of capacity as we can measure capacity in 'units' of Product A and B as a common denominator. 63 The company will choose to deploy scarce capacity on the most profitable products. 64 The price of Product A is $110 and the price of Product B is $100. 65 Therefore, the company will manufacture Product A before Product B. 66 The company currently has 500 units of capacity. 67 The Unit Sales Given Capacity Constraints forecast of sales is based on the scenario that no capacity is added. 69 68 Write formulas in the green boxes below to calculate how many units of each product would be sold. Hint: You will need to use a MIN/MAX/IF function. 70 71 72 Unit Sales Given 500 Units of Capacity 73 Product A 74 75 Product B M N 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 210 210 210 210 210 210 210 210 210 210 110 110 110 110 110 110 110 110 110 110 100 100 100 100 100 100 100 100 100 100 76 The company will have to add capacity over the next decade to satisfy demand. 77 78 Economies of Scale in Plant Construction 79 Capacity Expansion (Units) Capital Expenditure (CapEx) CapEx/Unit CapEx Scale Economies Unit Operating Operating Scale Cost Ecnomies 80 100 $35,000 $350 $50 81 150 $45,000 $300 -14% $45 -10% 82 300 $75,000 $250 -29% $40 -20% 83 84 The above Cost of Plant Construction demonstrates significant 'economies of scale'. 85 86 87 88 Economies of scale, enjoying a lower unit cost for a larger scale operation or investment, is common. Notice how the Capex/Unit declines from $350 to $250 as the number of units of capacity added increases. Furthermore the Unit Operating Cost declines from $50 to $40 as the number of units of capacity added increases. Software development affords the ultimate level of economies of scale as once software is developed there is absolutely no additional cost for additional use. EXCEL Financial Functions DATA TABLES MODEL Simple Company MODEL Marketing Stratagy MODEL Make-Buy Decision MODEL Manufacturing Strategy MODEL Revise B B +