Chapter 5: Capacity Planning

Complete the following problems. You MUST SHOW ALL WORK to earn credit.

Note: Most students will print this out, complete it by hand and the upload their work. Make sure your answers are to the tenth. Example: 1.1 instead of 1. This will affect your answers and recommendation.

You work at a production facility and need to decide which type of machine to purchase and in what quantity. The machines being evaluated are Machine Acme, Machine Brutus, and Machine Clark.

Following are the acquisition costs of each machine.

Machine	Cost of Each Machine
Acme	$50,000
Brutus	$40,000
Clark	$80,000

Your company produces three different products. We will refer to the products as Product 1, Product 2, and Product 3. The following table indicates the annual demand in units for each of the three products. Annual demand is the expected units that will likely need to be produced. Each machine has different capabilities with respect to efficiency. The table also indicates the processing time for each of the three products for each machine.

Assume that machines will operation 8 hours per day, 250 days per year.

		Processing Time Per Unit (in minutes)
Product	Annual Demand	Machine Acme	Machine Brutus	Machine Clark
Product 1	15,000	3	4	2
Product 2	12,000	4	4	3
Product 3	8,000	5	6	4

1. How many of each machine would need to be purchased to produce the anticipated annual demand? Show all of your work. Make sure your answers are to the tenth. Example: 3 instead of 1. This will affect your answer.

2. If only acquisition costs are considered, how much would it cost the company to acquire the machine(s)? Make sure you provide the answer for all of the machine options (Acme, Brutus, and Clark)? Show all of your work. Recall that one cannot purchase partial machines so you may have to round up.

3. We need to consider operational costs on an annual basis for each option. Assume the following information. Show all of your work. Make sure you calculate operational costs for the actual time needed to produce the annual demand.

Machine Acme has an hourly operating cost of $11 per hour.

Machine Brutus has an hourly operating cost of $10 per hour.

Machine Clark has an hourly operating cost of $12 per hour.

4. Now, lets find total costs for the first year. Add the operating costs to the acquisition costs for each machine to find the total costs for the first year. Remember, that with some of the machines, you may have to purchase more than one machine to meet the annual processing requirements. We cannot purchase partial machines.

5. If cost is the primary concern, what is your final recommendation? In other words, which machine and in what quantity would be recommend? Explain your response.