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.