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Solved Problems

(See student companion site for Excel template.)

• Problem 1

A manufacturer of ballet shoes has determined that its production facility has a design capacity of 300 shoes per week. The effective capacity, however, is 230 shoes per week. What is the manufacturer's capacity utilization relative to both design and effective capacity if output is 200 shoes per week?

• Before You Begin:

Remember that utilization is computed as the ratio of actual output over capacity. The difference between the two capacity measures is that one uses effective capacity and the other uses design capacity.

• Solution

The utilization rates computed show that the facility's current output is comfortably below its design capacity. It is also slightly below effective utilization, which means that the manufacturer is not using capacity to its fullest extent.

• Problem 2

EKG Software Development Corporation has determined that it needs to expand its current capacity. The decision has come down to whether to expand now with a large facility, incurring additional costs and taking the risk that the demand will not materialize, or to undertake a small expansion, knowing that the decision will have to be reconsidered in five years. Management has estimated the following chances for demand:

• The likelihood of demand being high is 0.60.
• The likelihood of demand being low is 0.40.

Profits for each alternative ...

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