Subject: Production Operation Management (Tuesday, 10.

30 class)
Lecturer: Dr. Yunita Ismail
Name: Stevando Yusuf Monoarfa (015201400071 – BA 2014)

Answer the question and submit on 13.00 o’clock, in pdf file to online class

a. Amy Xia’s plant was designed to produce 7,000 hammers per day but is limited to
making 6,000 hammers per day because of the time needed to change equipment
between styles of hammers.

a. What is the utilization?

b. If an effective capacity of 6,500 has made only 4,500 hammers per day
because the material delay, employee absences, and other problem.
What is the efficiency?

c. If a plant has an effective capacity of 6,500 and an efficiency of 88%, what

is the actual (planned) output?

Answers:
a. Utilization =?
Actual outputs/Effective Capacity = 6,000/7,000 = 0.857
= 85.7%
b. Actual outputs/ Effective Capacity = 4,500/6,500 = 0.692
= 69.2%
c. Effective Capacity x Efficiency = 6,500 x 0.88 = 5,720
 2. Southeastern Oklahoma State University’s business program has the facilities and
faculty to handle an enrollment of 2,000 new students per semester. However, in an effort
to limit class sizes to a “reasonable’ level (under 200, generally), Southeastern’s dean, Holly
Lutze, placed a ceiling on enrollment of 1,500 new students. Although there was ample
demand for business courses last semester, conflicting schedules allowed only 1,450 new
students to take business courses. What are the utilization and efficiency of this system?

Answer:
Utilization = 72.5% Actual design = 1450/2000

Efficiency = 96.7% Actual effective = 1450/1500

3. Smithson Cutting is opening a new line of scissor for supermarket distribution. It

estimates its fixed cost to be $500.00 and its variable cost to be $0.50 per unit. Selling price
is expected to average $0.75 per unit.

a. What is Smithson’s break-even point in units?

b. What is the break-even point in dollars?

Answers:

a. BEP in Units = FC / Price per unit - VC

= 500/0.25 = 2,000 units

b. BEP in Dollars = Price per unit x BEP in units = 0.75 x 2,000 = 1,500

4. Janelle Heinke, the owner of Ha’Peppas, is considering a new oven in which to bake the
firm’s signature dish, vegetarian pizza. Oven type A can handle 20 pizzas an hour. The fixed
costs associated with oven A are $20,000 and the variable cost are $2,00 per pizza. Oven B is
larger and can handle 40 pizzas an hour. The fixed costs associated with oven B are $30,000
and the variable cost are $1,25 per pizza. The pizza sells for $14 each.
 a. What is the break-even point for each oven?
b. If the owner expects to sell 9,000 pizzas, which oven should she purchase?
c. If the owner expects to sell 12,000 pizzas, which oven should she purchase?
d. At what volume should Janelle switch ovens?

Answers:

a. Oven A

BEP in Units = FC / Price per unit - VC

= 20,000/14 - 2 = 1,666.67 Units

BEP in Dollars = Price per unit x BEP in units

= 14 x 1,666.67

= $23,333.33

Oven B:

BEP in Units = FC / Price per unit - VC

= 30,000/14 – 1.25 = 2,352.94 Units

BEP in Dollars = Price per unit x BEP in units

= 14 x 2,352.94

= $32,941.18

b. Oven A:

(20000 + (2 x 9000)) - (9000 x 14) = 88,000

Oven B

(30000 + (1.25 x 9000)) - (9000 x 14) =84750

The owner should purchase oven A as it has higher profit

c. Oven A

(20000 + (2 x 12000)) - (12000 x 14) =124,000

Oven B

(30000 + (1.25 x 12000)) - (12000 x 14) =123,000

The owner should purchase oven A

d. 10,000 / 0.75 = 13,333 pizza

5. You are considering opening a copy service in the student union. You estimate your fixed
cost at $15,000 and the variable cost of each copy sold at $0.01. You expect the selling price to
average $0.05

a. What is the break-even point in dollars?

b. What is the break-even point in units?

Answers:

b. BEP in Units = FC / Price per unit - VC

= 15,000/0.05 – 0.01 = 375,000 units

a. BEP in Dollars = Price per unit x BEP in units

= 0.05 x 375,000

= $18,750