Production Planning and Capacity (HL)

Production, planning, is, examined, largely, through, four, calculations., Each, is, simple;, the, marks, are, in, interpreting, what, the, number, implies.

Capacity, utilisation, rate, =, (actual, output, ÷, maximum, possible, output), ×, 100., A, plant, capable, of, 5,000, units, producing, 4,000, runs, at, 80%., Low, utilisation, means, fixed, costs, are, spread, across, fewer, units,, raising, unit, cost., But, very, high, utilisation, is, not, automatically, good, either:, a, plant, at, 100%, has, no, slack, for, maintenance,, no, room, for, an, unexpected, order,, and, no, margin, for, breakdown,, which, is, why, sustained, full, utilisation, is, often, a, warning, rather, than, an, achievement.

Defect, rate, =, (defective, units, ÷, total, units, produced), ×, 100., Sixty, faulty, units, out, of, 4,000, is, a, 1.5%, defect, rate., The, figure, only, means, something, once, you, know, where, the, defects, are, caught., Internally,, they, cost, scrap, and, rework;, externally,, they, cost, returns,, warranty, and, reputation.

Productivity, rate, =, total, output, ÷, total, input, used., Labour, productivity, divides, output, by, employees, or, by, worker-hours;, capital, productivity, divides, output, by, capital, employed., As, with, every, ratio, in, this, course,, the, figure, is, meaningless, without, a, benchmark, or, a, trend.

Make, or, buy, compares, the, cost, of, producing, internally, against, the, cost, of, purchasing., If, making, costs, $20,000, in, fixed, costs, plus, $6, per, unit,, and, buying, costs, $9, per, unit,, then, at, 4,000, units, making, costs, $44,000, against, buying, at, $36,000,, so, buying, wins., The, two, are, equal, where, 20,000, +, 6Q, =, 9Q,, giving, Q, =, 6,667, units., Above, that, volume,, making, becomes, cheaper.

The, cost, comparison, is, necessary, and, not, sufficient., Making, retains, control, of, quality,, protects, intellectual, property, and, keeps, the, capability, in-house;, buying, converts, fixed, costs, into, variable, ones,, frees, capital, and, gives, access, to, a, specialist's, expertise.