Modern Bulbs Manufacturing Company report
Introduction
Capacity and forecasting are utilized when determining the optimum production levels and
utilization of resources. These factors play a crucial role in decision making processes for
instance when making decisions to expand the existing factory premises or during planning and
modification of product lines or during the introduction of new product lines.
An company’s long term capacity are based on other design capacities like production and
sustainable capacity and effective capacity. The design capacity of a plant is the maximum total
output that the plant can produce in particularly ideal situations.
The following is the Modern Bulbs Manufacturing Company’s capacity and forecasting
techniques that are the company applies in its manufacturing process.
The company manufactures domestic bulbs that manufactured from a store house that has been
converted as a manufacturing unit. The plant has an adjacent building that’s serves as the
company’s warehouse that has a capacity of storing up to 52 pallets of 1000 units per pallet. The
company must sell as much of the products as possible because it can only store a maximum
stock of 52,000 units at a time. If the sales team fails to meet their monthly targets then the
company has to stop production due to limitation of space. Alternatively the company can hire
storage facilities at a variable cost of $15 per unit. Currently the demand for the power saving
bulbs is very high and the market is very promising.
However, one of the major customers has given notice that it would temporary stop its orders
due to its expansion strategy for three months. The company is a major customer and its orders
amount to about 50% of the plant’s production. The company has already placed its usual orders
Capacity & Forecasting 3
3
for the remaining part of the year including the accumulated order quantity and any extra
quantities that the company will manufacture..
The Modern Bulb is also planning to expand its production by about 20% from the third month
of year but its greatest challenge is that each employee must have a machine that moulds and
clumps the class with the lighting element fixed inside. The costs of the machines are to be
ignored as per the owner’s instructions but the other costs applicable normally. The company
manufacturing details are explained below.
Modern Bulbs Manufacturing Details Other Costs Machine Labour
a Total available hours per day/machine/person – 12 12
b Rates per day per person – 5
c Production per hour/units – 5 5
d Machine maintenance per day average – 2
e Fixed Costs/monthly 500,000
f Selling price per unit 80
g Number of machines and staff available 20 20
h Idle time (hrs) 2 2
i Total days available in a month 26 26
j Maximum overtime allowed by the company per day 4
k Other variable costs per unit 30
l Maximum number of hours per day (a-h) 10 10
Maximum production per day
1,000.00
Total production per month
26,000.00
Total variable costs per month
962,000.00
Total sales
2,080,000.00
Monthly Profit
618,000.00
The following is the company’s forecast for the following five years
Modern Bulbs Five Year
Forecast
Year 1 Year 2 Year 3 Year 4 Year 5
000 000 000 000 000
Total production per year $
374
$
374
$
374
$
374
$
374
Total variable costs year $ $ $ $ $
Capacity & Forecasting 4
4
13,852 13,852 13,852 13,852 13,852
Fixed Costs per year $
6,000
$
6,000
$
6,000
$
6,000
$
6,000
Cost (delayed order) $
1,170
Cost (expansion) $
78
$
78
$
78
$
78
$
78
Sales $
29,920
$
29,920
$
29,920
$
29,920
$
29,920
Profit $
8,820
$
9,990
$
9,990
$
9,990
$
9,990
The five year forecast shows that the company can meet its expansion capacity for a 20%
expansion.
