, AOM4801
ASSIGNMENT 3 2026
DUE 14 SEPTEMBER 2026
3.1 CAPACITY MANAGEMENT
3.1.1 In developing a long-range capacity plan, an organisation must make an economic trade-off
between the cost of capacity and the opportunity cost of not having adequate capacity. In the
context of Mzanzi Home Appliances and their consideration to invest in a dedicated air fryer
production line, this statement means that management must weigh the substantial capital
expenditure required for specialised equipment, factory modifications, employee training and
additional inventory against the risk of being unable to meet future demand. If Mzanzi invests too
little and demand for air fryers continues to grow as major retailers have indicated, the company
will face lost sales, dissatisfied retail partners such as Thrive Retail Holdings, and damage to its
reputation as a reliable local supplier. Conversely, if Mzanzi invests too heavily and demand does
not materialise as forecast, the company will carry the burden of underutilised capital-intensive
equipment, higher unit costs and reduced return on investment. The economic trade-off therefore
requires management to compare the explicit costs of adding capacity with the implicit opportunity
costs of foregone sales, weakened customer relationships and lost market share that would result
from insufficient capacity (Heizer, Render & Munson, 2020).
3.1.2.2 Assuming Mzanzi Home Appliances do invest in a dedicated air fryer production line,
economies of scale can benefit them in several ways. Firstly, a dedicated line would allow longer
production runs of air fryers, spreading fixed costs such as equipment depreciation, factory
overheads and setup costs over a larger number of units, thereby reducing the cost per unit.
Secondly, specialisation of labour and equipment on a single product line would improve
learning-curve effects, enabling workers to become more proficient and reducing cycle times.
Thirdly, bulk purchasing of components specific to air fryers, such as heating elements and
electronic controls, could lower material costs per unit through volume discounts. These
economies of scale would support Mzanzi’s cost-focused operations strategy and help maintain
competitive pricing while improving profitability (Slack, Brandon-Jones & Johnston, 2019).
ASSIGNMENT 3 2026
DUE 14 SEPTEMBER 2026
3.1 CAPACITY MANAGEMENT
3.1.1 In developing a long-range capacity plan, an organisation must make an economic trade-off
between the cost of capacity and the opportunity cost of not having adequate capacity. In the
context of Mzanzi Home Appliances and their consideration to invest in a dedicated air fryer
production line, this statement means that management must weigh the substantial capital
expenditure required for specialised equipment, factory modifications, employee training and
additional inventory against the risk of being unable to meet future demand. If Mzanzi invests too
little and demand for air fryers continues to grow as major retailers have indicated, the company
will face lost sales, dissatisfied retail partners such as Thrive Retail Holdings, and damage to its
reputation as a reliable local supplier. Conversely, if Mzanzi invests too heavily and demand does
not materialise as forecast, the company will carry the burden of underutilised capital-intensive
equipment, higher unit costs and reduced return on investment. The economic trade-off therefore
requires management to compare the explicit costs of adding capacity with the implicit opportunity
costs of foregone sales, weakened customer relationships and lost market share that would result
from insufficient capacity (Heizer, Render & Munson, 2020).
3.1.2.2 Assuming Mzanzi Home Appliances do invest in a dedicated air fryer production line,
economies of scale can benefit them in several ways. Firstly, a dedicated line would allow longer
production runs of air fryers, spreading fixed costs such as equipment depreciation, factory
overheads and setup costs over a larger number of units, thereby reducing the cost per unit.
Secondly, specialisation of labour and equipment on a single product line would improve
learning-curve effects, enabling workers to become more proficient and reducing cycle times.
Thirdly, bulk purchasing of components specific to air fryers, such as heating elements and
electronic controls, could lower material costs per unit through volume discounts. These
economies of scale would support Mzanzi’s cost-focused operations strategy and help maintain
competitive pricing while improving profitability (Slack, Brandon-Jones & Johnston, 2019).
