, AOM4801 ASSIGNMENT 3
DUE DATE: 15 SEPTEMBER 2026
3.1.1.1 Economic trade-off between capacity cost and opportunity cost
When developing a long-range capacity plan, Mzanzi Home Appliances must compare the
cost of investing in additional production capacity with the opportunity cost of not having
enough capacity to meet future demand. Capacity investment involves costs such as
purchasing machinery, installing a dedicated air fryer production line, employing skilled
workers, maintaining equipment and using additional electricity. These costs must be
justified by the expected demand and revenue generated from the additional capacity (Heizer,
Render & Munson, 2020).
For Mzanzi, investing in a dedicated air fryer production line could be economically
beneficial if demand for air fryers is expected to remain strong. The company could increase
its production volume, reduce delays and improve delivery reliability. However, if demand
falls unexpectedly, Mzanzi could be left with expensive equipment that is underutilised. This
represents the cost of having excess capacity.
On the other hand, not investing in sufficient capacity also has an opportunity cost. If
demand for air fryers continues to increase but Mzanzi cannot produce enough units, the
company could experience stock-outs, longer delivery times and lost sales. Customers may
then switch to competitors. Therefore, Mzanzi needs to find a balance between the cost of
additional capacity and the potential revenue and market opportunities lost when capacity is
inadequate (Stevenson, 2021).
3.1.1.2 Economies of scale
If Mzanzi invests in a dedicated air fryer production line, economies of scale could reduce
the average cost of producing each air fryer. As production volumes increase, fixed costs
DUE DATE: 15 SEPTEMBER 2026
3.1.1.1 Economic trade-off between capacity cost and opportunity cost
When developing a long-range capacity plan, Mzanzi Home Appliances must compare the
cost of investing in additional production capacity with the opportunity cost of not having
enough capacity to meet future demand. Capacity investment involves costs such as
purchasing machinery, installing a dedicated air fryer production line, employing skilled
workers, maintaining equipment and using additional electricity. These costs must be
justified by the expected demand and revenue generated from the additional capacity (Heizer,
Render & Munson, 2020).
For Mzanzi, investing in a dedicated air fryer production line could be economically
beneficial if demand for air fryers is expected to remain strong. The company could increase
its production volume, reduce delays and improve delivery reliability. However, if demand
falls unexpectedly, Mzanzi could be left with expensive equipment that is underutilised. This
represents the cost of having excess capacity.
On the other hand, not investing in sufficient capacity also has an opportunity cost. If
demand for air fryers continues to increase but Mzanzi cannot produce enough units, the
company could experience stock-outs, longer delivery times and lost sales. Customers may
then switch to competitors. Therefore, Mzanzi needs to find a balance between the cost of
additional capacity and the potential revenue and market opportunities lost when capacity is
inadequate (Stevenson, 2021).
3.1.1.2 Economies of scale
If Mzanzi invests in a dedicated air fryer production line, economies of scale could reduce
the average cost of producing each air fryer. As production volumes increase, fixed costs
