EXCELCENTRE LEARNING INSTITUTE 0846244729
PU E
SHI
NG Y L E NC
OU TO THE GATE OF EXC EL
Education is the most powerful weapon which you can use to change the world
,EXCELCENTRE LEARNING INSTITUTE 0846244729
WARNING: PLEASE NOTE THAT PLAGIARISM IS A SERIOUS ACADEMIC
OFFENSE, therefore students must use this document ONLY as a guideline. Hence
students have regenerated their own (personalized) solutions paying particular
attention to module contents as prescribed by module facilitators, lecturers and
supervisors. This document’s purpose is to compact all sources of information that
might be relevant to students’ assignments, hence additional knowledge on the
provided information is not restricted by the authors. However, submitting this
document as one’s final work is considered unethical, and students should be
penalized. If this document is plagiarized by the users and fails, EXCELCENTRE
should not be rendered accountable since the contents in this document only give
learners a kick-start on what is expected of them from their areas of
specialty.CAUTION: STUDENTS ARE NOT MANDATED TO USE EVERY DETAIL IN
THIS DOCUMENT IN WRITING THEIR ASSIGNMENT
Education is the most powerful weapon which you can use to change the world
,EXCELCENTRE LEARNING INSTITUTE 0846244729
QUESTION 3.1 CAPACITY MANAGEMENT
3.1.1 ABW have recently built a new production facility at Rosslyn, Pretoria, for
the ABW 5-Series. With reference to their new production facility, elaborate on
the economic trade-off between the cost of capacity and the opportunity cost of
not having adequate capacity. (4)
ABW's recent construction of a new production facility for the 5-Series at Rosslyn,
Pretoria, necessitates an understanding of the economic trade-off between the cost
of capacity and the opportunity cost of not having adequate capacity.
The Cost of Capacity
Capacity costs, as noted by Collier and Evans (2021), comprise the initial investment
in facilities and equipment. For ABW, this specifically relates to the capital expenditure
associated with establishing their new production facility. These costs further include
the ongoing annual expenses required to operate and maintain the assets, the majority
of which are classified as fixed costs.
The Opportunity Cost of Not Having Adequate Capacity
This cost represents an opportunity cost in the form of lost sales and diminished
market share (Helo & Hao, 2022). If ABW produces too few cars, the company risks
losing customers as prices may exceed their budgets, resulting in reduced sales.
Furthermore, operating with insufficient capacity can constrain profit margins and
expose the firm to competitive disadvantages when it is unable to meet customer
demand. In such cases, ABW would not only lose customers to rival producers but
also forfeit potential profits due to its inability to keep pace with demand for the 5-
Series.
The Economic Trade-Off
In capacity long-term planning, an organisation like ABW must achieve a delicate
balance between these two opposing costs. Too much capacity, especially when
demand drops, is disastrous due to the waste of resources and the expensive fixed
costs. This would cause inventory accumulation and waste if ABW produces too many
vehicles. Too little capacity, however, means that the organisation will not be able to
meet demand, resulting in the loss of sales and market share to its rivals.
Education is the most powerful weapon which you can use to change the world
, EXCELCENTRE LEARNING INSTITUTE 0846244729
ABW's implementation of an ERP system to align its supply chain and balance supply
to demand demonstrates their effort to operate the production line at a speed that will
be capable of keeping pace with the demands' patterns without sacrificing quality. It is
their strategic effort to survive the trade-off by producing sufficient to meet demand
without having excessive waste from excess inventory or loss in sales due to
insufficient supply. Capacity decisions, such as building a new factory, have a large
impact on business performance and are also influenced by concepts such as
economies and diseconomies of scale.
3.1.2 Can economies of scale benefit ABW at their new production facility?
Motivate your answer. (2)
Yes, economies of scale can significantly benefit ABW at their new production facility.
Economies of scale are achieved when the average unit cost of a good or service
decreases as the capacity and/or volume of throughput increases explains Kumar
(2022). This means that as ABW produces more 5-Series cars, the cost per car should
decrease.
Motivation
New Facility Characteristics: ABW has recently built a new production facility for the
ABW 5-Series, designed as a continuous flow system of production based on a
'just-in-time' approach. Continuous flow systems are typically characterized by high
volumes and low customization, which are conducive to achieving economies of
scale.
Cost Reduction: Firms that achieve competitive advantage through low costs often
do so through high volumes and efficient design and operation of their supply
chain, emphasizing economies of scale. By producing a high volume of the 5-Series,
ABW can spread its fixed costs (like the investment in the new facility and equipment)
over a larger number of units, thereby lowering the average cost per car.
Optimal Speed and Resource Utilisation: ABW's goal to run the production line
at the optimal speed to match demand patterns aligns with the principle of
achieving economies of scale, as it aims for maximum utilization of resources and
minimum waste. High-capacity utilization is a factor that can lead to lower costs.
Education is the most powerful weapon which you can use to change the world
PU E
SHI
NG Y L E NC
OU TO THE GATE OF EXC EL
Education is the most powerful weapon which you can use to change the world
,EXCELCENTRE LEARNING INSTITUTE 0846244729
WARNING: PLEASE NOTE THAT PLAGIARISM IS A SERIOUS ACADEMIC
OFFENSE, therefore students must use this document ONLY as a guideline. Hence
students have regenerated their own (personalized) solutions paying particular
attention to module contents as prescribed by module facilitators, lecturers and
supervisors. This document’s purpose is to compact all sources of information that
might be relevant to students’ assignments, hence additional knowledge on the
provided information is not restricted by the authors. However, submitting this
document as one’s final work is considered unethical, and students should be
penalized. If this document is plagiarized by the users and fails, EXCELCENTRE
should not be rendered accountable since the contents in this document only give
learners a kick-start on what is expected of them from their areas of
specialty.CAUTION: STUDENTS ARE NOT MANDATED TO USE EVERY DETAIL IN
THIS DOCUMENT IN WRITING THEIR ASSIGNMENT
Education is the most powerful weapon which you can use to change the world
,EXCELCENTRE LEARNING INSTITUTE 0846244729
QUESTION 3.1 CAPACITY MANAGEMENT
3.1.1 ABW have recently built a new production facility at Rosslyn, Pretoria, for
the ABW 5-Series. With reference to their new production facility, elaborate on
the economic trade-off between the cost of capacity and the opportunity cost of
not having adequate capacity. (4)
ABW's recent construction of a new production facility for the 5-Series at Rosslyn,
Pretoria, necessitates an understanding of the economic trade-off between the cost
of capacity and the opportunity cost of not having adequate capacity.
The Cost of Capacity
Capacity costs, as noted by Collier and Evans (2021), comprise the initial investment
in facilities and equipment. For ABW, this specifically relates to the capital expenditure
associated with establishing their new production facility. These costs further include
the ongoing annual expenses required to operate and maintain the assets, the majority
of which are classified as fixed costs.
The Opportunity Cost of Not Having Adequate Capacity
This cost represents an opportunity cost in the form of lost sales and diminished
market share (Helo & Hao, 2022). If ABW produces too few cars, the company risks
losing customers as prices may exceed their budgets, resulting in reduced sales.
Furthermore, operating with insufficient capacity can constrain profit margins and
expose the firm to competitive disadvantages when it is unable to meet customer
demand. In such cases, ABW would not only lose customers to rival producers but
also forfeit potential profits due to its inability to keep pace with demand for the 5-
Series.
The Economic Trade-Off
In capacity long-term planning, an organisation like ABW must achieve a delicate
balance between these two opposing costs. Too much capacity, especially when
demand drops, is disastrous due to the waste of resources and the expensive fixed
costs. This would cause inventory accumulation and waste if ABW produces too many
vehicles. Too little capacity, however, means that the organisation will not be able to
meet demand, resulting in the loss of sales and market share to its rivals.
Education is the most powerful weapon which you can use to change the world
, EXCELCENTRE LEARNING INSTITUTE 0846244729
ABW's implementation of an ERP system to align its supply chain and balance supply
to demand demonstrates their effort to operate the production line at a speed that will
be capable of keeping pace with the demands' patterns without sacrificing quality. It is
their strategic effort to survive the trade-off by producing sufficient to meet demand
without having excessive waste from excess inventory or loss in sales due to
insufficient supply. Capacity decisions, such as building a new factory, have a large
impact on business performance and are also influenced by concepts such as
economies and diseconomies of scale.
3.1.2 Can economies of scale benefit ABW at their new production facility?
Motivate your answer. (2)
Yes, economies of scale can significantly benefit ABW at their new production facility.
Economies of scale are achieved when the average unit cost of a good or service
decreases as the capacity and/or volume of throughput increases explains Kumar
(2022). This means that as ABW produces more 5-Series cars, the cost per car should
decrease.
Motivation
New Facility Characteristics: ABW has recently built a new production facility for the
ABW 5-Series, designed as a continuous flow system of production based on a
'just-in-time' approach. Continuous flow systems are typically characterized by high
volumes and low customization, which are conducive to achieving economies of
scale.
Cost Reduction: Firms that achieve competitive advantage through low costs often
do so through high volumes and efficient design and operation of their supply
chain, emphasizing economies of scale. By producing a high volume of the 5-Series,
ABW can spread its fixed costs (like the investment in the new facility and equipment)
over a larger number of units, thereby lowering the average cost per car.
Optimal Speed and Resource Utilisation: ABW's goal to run the production line
at the optimal speed to match demand patterns aligns with the principle of
achieving economies of scale, as it aims for maximum utilization of resources and
minimum waste. High-capacity utilization is a factor that can lead to lower costs.
Education is the most powerful weapon which you can use to change the world
