AOM4801
Assignment 3 2026
Unique number:
Due date: 15 September 2026
3.1 Capacity Management
3.1.1.1 Economic trade-off between the cost of capacity and inadequate
capacity
For Mzanzi Home Appliances, investing in a dedicated air fryer production line
creates a trade-off between the cost of adding capacity and the possible losses
caused by insufficient capacity. Capacity costs would include purchasing specialised
equipment, installing the new line, training employees, maintaining machinery and
paying operating costs even when demand is lower than expected. Capacity
planning therefore requires management to consider whether the expected future
demand can justify these long-term costs.
However, failing to increase capacity could also be costly because Mzanzi is already
, 3.1 Capacity Management
3.1.1.1 Economic trade-off between the cost of capacity and inadequate
capacity
For Mzanzi Home Appliances, investing in a dedicated air fryer production line
creates a trade-off between the cost of adding capacity and the possible losses
caused by insufficient capacity. Capacity costs would include purchasing specialised
equipment, installing the new line, training employees, maintaining machinery and
paying operating costs even when demand is lower than expected. Capacity
planning therefore requires management to consider whether the expected future
demand can justify these long-term costs.
However, failing to increase capacity could also be costly because Mzanzi is already
experiencing growing demand and capacity constraints. If the existing production
system cannot produce enough air fryers, the company may experience stock-outs,
longer delivery times and lost sales, while customers may move to competing
brands. The dedicated line would therefore be justified when the expected
contribution from additional air fryer sales and improved delivery reliability is greater
than the cost and risk of maintaining the additional capacity.
3.1.1.2 Benefits of economies of scale
A dedicated air fryer production line could allow Mzanzi to achieve economies of
scale as production volumes increase. Economies of scale occur when average unit
costs fall because fixed costs are spread across a larger number of units. For
example, the cost of specialised machinery, supervision and production-line setup
could be shared across a larger volume of air fryers, lowering the fixed
manufacturing cost per unit.
Higher volumes could also allow Mzanzi to negotiate better prices for heating
elements, plastics, packaging and other components through bulk purchasing.
Employees working repeatedly on a specialised product line may also become more
efficient through experience and standardised work methods. These savings could
help Mzanzi maintain affordable selling prices while protecting its margins against
rising energy, logistics and imported-component costs. Management should
Assignment 3 2026
Unique number:
Due date: 15 September 2026
3.1 Capacity Management
3.1.1.1 Economic trade-off between the cost of capacity and inadequate
capacity
For Mzanzi Home Appliances, investing in a dedicated air fryer production line
creates a trade-off between the cost of adding capacity and the possible losses
caused by insufficient capacity. Capacity costs would include purchasing specialised
equipment, installing the new line, training employees, maintaining machinery and
paying operating costs even when demand is lower than expected. Capacity
planning therefore requires management to consider whether the expected future
demand can justify these long-term costs.
However, failing to increase capacity could also be costly because Mzanzi is already
, 3.1 Capacity Management
3.1.1.1 Economic trade-off between the cost of capacity and inadequate
capacity
For Mzanzi Home Appliances, investing in a dedicated air fryer production line
creates a trade-off between the cost of adding capacity and the possible losses
caused by insufficient capacity. Capacity costs would include purchasing specialised
equipment, installing the new line, training employees, maintaining machinery and
paying operating costs even when demand is lower than expected. Capacity
planning therefore requires management to consider whether the expected future
demand can justify these long-term costs.
However, failing to increase capacity could also be costly because Mzanzi is already
experiencing growing demand and capacity constraints. If the existing production
system cannot produce enough air fryers, the company may experience stock-outs,
longer delivery times and lost sales, while customers may move to competing
brands. The dedicated line would therefore be justified when the expected
contribution from additional air fryer sales and improved delivery reliability is greater
than the cost and risk of maintaining the additional capacity.
3.1.1.2 Benefits of economies of scale
A dedicated air fryer production line could allow Mzanzi to achieve economies of
scale as production volumes increase. Economies of scale occur when average unit
costs fall because fixed costs are spread across a larger number of units. For
example, the cost of specialised machinery, supervision and production-line setup
could be shared across a larger volume of air fryers, lowering the fixed
manufacturing cost per unit.
Higher volumes could also allow Mzanzi to negotiate better prices for heating
elements, plastics, packaging and other components through bulk purchasing.
Employees working repeatedly on a specialised product line may also become more
efficient through experience and standardised work methods. These savings could
help Mzanzi maintain affordable selling prices while protecting its margins against
rising energy, logistics and imported-component costs. Management should
