AOM4801 ASSIGNMENT 2025
DISCLAIMER: THIS IS NOT AN OFFICIAL GUIDE FROM UNISA. THE REPORT IS
NOT PREPARED NOR APPROVED BY UNISA, RATHER REPRESENTS A
POSSIBLE SOLUTION TO THE TASK CONSISTENT WITH THEORY OF AOM4801.
THIS REPORT IS INTENDED TO ASSIST STUDENTS IN GETTING STARTED WITH
THEIR ASSIGNMENT, AND IN NO CASE THIS DOCUMENT SHOULD BE USED
FOR CHEATING. WE BELIEVE THIS WILL BE A GOOD STARTING POINT AS IT
WAS PREPARED BY OUR TEAM OF PROFESSIONAL PRIVATE TUTORS WHO
ARE EXPERTS IN THE FIELD, AND IT WAS PREPARED USING VARIOUS
SOURCES. ANY SIMILARITY WITH ANY EXISTING THEORY OR DISCUSSION BY
OTHER AUTHORS IS EXCUSED. THE AUTHORS HOWEVER DO NOT CLAIM
MONOPOLY TO KNOWLEDGE HENCE MODIFICATION OF THE ANSWERS
CONTAINED IN THIS FRAMEWORK MAY NOT BE PROHIBITED AS IT
CONTRIBUTES TO EXPANSION OF KNOWLEDGE. FOR ANY FURTHER
GUIDELINE ABOUT THE INFORMATION CONTAINED HERE AND THE MODULE
IN GENERAL, CONTACT PASSMATE TUTORIALS.
WE ASSIST WITH OTHER MODULES INCLUDING:
ECSs, FACs, MACs, MNGs, INTs, TRLs, HMEMS, PRMs, PROs, MNBs, DSC, QMI,
MNMs, MNO, MNPs, FIN, PUBs, MNMs, RESEARCH among others.
WE OFFER CLASSES, ASSIGNMENT GUIDELINES, EXAMINATION
PREPARATION, RESEARCH AND RESEARCH PROPOSALS, DISSERTATION
EDITING etc.
OTHER THAN UNISA, WE ALSO ASSIST STUDENTS AT VARIOUS INSTITUTIONS
INCLUDING MANCOSA, REGENT, REGEYNESES, BOSTON, STADIO, OLG, UJ,
UP etc
For any enquiries the following numbers can be used for calling, sms, whatsapp and
telegram
CONTACT PASSMATE TUTORIALS @061 262 1185/068 053 8213/0717 513 144 or
email
,AOM4801 ASSIGNMENT 2025
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 include the initial investment in facilities and equipment argues Collier
and Evans (2021). For ABW, this refers to the capital expenditure for their new
production facility. It also encompasses the annual cost of operating and
maintaining these assets, much of which are fixed costs.
The Opportunity Cost of Not Having Adequate Capacity:
This cost is the opportunity cost of lost sales and reduced market share (Helo & Hao,
2022). If ABW produces too few automobiles, they will not have enough to meet
customers' requirements, which can lead to lost sales. Too few capabilities can also
limit profit margins or put an enterprise at the mercy of competitors if it will not be
capable of meeting customers' orders. What this amount to is that ABW stands to lose
clients to the competition and miss out on earnings if their production cannot match
demand for the 5-Series.
The Economic Trade-Off
In long-term capacity planning, the firm like ABW has to properly offset these two
opposing costs. Excessive capacity, especially if there is a fall in demand, is
detrimental in terms of wasted resources and fixed costs. This would result in inventory
building up and wastage in case of ABW producing more cars than needed.
Conversely, inadequate capacity has the company failing to meet demand, losing
potential sales and market share to rival firms.
ABW's utilization of an ERP system to integrate its supply chain and synchronize
supply to match demand demonstrates their effort to operate the line of production at
the optimal level to synchronize with demand patterns without compromising on
,AOM4801 ASSIGNMENT 2025
quality. This is the approach to not compromise by producing just sufficient to meet
demand without wasting much due to overproduction or losing sales due to stock
depletion. Decisions regarding capacity, such as increasing a new plant, have a very
huge impact on firm performance as well as being influenced by concepts like
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.
, AOM4801 ASSIGNMENT 2025
3.1.3 In building the new production facility for the ABW 5-Series, what capacity
expansion strategy have ABW utilized. In context of your chosen strategies’
risks and benefits, motivate your answer. (4)
ABW has utilized a capacity lead strategy in building its new production facility for
the ABW 5-Series. This is evident because they recently built a new production facility
in order to cater for current and future demand. This approach involves adding capacity
in "chunks" or discrete increments, consistently leading or staying ahead of projected
demand (Kumar, 2022).
Motivation based on risks and benefits for ABW:
Benefits:
Minimizing lost sales and meeting demand: A primary benefit is maintaining
sufficient capacity to minimize the chances of not meeting demand argues Bag
and Gupta (2020). For a prestigious car manufacturer like ABW, this ensures they can
fulfill customer orders for the 5-Series and avoid the opportunity loss incurred from lost
sales and reduced market share that arises from producing too few cars.
Providing safety capacity: This strategy inherently provides safety capacity to
handle unexpected demand surges or large orders, which is crucial for consumer
goods with varying demand patterns.
Supporting quality and efficiency: By having capacity ahead of demand, ABW can
run the production line at the optimal speed to match demand patterns while retaining
quality, rather than scrambling to meet sudden spikes, which might compromise
quality.
Potential for economies of scale: Building a new, larger facility allows ABW to
achieve economies of scale, where the average unit cost of production decreases as
volume increases. This is a key competitive advantage, particularly for firms focused
on low costs through high volumes and efficient operations.
Risks:
Excess capacity and high fixed costs: The main risk is the potential for constant
excess capacity, leading to "idle processes or facilities". The new production facility
represents a significant "initial investment in facilities and equipment" and
considerable "annual cost of operating and maintaining them," much of which are fixed
DISCLAIMER: THIS IS NOT AN OFFICIAL GUIDE FROM UNISA. THE REPORT IS
NOT PREPARED NOR APPROVED BY UNISA, RATHER REPRESENTS A
POSSIBLE SOLUTION TO THE TASK CONSISTENT WITH THEORY OF AOM4801.
THIS REPORT IS INTENDED TO ASSIST STUDENTS IN GETTING STARTED WITH
THEIR ASSIGNMENT, AND IN NO CASE THIS DOCUMENT SHOULD BE USED
FOR CHEATING. WE BELIEVE THIS WILL BE A GOOD STARTING POINT AS IT
WAS PREPARED BY OUR TEAM OF PROFESSIONAL PRIVATE TUTORS WHO
ARE EXPERTS IN THE FIELD, AND IT WAS PREPARED USING VARIOUS
SOURCES. ANY SIMILARITY WITH ANY EXISTING THEORY OR DISCUSSION BY
OTHER AUTHORS IS EXCUSED. THE AUTHORS HOWEVER DO NOT CLAIM
MONOPOLY TO KNOWLEDGE HENCE MODIFICATION OF THE ANSWERS
CONTAINED IN THIS FRAMEWORK MAY NOT BE PROHIBITED AS IT
CONTRIBUTES TO EXPANSION OF KNOWLEDGE. FOR ANY FURTHER
GUIDELINE ABOUT THE INFORMATION CONTAINED HERE AND THE MODULE
IN GENERAL, CONTACT PASSMATE TUTORIALS.
WE ASSIST WITH OTHER MODULES INCLUDING:
ECSs, FACs, MACs, MNGs, INTs, TRLs, HMEMS, PRMs, PROs, MNBs, DSC, QMI,
MNMs, MNO, MNPs, FIN, PUBs, MNMs, RESEARCH among others.
WE OFFER CLASSES, ASSIGNMENT GUIDELINES, EXAMINATION
PREPARATION, RESEARCH AND RESEARCH PROPOSALS, DISSERTATION
EDITING etc.
OTHER THAN UNISA, WE ALSO ASSIST STUDENTS AT VARIOUS INSTITUTIONS
INCLUDING MANCOSA, REGENT, REGEYNESES, BOSTON, STADIO, OLG, UJ,
UP etc
For any enquiries the following numbers can be used for calling, sms, whatsapp and
telegram
CONTACT PASSMATE TUTORIALS @061 262 1185/068 053 8213/0717 513 144 or
,AOM4801 ASSIGNMENT 2025
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 include the initial investment in facilities and equipment argues Collier
and Evans (2021). For ABW, this refers to the capital expenditure for their new
production facility. It also encompasses the annual cost of operating and
maintaining these assets, much of which are fixed costs.
The Opportunity Cost of Not Having Adequate Capacity:
This cost is the opportunity cost of lost sales and reduced market share (Helo & Hao,
2022). If ABW produces too few automobiles, they will not have enough to meet
customers' requirements, which can lead to lost sales. Too few capabilities can also
limit profit margins or put an enterprise at the mercy of competitors if it will not be
capable of meeting customers' orders. What this amount to is that ABW stands to lose
clients to the competition and miss out on earnings if their production cannot match
demand for the 5-Series.
The Economic Trade-Off
In long-term capacity planning, the firm like ABW has to properly offset these two
opposing costs. Excessive capacity, especially if there is a fall in demand, is
detrimental in terms of wasted resources and fixed costs. This would result in inventory
building up and wastage in case of ABW producing more cars than needed.
Conversely, inadequate capacity has the company failing to meet demand, losing
potential sales and market share to rival firms.
ABW's utilization of an ERP system to integrate its supply chain and synchronize
supply to match demand demonstrates their effort to operate the line of production at
the optimal level to synchronize with demand patterns without compromising on
,AOM4801 ASSIGNMENT 2025
quality. This is the approach to not compromise by producing just sufficient to meet
demand without wasting much due to overproduction or losing sales due to stock
depletion. Decisions regarding capacity, such as increasing a new plant, have a very
huge impact on firm performance as well as being influenced by concepts like
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.
, AOM4801 ASSIGNMENT 2025
3.1.3 In building the new production facility for the ABW 5-Series, what capacity
expansion strategy have ABW utilized. In context of your chosen strategies’
risks and benefits, motivate your answer. (4)
ABW has utilized a capacity lead strategy in building its new production facility for
the ABW 5-Series. This is evident because they recently built a new production facility
in order to cater for current and future demand. This approach involves adding capacity
in "chunks" or discrete increments, consistently leading or staying ahead of projected
demand (Kumar, 2022).
Motivation based on risks and benefits for ABW:
Benefits:
Minimizing lost sales and meeting demand: A primary benefit is maintaining
sufficient capacity to minimize the chances of not meeting demand argues Bag
and Gupta (2020). For a prestigious car manufacturer like ABW, this ensures they can
fulfill customer orders for the 5-Series and avoid the opportunity loss incurred from lost
sales and reduced market share that arises from producing too few cars.
Providing safety capacity: This strategy inherently provides safety capacity to
handle unexpected demand surges or large orders, which is crucial for consumer
goods with varying demand patterns.
Supporting quality and efficiency: By having capacity ahead of demand, ABW can
run the production line at the optimal speed to match demand patterns while retaining
quality, rather than scrambling to meet sudden spikes, which might compromise
quality.
Potential for economies of scale: Building a new, larger facility allows ABW to
achieve economies of scale, where the average unit cost of production decreases as
volume increases. This is a key competitive advantage, particularly for firms focused
on low costs through high volumes and efficient operations.
Risks:
Excess capacity and high fixed costs: The main risk is the potential for constant
excess capacity, leading to "idle processes or facilities". The new production facility
represents a significant "initial investment in facilities and equipment" and
considerable "annual cost of operating and maintaining them," much of which are fixed
