Question

Identify and explain two advantages of measuring the cost of capacity

Answer 1

Solution:

Capacity Planning:

Capacity Planning is helps to identify the production capacity by using the available resources. The proper capacity planning helps the organization to achieve the cost efficiency and also helps to maintain the cost management properly. The two advantages of capacity planning are:

Monitor Costs:

The personnel, facilities, production schedules and supplies are taken into account through capacity planning. The cost can be monitor on regular basis if the capacity level is planned properly. It also helps the company to fix the upcoming budget for income and expenses related with the production. Capacity planning is also requiring to develop the plan related with delivery schedule of supplies and finished products.

Production Cycles:

The capacity planning helps to make the proper production cycle during the business. For example, if the demand of the products is high in summer then the production in summer is high and the planning for high production is made according with the same. Capacity planning helps to identify ideal working hours of worker. It will help to manage the production in a proper way so that the cost can be managed properly and efficiently.

References:

Ghodsypour, S. H., & O’brien, C. (2001). The total cost of logistics in supplier selection, under conditions of multiple sourcing, multiple criteria and capacity constraint. International journal of production economics, 73(1), 15-27.

Stevenson, W. J., & Hojati, M. (2007). Operations management (Vol. 8). Boston: McGraw-Hill/Irwin.