Question

The Austin, Texas plant of Computer Products produces disk units for personal and small business computers. Gerald Knox, the plant's production planning director, is looking over next year's sales forecasts for these products and will be developing an aggregate capacity plan for the plant.

The quarterly sales forecasts for the disk units are as follows and we will assume that these are accurate:

1st Quarter, 2nd Quarter, 3rd Quarter, 4th Quarter

2,550 2,610 2,520 2,700

Ample machine capacity exists to produce the forecast. Each disk unit takes an average of 20 labor-hours. In addition, you have collected the following information:

a. Inventory carrying cost is $100 per disk unit per quarter. The inventory to use in this calculation is the inventory at the end of the quarter. Any inventory carried over from a quarter will always be the first inventory used to fill the demand in a subsequent quarter.

b. The plant works the same number of days in each quarter, 12 five-day weeks, 6 hours per day.

c. There are 300 units in inventory at the start of this year. They will be used to fill the immediate 1st Quarter demand.

Answer 1

The concepts address economies of scale and the long-run average cost curve's behavior with different manufacturing capacities. It relates to how the Austin, Texas plant of Computer Products can scale production while managing costs.

Step-by-step explanation:

The subject matter discussed in the provided texts revolves around the concepts of economies of scale and the shape of the long-run average cost curve as it pertains to manufacturing plants. This concept is closely associated with the operations of the Austin, Texas plant of Computer Products, which needs to develop an aggregate capacity plan, assuming ample machine capacity exists and taking into consideration the labor-hours required per disk unit, which is averaged at 20 labor-hours.

In particular, the texts highlight that economies of scale can result in a flat section of the long-run average cost curve, where increasing production doesn't necessarily increase the average cost of production. Additionally, different scenarios of scaling up, such as a single plant increasing its capacity or a firm owning multiple plants, are explored. The management and coordination costs that arise when scaling up operations are also discussed as factors that can ultimately increase production costs and shape the long-run average cost curve.