S U P P L E M E N T

Capacity Planning
7
DISCUSSION QUESTIONS 4. As the actual output rises, how does this affect both the
utilization and efficiency?
1. Design capacity is the theoretical maximum output of a
Both utilization and efficiency rise.
system in a given period. Effective capacity is the capacity a firm
can expect to achieve given its current product mix, methods of ACTIVE MODEL S7.2: Break-even Analysis
scheduling, maintenance, and standards of quality.
1. Use the scrollbars to determine what happens to the break-even
2. The fundamental assumptions of break-even analysis are point as the fixed costs increase? the variable costs increase? the
 Fixed costs do not vary with volume selling price increases?
 Unit variable costs do not vary with volume If the fixed or variable costs increase, then the break-even
 Unit revenues do not vary with volume point increases; if the selling price increases, the break-even
3. The manager obtains data for use in break-even analysis from point decreases.
 Cost data: industrial engineering and accounting 2. What is the percentage increase (over 5,714) to the break-
 Demand and revenue data: marketing even point if the fixed costs increase by 10% to $11,000? If the
variable costs increase by 10% to $2.48? If the price per unit
4. Revenue data, when plotted, do not fall on a straight line
increases by 10% to $4.40?
because of volume discounts, etc.
If the fixed costs rise by 10%, the break-even point rises
5. Lagging is preferred when short-term options like overtime by 10%. In this case, if the variable costs rise by 10%, then the
and subcontracting are relatively low cost and/or easy to use. BEP rises by 15%. If the price per unit increases by 10%, then
Leading is preferred when a firm cannot afford to lose customers the break-even point falls by 19%.
for lack of product availability, and overtime, etc., are not available.
3. In order to cut the break-even point in half, by how much
6. NPV determines the discounted or time value of money, would the fixed costs have to decrease? the variable costs? How
comparing cost and income streams over periods of time. Process much would the selling price have to increase?
decisions may incur much of their expense early in the life of the
equipment, but the stream of revenues may follow for decades. Fixed costs, $5,000; variable costs by $1.75 from $2.25
NPV is the appropriate analytical tool for that situation. to $.50; the selling price would need to increase by the same
$1.75.
7. Effective capacity is the capacity a firm can expect to achieve
given its current product mix, methods of scheduling,
maintenance, and standards of quality.
END-OF-SUPPLEMENT PROBLEMS
8. Efficiency is the actual output as a percent of effective capacity. Actual output 6,000
S7.1 Utilization = = = 0.857  85.7%
Efficiency = Actual output/Effective capacity Design capacity 7,000
9. Expected output = Effective capacity  Efficiency Actual output 4,500
S7.2 Efficiency = = = 0.692 or 69.2%
Effective capacity 6,500
Active Model Exercises
S7.3 Expected output = (Effective capacity) × (Efficiency)
ACTIVE MODEL S7.1: Productivity = (6,500)(.88) = 5,720
1. Due to an anticipated decrease in demand the firm is considering
dropping one of its shifts. What will be the capacity if they do so? Actual (expected) output 800
S7.4 Efficiency = = = 88.9%
134,400 Effective capacity 900
2. Another option would be to maintain three shifts but only S7.5
work on weekdays. What will be the capacity if they select this Actual output 400
option? Efficiency = or 0.80 =
Effective capacity Effective capacity
144,000
3. As the effective capacity rises, how does this affect both the
utilization and efficiency. 400
Thus, effective capacity =  500
Utilization is unaffected but the efficiency drops. 0.80

83
84 SUPPLEMENT 7 C A P A C I T Y P L A N N I N G

S7.6 Expected output = (Effective capacity)  (Efficiency) S7.12 (a) Proposal A break-even in units is:

= 90  0.90 = 81 chairs
Fixed cost $50,000 $50,000
S7.7 Actual (expected) output = Hours  Efficiency = = = 6,250 units
P –V 20 – 12 8
= 8 hr  5 days  2 shifts  4 machines  0.95
= 320  0.95 = 304 hr (b) Proposal B break-even in units is:
S7.8 Design: 93,600  0.95 = 88,920 Fixed cost $70,000 $70,000
   7,000 units
Fabrication: 156,000  1.03 = 160,680 P –V 20 – 10 10
Finishing: 62,400  1.05 = 65,520 S7.13 (a) Proposal A break-even in dollars is:
S7.9 Break-even: Fixed cost $50,000 + $10,000 $60,000
F 500 = = = $150,000
BEPx    2,000 units 1– V 1 – 12 0.40
(a) Break- P  V .75  .50 P 20
even in units = 2,000 units (b) Proposal B break-even in dollars is:
(b) Break-even in dollars = (P)(BEPx) = ($0.75)(2,000) Fixed cost $70,000  $10,000
= $1,500 BEP$  
1– V 1 – 10
S7.10 Actual (or expected) output = (Effective capacity) P 20
(Efficiency) (Equation S7-3) $80,000
  $160,000
5.5 cars  0.880 = 4.84 cars. 0.50
Therefore, in one 8-hour day, one bay accommodates S7.14 Set Proposal A = Proposal B
(8 hr  4.84 cars per hr) = 38.72 cars. To do 200 cars per (PA – VA ) X A – FA  (PB – VB ) X B  FB
 200 cars  (20 – 12)X – 50,000  (20 – 10)X – 70,000
day requires 5.17 bays or 6 bays   
 38.72 cars per bay  (8)X – 50,000  (10)X – 70,000
S7.11 Where: (8)X  20,000  (10)X
Design capacity = 2,000 students 20,000  10 X – 8 X
Effective capacity = 1,500 students 20,000  2 X
Actual output = 1,450 students 10,000  X
Therefore:
20,000
Actual output 1,450 S7.15 (a) BEPA   1,667 pizzas;
Utilization = = = 72.5% 14 – 2
Design capacity 2,000 30,000
BEPB   2,353 pizzas
Actual output 1,450 14 – 1.25
Efficiency = = = 96.7%
Effective capacity 1,500 (b, c) For both quantities, oven A is slightly more
profitable (but oven B is catching up).

Oven A Oven B Unit Sales of

Fixed cost $20,000.00 $30,000.00 Profit A— Profit B—
Revenue $14.00 $14.00 9,000  $88,000 $84,750
Variable cost $2.00 $1.25 12,000  $124,000 $123,000
(d)  20,000 + 2Xa = 30,000 + 1.25Xb
.75X = 10,000
X = 13,333 pizzas
S7.16 Given:
Price ( P) = $8 unit
Variable cost (V ) = $4 unit
Fixed cost (F ) = $50,000
(a)  Break-even in units is given by:
F 50,000 50,000
BEPx     12,500 units
P –V 8–4 4
(b)  Break-even in dollars is given by:
F 50,000 50,000
BEP$  V
 4
  $100,000
1– P 1– 8 1 – 0.50
 SUPPLEMENT 7 C A P A C I T Y P L A N N I N G 85

(c)  Profit is given by: Units   Price – V  – F = Profit

Profit  Volume  Contribution – Fixed cost Profit A = 30,000   1.00 – 0.50  – 14,000
  8  4  (100,000) – 50,000 = $1,000
 400,000 – 50,000  $350,000 Profit B = 45,000   1.10 – 0.60  – 20,000
S7.17 Given: = $2,500
Price ( P ) = $0.05 unit Therefore, the company should choose option B: add the
Variable cost (V ) = $0.01 unit new equipment and raise the selling price.
Fixed cost ( F ) = $15,000 S7.22 Where:
Break-even is given by: F = $37,500 V = $1.75 P = 2.50
(a)  Break-even quantity for the manual process in units:
F 15,000 15,000
BEP$     $18,750 F 37,500
1 – VP 1  0.05
0.01 1 – 0.2 =  = 50,000 bags
P – V 2.50 – 1.75
F 15,000 15,000
BEPx    (b) Revenue at the break-even quantity for the manual
P – V 0.05 – 0.01 0.04 process:
 375,000 copies 50,000  2.50  $125,000 and
S7.18 Given: 37,500
BEP$ 
Price ( P) = $30 unit V
1–
Variable cost (V ) = $20 unit P
37,500
Fixed cost ( F ) = $250,000   $125,000
1.75
1–
Break-even is given by: 2.50
F 250,000 250,000 (c) Break-even quantity for the mechanized process:
BEPx     25,000 units
P –V 30 – 20 10 where: F = 75,000 P = 2.50 V = 1.25
F 250,000 250,000 75,000
BEP$     $750,000 BEPu   60,000 bags
1– PV 20
1 – 30 1 – 0.667 2.50 – 1.25
(d) Revenue at the break-even quantity for the mechanized
S7.19 Given: process:
Price (P )  $30 unit 60,000 × 2.50 = $150,000
Variable cost (V )  $20 unit 75,000
or BEP$  = $150,000
Fixed cost (F )  $250,000  $75,000 1.25
1–
 $325,000 2.50
Break-even is given by:
(e) Monthly profit or loss of the manual process if they
F 325,000 325,000 expect to sell 60,000 bags of lettuce per month:
(a) BEPx     32,500 units
P–V 30 – 20 10 Profit = 2.50(60,000) – 1.75(60,000) – 37,500 = $7,500
F 325,000 325,000
(b) BEP$  V
 20
  $975,000 (f) Monthly profit or loss of the mechanized process if they
1– P 1 – 30 1 – 0.667 expect to sell 60,000 bags of lettuce per month
S7.20 Option A: Stay as is 2.50(60,000) – 1.25(60,000) – 75,000
Option B: add new equipment = 0.0 (break-even)
Units   Price – V  – F = Profit (g) They should be indifferent to the process selected at
75,000 bags.
Profit A = 30,000   1.00 – 0.50  – 14,000
.75 X  37,500  1.25 X  75,000
= $1,000 37,500  .5 X
Profit B = 50,000   1.00 – 0.60  – 20,000 75,000  X
= $0
(h) The manual process be preferred over the mechanized
Therefore, the company should stay with the current process below 75,000 bags. The mechanized process be
equipment.
preferred over the manual process above 75,000 bags.
S7.21 Option A: Stay as is
Option B: Add new equipment, raise selling price
86 SUPPLEMENT 7 C A P A C I T Y P L A N N I N G

P V V/P 1–V/P Wi 1–
(V/P)Wi
Drinks 1.50 0.75 0.50 0.50 0.153 0.077
Meals 10.00 5.00 0.50 0.50 0.339 0.170
Desserts 2.50 1.00 0.40 0.60 0.085 0.051
Lunch 6.25 3.25 0.52 0.48 0.423 0.203
1.00 0.501
0

F 3800
BEP$    $7,584.83
 V  0.501
S7.23 (a) Yes,  1 – Pi  Wi
Total profit now:  i 
[40,000  (2.00 – 0.75)] – $20,000 = $30,000 (b)  Number of meals per day at break-even = 9
Total profit with new machine: Fraction BE Units BE
[50,000  (2.00 – .50)] – $25,000 = $50,000 Selling of Total Dollar per Units
(b) The equipment choice changes at 20,000 units. Price Revenue Volume Month per
Day
.75x  20,000  .50 x  25,000
Drinks 1.50 0.153 1,160.48 774 26
.25x  5,000
Meals 10.00 0.339 2,571.26 258 9
x  20,000 units Desserts 2.50 0.085 644.71 258 8
etc.
Sandwiches 6.25 0.424 3,208.28 514 18
S7.25 (a)  Break-even volume:

Total fixed cost = 1,800 rent, utilities, etc.

+ 2,000 entertainment
=
3,800
Selling Percent of
Price Volume Revenue Total
Revenue
Drinks 1.50 30,000 45,000 0.153
Meals 10.00 10,000 100,000 0.339
Desserts 2.50 10,000 25,000 0.085
etc.
Sandwiches 6.25 20,000 125,000 0.424
295,00 1.00
0 0
(c) At a volume of 15,000 units, the current process
should be used. Total Total
S7.24 (a)  Break-even volume: Food Cost Variable Cost Variable
Factor* Cost
Total fixed cost = 1800 rent, utilities, etc.
Drinks 0.75 1.10 0.83
+2000 entertainment Meals 5.00 1.43 7.15
=
3800 Desserts etc. 1.00 1.10 1.10
Lunch/sandwich 3.25 1.43 4.65
Selling Percent of es
Price Volume Revenue Total * The total variable cost factor for meals and sandwiches is developed as:
Revenue
1.00 food cost
Drinks 1.50 30,000 45,000 0.153 0.33 labor, at one-third of food cost
Meals 10.00 10,000 100,000 0.339 0.10
Desserts etc. 2.50 10,000 25,000 0.085 variable expenses at 10% of food costs
1.43
Sandwiches 6.25 20,000 125,000 0.423 The total variable cost factor for drinks and desserts/wines is
295,000 1.000 developed as:
1.00 food cost
0.10 variable expenses at 10% of costs
1.10 total variable expense
 SUPPLEMENT 7 C A P A C I T Y P L A N N I N G 87

P V V/P 1– Wi 1 – (V/P)W S7.27 (a)

V/P
Drinks  1.50 0.83 0.55 0.45 0.153 0.069
Meals 10.00 7.15 0.72 0.28 0.339 0.095
Dessert  2.50 1.10 0.44 0.56 0.085 0.048
s
Lunch  6.25 4.65 0.74 0.26 0.423 0.110
1.000 0.322

F 3800
BEP$    $11,801.24
0.322
 1  Vi  Wi
 Pi 

Selling Fraction of Dollar

Price Total Volume BEP Units
Revenue
Drinks 1.50 0.153 1,805.59 1204 (b) Branch B, which represents Option B-Modernize 2nd
Meals 10.00 0.339 4,000.62   401 floor, has the highest expected value, $74,000.
Desserts/wi 2.50 0.085 1,003.11   402
ne S7.28
Lunch/
sandwiche 6.25 0.424 5,003.73  810
s
(b) Monthly break-even, to include a profit of $35,000
per year

Total fixed cost = 1800 rent, utilities, etc.

+ 2000 entertainment
+ 2917 (35,000 /12) profit
=
6717
F 6717
BEP$    $20,860.25
 V  0.322
 1 – Pi  Wi
 i

Prefer to build a large line. Large line has a payoff of

Selling Fraction of Dollar $100,000. Small line has a payoff of $66,666 + 0 = $66,666.
Price Total Volume BEP Units
Revenue
Drinks 1.50 0.153 3,191.62 2,128
Meals 10.00 0.339 7,071.62 708
Desserts/win 2.50 0.085 1,773.12 710
e
Lunch/
sandwiche 6.25 0.424 8,844.75 1,516
s

S7.26 (a) Break-even volume, where total fixed cost = labor

(at $250) + booth rental (at 5  $50) = $500.

(P) (V) Estimated Contributio

Selling Variable Var. Cost Total Percent n
Item Price Cost Factor (%) Var. Cost 1 – (V/P) Revenue Weighted
Revenue
Soft drinks 1.00 0.65 1.1 0.715 0.285 0.25 0.071
Wine 1.75 0.95 1.1 1.045 0.403 0.25 0.101
Coffee 1.00 0.30 1.1 0.330 0.670 0.30 0.201
Candy 1.00 1.1at break-even
0.30 Total sales 0.330 0.670 0.20 0.134
(b) No. of wine servings × 25% of sales
Totals = 1.0 0.50
at break-even Price of wine 0 7
986.19 × 0.25
= = 140.9 servings
$1.75
88 SUPPLEMENT 7 C A P A C I T Y P L A N N I N G

S7.29 revenue
–
Initial investment = $75,000
27,026
Salvage value = $45,000
Five-year return = $15,000 * NPV factor from Table S7.1.
Cost of capital = 12%
NPV annuity factor  5 years @ 12% = 3.605
Present value = 3.605  15,000 = $54,075
Present value of salvage: 0.567  45,000 = $25,515
Net present value = 54,075 + 25,515 – 75,000 = $4,590
S7.30
Initial investment = $65,000
Eight-year return = $16,000 per year
Cost of capital = 10%
NPV annuity factor  8 years @ 10% = 5.335
Present value = 5.335  $16000 = $85,360
Net present value = $85,360 – $65,000 = $20,360
S7.31
F 2000 2000
P    $1,544.40
(1  i) N (1  0.09)3 1.2950
or from Table S7.1
NPV = F  PVF9%, 3 = 2000  0.772 = $1,544
S7.32

F 5600 5600
P N
 15
  $1,765.35
(1  i) (1.08) 3.17
or from Table S7.1:
NPV = F  PVF8%, 15 = 5600  0.315 = $1,764
S7.33
Expense Machine A Machine B
Original cost 10,000 20,000
Labor per year 2,000 4,000
Maintenance per year 4,000 1,000
Salvage value 2,000 7,000

Machine A
Year NPV Factor* NPV
Now Expense 10,000 1.000 –10,000
1 Expense 6,000 0.893 –5,358
2 Expense 6,000 0.797 –4,782
3 Expense 6,000 0.712 –4,272
–24,412
3 Salvage 2,000 0.712 +1,42
revenue 4
–22,988
* NPV factor from Table S7.1.

Machine B
Year NPV Factor* NPV
Expense 20,000 1.000 –
Now
20,000
1 Expense 5,000 0.893 –4,465
2 Expense 5,000 0.797 –3,985
3 Expense 5,000 0.712 –3,560
–
32,010
3 Salvage 7,000 0.712 +4,984
 SUPPLEMENT 7 C A P A C I T Y P L A N N I N G 89

NPV for Machine A is –$22,988; NPV for Machine B is –$27,026. S7.35

Therefore, Machine A should be recommended. F 300
(a)  BEPx1    100 crepes
S7.34 P –V 4 –1
F2 0 0
Expense Three Small Two Large (b)  BEPx 2    0
Ovens Ovens
P – V2 4 – (1 + 1.5) 1.5
Original cost 3,750 5,000 If fixed costs are zero, and V < P, then profitable from start
Excess labor per 750 0
year (c, d) Stand: Profit1 = P(BEP) – F + x (BEP)
Maintenance per 750 400 = 4(350) – (300) + (1  350) = $750
year (better option)
Salvage value 750 1,000 Portable: Profit2 = P(BEP) – F + x (BEP)
= 4(350) – (0) + (2.5  350) = $525
Three Small Ovens
Year NPV Factor* NPV
Now Expense 3,750 1.000 –
3,750
1 Expense 1,500 0.877 –
1,316
2 Expense 1,500 0.769 –
1,154
3 Expense 1,500 0.675 –
1,013
4 Expense 1,500 0.592 –888
5 Expense 1,500 0.519 –779
–
8,900
5 Salvage 750 0.519 +389
revenue
–
8,511
* NPV factor from Table S7.1.

Two Large Ovens

Year NPV Factor* NPV
Now Expense 5,000 1.000 –
5,000
1 Expense 400 0.877 –351
2 Expense 400 0.769 –308
3 Expense 400 0.675 –270
4 Expense 400 0.592 –237
5 Expense 400 0.519 –208
–
6,374
5 Salvage 1,000 0.519 +519
revenue
–
5,855
* NPV factor from Table S7.1.
(a) NPV of the three small ovens = –$8,511; NPV of the
two large ovens = –$5,855. Therefore, you should
recommend that the firm purchase the two large ovens.
(b) The basic assumptions made with regard to the ovens
are:
 The ovens are of equal quality.
 The ovens are of equivalent production capacity.

(c) The basic assumptions made with regard to

methodology are:
 Future interest rates are known.
 Payments are made at the end of each time period.
90 SUPPLEMENT 7 C A P A C I T Y P L A N N I N G

F1 – F2 300 – 0
(e)  BEP1vs 2    200 Because this is less than $3,000, the special deal is worth more to
V2 – V1 2.5 – 1 the health club. Note also: If health club member is using same
So if BEPx < 200, portable interest rates, it’s better for her to pay yearly.
If BEPx > 200, stand

Demand would have to be different by 150 (i.e., demand would

have to drop from 350 to 200).
S7.36 (a) Remember that Year 0 has no discounting.
Initial cost = $1,000,000 Yearly maintenance = $75,000
Salvage cost = $50,000 Yearly dues = $300,000
Interest rate = 0.10 No. of members = 500
Annual dues/member = $600

Yea Cost Revenues Profit PV of NPV

r $1
0 $1,075,00 $300,000 –$775,000 1.00 –$775,000
0
1 75,00 300,000 225,000 .909 $204,525
0
2 75,00 300,000 225,000 .826 $185,850
0
3 75,00 300,000 225,000 .751 $168,975
0
4 75,00 300,000 225,000 .683 $153,675
0
5 75,00 350,000 275,000 .621 $139,725
0
Undisc. Profit $400,000 PV Profit
$77,750

Assume that dues are collected at the beginning of each year. This
is a simplification; in reality, people are likely to join throughout
the year.
(b) Special deal comparison: $3,000 for all six years. Compare the
PV cash stream of yearly dues from one member to that of the
deal. Since we specified the club will always be full, we can
make the assumption that the member (or her replacement)
will always be paying the annual fee.
Initial cost = $0 Yearly maintenance = $0
Salvage cost = $0 Yearly dues = $600
Interest rate = 0.10

(Membership Fee)
Yea Cost Revenu Profit PV of NPV
r es $1
0 $0 $600 $600 1.00 $60
0 0
1 0 600 600 .909 $54
5
2 0 600 600 .826 $49
6
3 0 600 600 .751 $45
1
4 0 600 600 .683 $41
0
5 0 600 600 .621 $37
3
Undisc. Profit PV Profit
$3,600 $2,274
 SUPPLEMENT 7 C A P A C I T Y P L A N N I N G 91

VIDEO CASE STUDY

INTERNET CASE STUDY*
CAPACITY PLANNING AT ARNOLD PALMER
HOSPITAL
SOUTHWESTERN UNIVERSITY: D
The Arnold Palmer Hospital video for this case is available on the
1. Determine weighted contribution.
DVD from Prentice Hall that accompanies this text. (Its running
time is 9 minutes.) Also note that the Global Company Profile
Selling Var. in Percent of Percent
Chapter 6 highlights this hospital.
Items Price/ea Cost/ea V/P (1 –V/P) Revenues Contribution
1. Given the discussion in the text, what $1.50
Soft drinks approach is APH taking
$0.75 0.50 0.50 25% 0.125
to match capacity Coffee
to demand? $2.00 $0.50 0.25 0.75 25% 0.1875
Referring to Hot
Figure S7.5, Arnold Palmer
dogs $2.00Hospital’s$0.80
capacity 0.40 0.60 20% 0.120
first lagged demandHamburgers
(part c) and now is$2.50 $1.00
leading demand with 0.40 0.60 20% 0.120
Misc. snacks
incremental expansion (part a). The new$1.00building will$0.40
provide 0.40 0.60 10% 0.060
sufficient capacity for several years. The top two floors (left 100 0.612
unfinished for additional beds) and operating rooms (on the 4th % 5
Determine fixed cost per game:
floor, available for horizontal expansion) will be built out when
needed. Prorated salaries/5 games = $20,000.00
2,400 sq. ft  $2 $ 4,800.00
2. What kind of major changes can take place in APH’s demand
6 people  6 booths  $7  5 hr $ 1,260.00
forecast that would leave the hospital with an underutilized $26,060.0
facility (namely, what are the risks connected with this capacity 0
decision)? Break-even = $26,060/0.6125 = $42,546.9
Possible risks: 4

 Demand will not continue to grow dramatically. The

hospital believes that the 2.  At 70,000 attendees,
new building eachnew
will attract spend the following: Total sales at BE $42,546.94
OB/GYN doctors to deliver there. The other majorPercent
hospital of = Percent Sales per-Person
chain in Orlando, Florida Hospital, has also just announced
Revenues of Sales = (/70,000)
a major expansion. This may flood the
Soft drinks
hospital bed market
25% $10,636.73 $0.152
in the short run. Coffee 25% $10,636.73 $0.152
 The population boom in central Florida could abate
Hot dogs 20% with $ 8,509.39 $0.122
rising housing prices that areHamburgers
discouraging future growth.
20% $ 8,509.39 $0.122
 There are always unforeseen Misc.disasters
snacks in medicine 10% that $ 4,254.69 $0.061
could damage the hospital’s sterling reputation Total (e.g., sales at BE $42,546.94 $0.609 Average per-person food
lawsuits, drop in quality). = sale
 There is a nursing shortage that could create a staffing At 27,000 attendees, each spend the following:
bottleneck if not corrected. Recently, the two major
hospital chains in central Florida got into a bidding war in
attempts to recruit each other’s nurses.
3. Use regression analysis to forecast the point at which
Swanson needs to “build out” the top two floors of the new
building.
Regression analysis on the birth data in Table S7.3 yields:
Y = projected births = 4,680 + 660x
(where x = time in years. x = 1 is 1995, x = 2 is 1996, . . .
x = 13 in 2007.)
*This case study is found at our companion Web site, www.prenhall.com/heizer.

The R = .98, so R 2 = .97, a very high coefficient of

determination
To forecast the point at which the top two floors will need to
be built out, we examine 2008, x = 14, and get y = 13,927; for
2009, x = 15 gives y = 14,587; for 2010, x = 16 gives 15,248; for
2011, x = 17 gives 15,908; for 2012, x = 18 gives 16,569.
So the top two floors need to be built out before 2012.
92 SUPPLEMENT 7 C A P A C I T Y P L A N N I N G
 Percent of = Percent Sales per-Person
Revenues of Sales = (/27,000)

Soft drinks 25% $10,636.73 $0.394

Coffee 25% $10,636.73 $0.394
Hot dogs 20% SUPPLEMENT 7 C A P A C$0.315
$ 8,509.39 ITY PLANNING 93
Hamburgers 20% $ 8,509.39 $0.315
Misc. snacks 10% $ 4,254.69 $0.158
Total Sales at BE $1.576 Average per-person food
= $42,546.9 sale
4
94 SUPPLEMENT 7 C A P A C I T Y P L A N N I N G

Units sales at break-even:

Percent of = Percent Number of Units
Revenues of Sales = Selling Price Sold at Break-even
(/P)

Soft drinks 25% $10,636.73 $1.50 7,091.2

Coffee 25% $10,636.73 $2.00 5,318.4
Hot dogs 20% $8,509.39 $2.00 4,254.7
Hamburgers 20% $8,509.39 $2.50 3,403.8
Misc. snacks 10% $4,254.69 $1.00 4,254.7
Total Sales at $42,546.9
BE = 4

This data indicate that drinks (soft drinks and coffee) total 12,409.6
This data indicate that hot dogs and hamburgers total 7,658.5
This data indicate that misc. snacks total 4,254.7
Maddux thinks his forecast is safe and that sales will exceed his
break-even substantially. What do your students think?