Capacity Planning And Control Approach Accounting Essay


Design of the production system involves planning for the inputs, conversion process and outputs of production operation. The effective management of capacity is the most important responsibility of production management. The objective of capacity management is to match the level of operations to the level of demand.

Capacity planning is to be carried out keeping in mind future growth and expansion plans, market trends, sales forecasting. It is a simple task to plan the capacity in case of stable demand. But in practice the demand will be seldom stable. The fluctuation of demand creates problems regarding the procurement of resources to meet the customer demand. Capacity decisions are strategic in nature. Capacity is the rate of productive capability of a facility. Capacity is usually expressed as volume of output per period of time.

Production managers are more concerned about the capacity for the following reasons:

Sufficient capacity is required to meet the customers demand in time.

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Capacity affects the cost efficiency of operations.

Capacity affects the scheduling system.

Capacity creation requires an investment.

Capacity planning is the first step when an organization decides to produce more or new products. Capacity planning is concerned with defining the long-term and the short-term capacity needs of an organization and determining how those needs will be satisfied. Capacity planning decisions are taken based upon the consumer demand and this is merged with the human, material and financial resources of the organization.

Capacity requirements can be evaluated from two perspectives long-term capacity strategies and short-term capacity strategies.

Long-term capacity strategies

Long-term capacity requirements are more difficult to determine because the future demand and technology are uncertain. Forecasting for five or ten years into the future is more risky and difficult. Even sometimes company's today's products may not be existing in the future. Long-range capacity requirements are dependent on marketing plans, product development and life-cycle of the product. Long-term capacity planning is concerned with accommodating major changes that affect overall level of the output in long-term. Marketing environmental assessment and implementing the long-term capacity plans in a systematic manner are the major responsibilities of management.

Short-term capacity strategies

Managers often use forecasts of product demand to estimate the short-term workload the facility must handle. Managers looking ahead up to 12 months, anticipate output requirements for different products, and services. Managers then compare requirements with existing capacity and then take decisions as to when the capacity adjustments are needed.

For short-term periods of up to one year, fundamental capacity is fixed. Major facilities will not be changed. Many short-term adjustments for increasing or decreasing capacity are possible. The adjustments to be required depend upon the conversion process like whether it is capital intensive or labor intensive or whether product can be stored as inventory.

Capital-intensive processes depend on physical facilities, plant and equipment. Short-term capacity can be modified by operating these facilities more or less intensively than normal. In labor intensive processes short-term capacity can be changed by laying off or hiring people or by giving overtime to workers. The strategies for changing capacity also depend upon how long the product can be stored as inventory.

According to this scenario ABC company produces two types of best bitter (BB) and strong ale (SA). Therefore brewing process is required to malting, mashing and fermenting. According to this here are the following steps to capacity planning.

BB = 14X

SA = 13Y

14X + 13Y = 630

Y = +

Y = (X-45)

X = 1

, = 47.38…

X = 2

14 2 + 13Y = 630, 46.30…

X = 3

X = 4

X = 5

X = 6

14 6 + 13Y = 630 = 42


X = 6, y = 42 6 24 + 30 42

= 144 + 1260

= Rs 1404

X = 7, y = 41 7 24 + 30 41

= 168 + 1230

= Rs 1398

4.2 The various methods of inventory planning and the likely costs and benefits

Inventory generally refers to the materials in stock. It is also called the idle resource of an enterprise. Inventories represent those items which are either stocked for sale or they are in the process of manufacturing or they are in the form of materials, which are yet to be utilized. The interval between receiving the purchased parts and transforming them into final products varies from industries to industries depending upon the cycle time of manufacture. It is, therefore, necessary to hold inventories of various kinds to act as a buffer between supply and demand for efficient operation of the system. Thus, an effective control on inventory is a must for smooth and efficient running of the production cycle with least interruptions.

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In any organization, depending on the type of business, inventory is maintained. When the number of items in inventory is large and then large amount of money is needed to create such inventory, it becomes the concern of the management to have a proper control over its ordering, procurement, maintenance and consumption. The control can be for order quality and order frequency

ABC analysis

In this analysis, the classification of existing inventory is based on annual consumption and the annual value of the items. Hence we obtain the quantity of inventory item consumed during the year and multiply it by unit cost to obtain annual usage cost. The items are then arranged in the descending order of such annual usage cost. The analysis is carried out by drawing a graph based on the cumulative number of items and cumulative usage of consumption cost.

Economic Order Quantity (EOQ)

Inventory models deal with idle resources like men, machines, money and materials. These models are concerned with two decisions: how much to order and when to order so as to minimize the total cost.

For the first decision how much to order, there are two basic costs are considered namely, Inventory carrying costs and the ordering or acquisition costs. As the quantity ordered is increased, the inventory carrying cost increases while the ordering cost decreases. The 'order quantity' means the quantity produced or procured during one production cycle. Economic order quantity is calculated by balancing the two costs. Economic Order Quantity (EOQ) is that size of order which minimizes total costs of carrying and cost of ordering. Minimum Total Cost occurs when Inventory Carrying Cost = Ordering Cost

Just-in-Time (JIT)

Just-in-Time (JIT) Manufacturing is a philosophy rather than a technique. By eliminating all waste and seeking continuous improvement, it aims at creating manufacturing system that is response to the market needs.

The phase just in time is used to because this system operates with low WIP (Work-In- Process) inventory and often with very low finished goods inventory. Products are assembled just before they are sold, subassemblies are made just before they are assembled and components are made and fabricated just before subassemblies are made. This leads to lower WIP and reduced lead times. To achieve this organizations have to be excellent in other areas e.g. quality.

According to Voss, JIT is viewed as a "Production methodology which aims to improve overall productivity through elimination of waste and which leads to improved quality". JIT provides an efficient production in an organization and delivery of only the necessary parts in the right quantity, at the right time and place while using the minimum facilities"

Kanban Pull System

Pull / Kanban are a method of controlling the flow of production through the factory based on a customer's demand. Pull Systems control the flow of resources in a production process by replacing only what has been consumed. They are customer order driven production schedules based on actual demand and consumption rather than forecasting. Implementing Pull Systems can help they eliminate waste in handling, storing, and getting their product to the customer. Pull Systems are an excellent tool to use in the areas where cellular or flow manufacturing cannot be achieved.

4.3 Identify approaches used for project management and quality control

TO: XYZ Company

FROM: Mr.Lathi

SUBJECT: Identify approaches used for project management and quality control

DATE: 20th October 2012

CONTENT: 1 - Introduction

2 - Quality control in construction

3 - Total quality control


Project management is a team-based approach for managing project. The nature of the project may vary in different situations. That is why it is the management's responsibility to make key decision on deciding which project to implement, selecting the project managers, selecting the project team, planning and designing the project, managing and controlling. Project resources and deciding if and when a project should be terminated. Risk management and budgeting are some of the factors that play an important role for managers when deciding if a project is worth selecting and proceeding with.

Projects are usually composed of a unique set of activities established to realize a given set of objectives in a limited time span. Projects go through a life cycle that involves definition, planning, execution, and deliver. Project Evaluation and Review Technique (PERT) and the Critical Path Method (CPM) are two normally used techniques for developing and monitoring projects. CPM models the activities and events of a project as a network. It is currently little difference between the two of them. For constructing a network diagram you can use two slightly different conventions. One designates the arrows as activities; the other designates the nodes as activities.

Quality control in construction

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Quality control is important concerns for highway construction project manager. Defects failures in constructed facilities can result in very large costs. Even with minor defects, re-construction may be required and facility operations impaired. So as a good project manager should try to ensure that the job is done right the first time and that no major accidents occur on the project.

As with cost control, the most important decisions regarding the quality of a completed facility are made during the design and planning stages rather than during construction. It is during these preliminary stages that component configurations, material specifications and functional performance are decided. Quality control during construction consists largely of insuring conformance to these original designs and planning decisions.

As a consultant my suggestion is XYZ Company will appoint inspectors and quality assurance for this high way construction project. So each of the parties directly concerned with the project may have their own quality and safety inspectors, including the engineer, the owner and the architect. These inspectors may be contractors from specialized laboratories to insure compliance. Inspectors to insure compliance with regulatory requirements will also involve.

Total quality control

Quality control in construction typically involves insuring compliance with minimum standard of material and workmanship in order to insure the performance of the facility according to the design. For the purpose of insuring compliance, random samples and statistical method are commonly used as the basis for accepting or rejecting work completed and batches of materials. Rejection of a batch is based on non-conformance or violation of the relevant design specifications.

Traditional approach of quality control is the goal of total quality control. In this system, no defective item are allowed anywhere in the construction process. While the zero defects goal can never be permanently obtained, it provides a goal. So that an organization is never satisfied with its quality control program even if defects are reduced by substantial amounts year after year. The traditional microeconomic view of quality control is that there is an "optimal" proportion of defective items. Trying to achieve greater quality than this optimum world substantially increase costs of inspection and reduce worker productivity. However, many companies have found that commitment to total quality control has substantial economic benefits that had been unappreciated in traditional approaches. Expenses associated with inventory, rework, scrap and warranties were reduced. Worker enthusiasm and commitment improved. Customers often appreciated higher quality work and would pay a premium for good quality. As a result, improved quality control became a competitive advantage.