roadking capacity expansion answers and explanation
Roadking Capacity Expansion Step by step Solution with Explanation
Your question:
"Roadking" Tyre Manufacturing company have their manufacturing facilities in Mumbai. Majority of their sales are concentrated in North and East zones, however, they have seen an increasing demand from West zone and there is a good market potential in West zone. The Sales forecast is given below:
Roadking Capacity Expansion Answers and Explanation
1. Capacity Requirements
First, let’s determine the required capacity of the new plant:
Q4-2010: 100,000 tyres
Q1-2011 onwards: 120,000 tyres
The material wastage or rejection rate is 5%. Therefore, the actual number of tyres produced should account for this wastage:
For 120,000 tyres to be delivered: Tyres needed=120,0001−0.05≈126,316 tyres
Effective Labour Rate=Rs.30×90100≈Rs.33.33 per hour
Overheads: The overheads are 25% of the labour cost:
Total Transportation Cost:
Total Cost=600 trips×Rs.1,200=Rs.720,000
Overheads: Labour-related overheads are 25% of the labour cost, which is Rs. 8.33 per hour.
Transportation Costs: Rs. 720,000 for transporting 120,000 tyres.