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roadking capacity expansion answers and explanatio

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

  1. Overheads: Labour-related overheads are 25% of the labour cost, which is Rs. 8.33 per hour.

  2. Transportation Costs: Rs. 720,000 for transporting 120,000 tyres.

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