Food-Processing-Plant-Design-layout

Food Processing Plant Design & layout
al = stop production
a2 = continue production at some level D1 below the break-even point
Assuming that no uncertainty or risk is involved in the analysis of this decision, one could
compute the profit associated with each alternative:
Profit
a1
a2
- FC
TR (D1) – TC (D1)
The profit for a2 may be computed as follows:
TR (D1) – TC (D1) = TR (D1) – (FC + vD1)
Alternative a2 will be preferred if
TR (D1) - (FC + vD1) > - FC
TR (D1) > vDl
Thus one has the decision rule, "so long as total revenue exceeds variable costs, do not stop
production." This rule must obviously apply in the short run, since the enterprise cannot go
on sustaining a loss for very long.
11.4 Production
The problems and decisions discussed so far are largely the concern of top management,
since they are in the realm of major company policy. The analyst at least early in the career,
is more likely to be associated with decisions specifically related to the methods of
production and operation employed. Thus one may be concerned with alternative
production processes, alternative designs for the product, alternative operating procedures,
and so on.
Ideally all the decisions should be studied from the overall viewpoint of the enterprise,
with the aim of perhaps maximizing total profit as was previously shown. For obvious
practical reasons, not every decision can be approached immediately from this viewpoint
and thus one uses other, more immediate criteria. Typically much effort is devoted to
reducing costs through the improvement of the product, the process, or the operating
procedures. Although sometimes it may be true that if costs are reduced by a rupee, profit
will increase by a rupee, things are usually not so simple. Suppose, for example, the analyst
can show that by refusing to disrupt production in order to push through "rush" orders,
costs can be reduced. Clearly profits may not be increased by an equal amount, since the
customers may take their business elsewhere. In practice many decisions are approached
from the viewpoint of minimizing costs because it may be difficult to measure profit
directly, and good judgment indicates that higher profits are likely to result.
11.5 Economics of mass production
Suppose that management is confronted with the following decision. If the production
process and equipment are kept substantially the same, what volume of production will
minimize the average unit cost of production? This is the question of the economic
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