Hickory Manufacturing Company forecasts the following demand for a product (in thousands of units) over the next five years:

Hickory Manufacturing Company forecasts the following demand for a product (in thousands of units) over the next five years:

Year 1 2 3 4 5

Forecast demand 60 79 81 84 84

Currently the manufacturer has seven machines that operate on a two-shift (eight hours each) basis. Twenty days per year are available for scheduled maintenance of equipment with no process output. Assume there are 250 workdays in a year. Each manufactured good takes 30 minutes to produce.

a. What is the capacity of the factory?

b. At what capacity levels (percentage of normal capacity) would the firm be operating over the next five years based on the forecasted demand? (Hint: Compute the ratio of demand to capacity for each year.)

c. Does the firm need to buy more machines? If so, how many? When? If not, justify.

 

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