Chapter 4, Problem 3C

Summary Introduction

Interpretation: The effect of decisions related to capacity expansion on the operating decision.

Concept Introduction: Capacity decision is not a decision to be taken in isolation. It is the installed capacity which promises to deliver the services to the customers. The utilization of this capacity by appropriate and all-round management of the organization results in operational profit/loss. It is a part of the integrated management of the organization. Market demand and availability of resources are two pre-requisites for any changes to the capacity strategy. Since, we are also talking of utilizing the capacity, functions/processes of management shall be affected by the expansion of capacity.