|
|
|
For each product a target level of production for the year must be set. The following formula provides one means of considering this:
Target Annual Production
= Sales Forecast - Beginning Stock + Desired Ending Stock
The target level of production is only a desired level of production. Actual production levels during the year may vary slightly from this depending upon:
Capacity Constraints - If insufficient capacity is available due to lack of workers/plant or wastage such as breakdowns or reworks, then actual production may be less than target production.
Variations in Demand - If demand is substantially greater than forecast then the factory may increase production slightly to take advantage of this. Similarly if demand proves to be extremely low it may be able to reduce production to prevent production of excessive finished goods stocks. The maximum production flexibility is a variation of 50% up or down on the planned figure.