First shift capacity is defined as the number of products that can be produced on an assembly line (that is, without a second shift) in a single year. Assembly lines can produce up to twice their first shift capacity with a second shift. For example, an assembly line with a capacity of 2,000,000 units per year could produce 4,000,000 units with a second shift. However, second shift wages are 50% higher than the first shift.

Each new unit of capacity costs $6 for the floor space plus $4 times the automation rating. The Production spreadsheet in Capstone.xls displays the exact cost. Increases in capacity require a full year to take effect– increase it this year, use it next year.

The dollar value of capacity and automation purchases is largely determined by the maximum amount that can be raised through stock and bond issues minus the total amount of stock dividends to be paid in the current year.

Capacity can be sold at the beginning of the year for $0.65 on the dollar value of the original investment. You can replace the capacity in later years, but you have to pay full price. If you sell capacity for less than its depreciated value, you lose money, which is reflected as a write-off on your income statement. If you sell capacity for more than its depreciated value, you make a gain on the sale. This will be reflected as a negative write-off on the income statement.