What is the use of capacity?

Capacity use is the amount of production capacity used at the moment. If the company has the ability to operate three manufacturing shifts daily and operates only two shifts a day, it has a capacity of capacity of 66.66 percent. This rate can also be calculated in the number of units, so a company that can produce 10,000 pieces a day, but produces only 8,000, has a capacity of 80 percent.

The production capacity takes into account fixed costs such as factories and equipment. It does not include variable costs such as work and materials. Once the company has achieved full capacity, it will have to increase its fixed costs by purchasing more equipment or building new factories to produce more goods.

Capacity use is mathematically expressed as a real output minus potential output, divided by potential output. The use of capacity is expressed as a percentage. Companies rarely operate on 100 percent of productive capacity because they often downtimeLi if the equipment and various other causes. In most industries, a consistent rate of about 85 percent is considered.

If the capacity use rate is low, it means that companies are able to increase production without incurring additional fixed costs. If the demand for the company's products increases, it can produce multiple goods at the same cost per unit. If the rate is high, companies cannot increase their production without incurring additional costs to buy new machines or build new devices.

capacity can be an economic indicator, because economists will consider the total use of the capacity of the industry or the country to determine whether there is a risk of inflation. Inflation pressures occur when companies are on full capacity or close to the demand for goods. With increasing demand for product and production remains the same, prices will increase and cause inflAci.

The amount of capacity has a company beyond what it uses is excessive capacity. Excessive capacity can be considered a difference between the amount of goods that the company is able to produce with its current infrastructure and the amount it actually produces. It can also be considered as an incremental amount of product that the company can produce at current costs. If the company wants to produce more units above full capacity, additional costs will have to be incurred.