1. D R . S U N I TA S U K H I J A
A S S I S TA N T P R O F E S S O R I N C O M M E R C E
G O V T. N AT I O N A L C O L L E G E , S I R S A ( H RY )
Capacity Utilization
2. Capacity Utilization
Capacity Utilization is the measure of the extent to
which the production capacity of a business is being
used out of total capacity.
In other words:
Actual level of output*100 / Maximum possible
output
32000*100 / 40000 = 80%
3. Capacity utilization refers to the manufacturing and
production capabilities that are being utilized by a nation
or enterprise at any given time. It is the relationship
between the output produced with the given resources
and the potential output that can be produced if capacity
was fully used. Capacity utilization can also be defined as
the metric used to calculate the rate at which the
prospective levels of output are being met or used. The
rate is displayed as a percentage and provides an insight
into the total utilization of resources and how a company
can increase its output without increasing the costs
associated with production. The capacity utilization rate
is also called the operating rate.
4. Reasons for under utilization
Reduction in Demand
Loss of market share
Seasonal Variation
Poor Maintenance
Employees disruption
Lack of Labour
5. Importance of Capacity Utilization
Tool f0r productive efficiency
AC falls as output rises
Summary
The capacity utilization rate is useful to companies as
it provides an insight into the value of production
and the resources being utilized at any given time. It
determines the company’s ability to cope with a rise
in the production of output without increasing costs.
A reduction in the rate indicates an economic
slowdown while an increase signifies economic
expansion.
