Capacity Utilization Analysis
Based on Effectiveness
The capacity utilization rate of a company may be measured in order to provide insight into how well it is reaching its potential. It also determines the company’s ability to cope with a rise in the production of output without increasing costs.
The capacity utilization rate is an important indicator for companies because it can be used to assess operating efficiency and provides an insight into cost structure. It can be used to determine the level at which costs per unit go up or fall. When there is a rise in output, the average cost of production will decrease.
As part of measuring a company’s efficiency in terms of using its resources, and in planning for the future, we implement capacity utilization analysis.
How to calculate capacity utilization?
Capacity utilization is measured by dividing the total capacity utilized over a specific period by the total production capacity or optimal levels and multiplying by 100.
Some useful indicators include:
- Cycle times
- Resource utilization
- Total output