Capacity Utilization

Capacity Utilization When plants and machinery are installed they have a rated capacity, i.e., under optimum utilization they can produce a certain quantity of goods, working a single shift. The rate of utilization of that capacity is expressed in percentage. The nature of demand for the company’s product often regulates capacity utilization. Sometimes, owing to a glut of a commodity in the market, e.g., fertilizers, the government regulates capacity utilization. When there are no such controls, a low capacity utilization is generally bad news for the company.

Under conditions of a seller’s market, a company may achieve more than 100% capacity utilization, by working more than one shift.

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