Capacity Utilization

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Description of Capacity Utilization. Explanation.




Definition Capacity Utilization. Description.

Capacity Utilization is the extent to which a firm or a plant or a machine actually uses its installed productive capacity. Thus, it refers to the relationship between actual output produced and potential output that could be produced with the installed equipment, if its capacity was fully used.

It is the degree to which a resource such as equipment, space, or the workforce is currently being used. Utilization is a percentage, measured as the ratio of average output rate to maximum capacity.

Always make sure the average output rate and the maximum capacity are both measured in the same entities: in either time, costs, units or currencies.

The utilization of capacity is one of the ten Cost Drivers described by Porter.

The capacity utilization at a point in time can be dependent on seasonal, cyclical or other demand fluctuations.

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