1. What is Capacity Utilisation?

Capacity utilisation measures the extent to which an enterprise or a nation uses its installed productive capacity. It is the relationship between output that is produced with the installed equipment and the potential output which could be produced with it, if capacity was fully used.

2. How Does the Calculator Work?

The calculator uses the capacity utilisation formula:

Where:

• \( \text{Actual Output} \) — The actual production achieved (units)
• \( \text{Potential Output} \) — The maximum possible production capacity (units)

Explanation: This formula calculates the percentage of production capacity that is actually being used in production.

3. Importance of Capacity Utilisation

Details: Capacity utilisation is a critical metric for businesses and economies. High utilisation rates indicate efficient use of resources and potential for expansion, while low rates may signal economic slowdown or inefficiency.

4. Using the Calculator

Tips: Enter actual output and potential output in the same units. Both values must be positive numbers. The result shows the percentage of capacity being utilized.

5. Frequently Asked Questions (FAQ)

Q1: What is considered good capacity utilisation?
A: Generally, 85-90% is considered optimal. Below 80% may indicate underutilization, while above 95% may indicate overutilization and potential bottlenecks.

Q2: How is potential output determined?
A: Potential output is the maximum sustainable output level that can be achieved with existing resources, technology, and capital under normal working conditions.

Q3: Why is capacity utilisation important for businesses?
A: It helps in production planning, investment decisions, cost analysis, and identifying opportunities for efficiency improvements.

Q4: Can capacity utilisation exceed 100%?
A: Yes, through overtime, extra shifts, or temporary measures, but sustained rates above 100% are not sustainable long-term.

Q5: How does capacity utilisation affect the economy?
A: High capacity utilisation typically indicates strong economic growth and may lead to inflationary pressures, while low utilisation suggests economic slack.