Compute the utilization of peak capacity:

If the fabrication department of the engine manufacturer, operated under ideal conditions, produces 100 engines per day. Management believes that a maximum output rate of only 45 engines per day may be sustained economically over a long period of time. At present, department is producing an average of 50 engines per day. Compute the utilization of the department relative to peak capacity and Effective capacity.

Solution

The two utilization measures are as follows :

Utilization_peak = (Average output rate / Peak capacity = (50/100) × 100% = 50%

Utilization_effective = Average output rate/ Effective capacity = (50/45) × 100% = 111%