Production Capacity

Posted by The New Economics Education

The meaning here is the production capacity of long-term production capacity, the ability of the operating facilities for goods and services. Production capacity associated with costs to be incurred by the company to determine the amount of product that can be generated. If the high production capacity, the fixed costs incurred also great, if utilization is low, production costs will be expensive, so in order to determine the production capacity planning and research must be done first.

Capacity measurements can be performed based on output or input depending on the kind of institution-based or activity. Eg garment factories, to measure the capacity of educational institutions based on measuring the output and input based on the capacity shown by their capacity.

Basis to determine the plant capacity is planned economies of scale, which is selected facilities that have the lowest cost per unit, and focus facility, the facilities available are able to produce several kinds of products. For example, a factory producing a similar product components.

Capacity planning strategy basically consists of two kinds, namely the expansion strategy, and strategy of wait and see

Expansion Strategy 
In the expansion strategy, employers increase the capacity of its plant after it emerged that there is enough demand outlook. This strategy is carried out by entrepreneurs who are optimistic of increase in demand.

Wait and See
Strategy
Wait and see strategy, applied to a conservative businessman, or tend to be cautious. Employers are adding plant capacity if demand really has improved. If the increase is not enough usually be overcome by working overtime or sub-contract with other companies.

To plan production capacity, companies can use various methods. The method used in the optimum production capacity planning is a method of Break Even Point, Linear Programming method, graphical method and Simplex method.

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