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What is practical capacity?

Author:
Harold Averkamp, CPA, MBA

Definition of Practical Capacity

Practical capacity is a manufacturer’s level of output (often expressed in machine hours, barrels, pounds, etc.). Practical capacity is less than its theoretical capacity.

However, the practical capacity is likely more than the actual machine hours needed to meet the company’s production schedules.

Normal capacity is the annual machine hours that have occurred over a span of several years.

Example of Practical Capacity

Assume that a manufacturer has annual theoretical capacity of 2,080 machine hours based on 8 hours per day for 5 days per week for 52 weeks. The manufacturer cannot achieve the theoretical capacity due to equipment repairs and maintenance, machine setups, plant shutdowns for holidays, and other downtime. If those activities and the downtime amount to 220 machine hours a year, the manufacturer’s practical capacity is 1,860 machine hours per year.

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

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