For a firm, it is vital to grasp and improve its production capacity. In addition, calculation of capacity is necessary to plan sales growth.
What is Demonstrated Capacity?
Demonstrated capacity is proven capacity calculated from actual performance data, usually expressed as the average number of items produced multiplied by the standard hours per item.
Example of Demonstrated Capacity
For example, a company produced 10,12,11,12 &13 units over five weeks.
And creating each unit takes 10 hours.
Now the formula is,
Then Demonstrated capacity per week is= (total number of units)*(hours needed for each unit)/(number of weeks)
= 116 standard hours
What is capacity?
Capacity is the ability to produce products in the manufacturing industry. On the other hand, capacity means the ability of the machine, worker, work center, or company to make the output in a given time.
Capacity is typically expressed in units per period. For example, a plant might produce ten units per hour. The higher the capacity, the more products it can make.