For a firm, it is important to grasp and improve its production capacity. Calculation of capacity is necessary to plan sales growth.
Before knowing the demonstrated capacity let us know about capacity.
What is capacity ?
Capacity is the ability to produce the products in manufacturing industry . On other hand, capacity means ability of the machine, worker, work center, or company to produce the output in a given time period.
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 100,120,110,120, &130 standard hours of work over a period of five weeks. Now formula is,
Then Demonstrated capacity = Standard hours/ number of weeks
= 116 standard hours
Get more definitions about Demonstrated capacity and other ERP related terms here.