## Capacity Determination

Capacity means the ability to produce. Different bases of measuring capacity exist depending on the purpose (planning, costing, control). Understanding the hierarchy of capacities is key to computing idle capacity and idle-time cost.

### Types of Capacity

Type of Capacity	Meaning / Computation
Maximum / Theoretical / Installed / Rated	The full ceiling output assuming no stoppages. `Units per Hour × Hours per day × No. of days per year₹
Practical / Achievable	Realistic capacity after deducting holidays, weekly offs and normal idle time. See computation below.
Normal / Average / Expected	Average of past actual capacity (smooths out seasonal/cyclical swings).
Actual	Capacity actually used during the period.
Budgeted / Estimated	The level set for the period; used to determine rates and for planning.
Idle Capacity	Capacity not utilised — split into Normal and Abnormal (see below).
Licensed	Capacity approved by an authority.

### Computing Practical Capacity

1. Working Days = Total Days − Holidays − Weekly offs

2. Practical Hours = (Practical Days × Hours per day) − Normal Idle Time

3. Practical Units = Practical Hours × Units per Hour

### Idle Capacity

Normal Idle Capacity = Maximum − Budgeted
Abnormal Idle Capacity = Budgeted − Actual

> Key idea: Normal idle capacity is the unavoidable gap between the theoretical ceiling and what we plan to do; abnormal idle capacity is the avoidable shortfall between what we planned (budgeted) and what we actually achieved.

Worked example

### Example 1

Computing Practical Capacity

A machine runs 8 hours/day, produces 50 units/hour. The year has 365 days, of which 52 are weekly offs and 13 are holidays. Normal idle time is 200 hours per year.

Working Days = 365 − 52 − 13 = 300 days
Practical Hours = (300 × 8) − 200 = 2,400 − 200 = 2,200 hours
Practical Units = 2,200 × 50 = 1,10,000 units

### Example 2

Idle Capacity Split

Maximum capacity = 1,20,000 units; Budgeted = 1,00,000 units; Actual = 90,000 units.

Normal Idle Capacity = 1,20,000 − 1,00,000 = 20,000 units
Abnormal Idle Capacity = 1,00,000 − 90,000 = 10,000 units

⚠️ Common exam mistakes

Confusing Normal idle capacity (Maximum − Budgeted) with Abnormal idle capacity (Budgeted − Actual).
Forgetting to deduct normal idle time when computing practical hours.
Using total days instead of working days (after removing holidays and weekly offs) for practical capacity.
Treating installed/rated capacity as achievable — it is the theoretical maximum, not what can realistically be produced.

Reference:

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Capacity Determination and Types of Capacity

Worked example

⚠️ Common exam mistakes