Capacity planning
When you are fully staffed and fully stretched and your machinery is processing the largest volume of products possible, you are operating at 100% of capacity. You will know what this volume is from the analysis in Chapter 13. Remember, though, that as with fixed costs, capacity is only fixed until you change it – you could, for example, close down a production line, or open a new factory.
Continuing with the previous example. Suppose you calculate that the largest number of widgets that you can turn over in a day is 100, due to limits on storage, packing, distribution, etc. (Capacity is not just about production.) You have just established that you break even at 20 widgets a day. Accordingly, break even is at a comfortably ...
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