Question

1. What is capacity cushion and how does it impact utilization?

2. What information is needed to calculate capacity requirements for a machine that has to produce

   multiple products?

Answer 1

Answer 1.

Capacity Cushion: A capacity cushion refers to excess capacity of goods available with the firm in case of sudden demand occurs or temporary issues with production. This is the amount of extra capacity that will be expressed as a percentage of the total capacity of a particular product in the firm. It is basically a reserved capacity kept by the firm in case of any unexpected demand so that the firm can satisfy the consumer demand at any time.

• Capacity cushion affects total capacity produced and its utilization for any product in the firm. The total capacity is the maximum output that has to be produced over a period of time in the firm as per the previous sales and resources available with the firm. Utilization is the relationship between actual output and capacity that is calculated by below formula,

Utilization = actual output/capacity *100

Capacity cushion = 100% - Utilization.

So we can see that capacity cushion is inversely proportionate to capacity utilization of the firm. So a 30% capacity cushion is equal to 70% capacity utilization rate. So a firm has a 100% utilization rate, the firm would have capacity cushion rate 0 that should not be the priority of any business as we don't know when the demand will increase suddenly or we might face issues with our current production. We should keep some buffer between actual output and capacity to fulfill the sudden consumer demand.

Answer 2.

Machine capacity refers to maximum output a machine can produce with or without human intervention. A machine can produce the same or different quantity of one or multiple products. There are so many factors or information that affect the machine capacity. Machine capacity is calculated by the below formula,

Machine capacity = Operating hours * Operating rate * number of machines

(here no. of machines is 1)

A machine should be effectively and smoothly as per the instruction provided by the manufacturer. To calculate the correct capacity of the machine, we need information related to the number of workers running the machine, speed of the running machine, operating shifts, total capacity of the machine and machine utilization.