Question

Could you please provide answer with explanation?

MySchool Notebook Company produces custom 3-ring binders with school logos for high schools in the Midwest. They mold binders in four standard colors and then imprint the school's logo on a to-order basis. The average daily demand for the base color notebooks is as follows: Green 295 notebooks/day Blue 255 notebooks/day Red 260 notebooks/day Black 335 notebooks/day MySchool can produce 1,600 notebooks per 24-hour day. Calculate the utilization of their facility as a percentage.

Answer 1

The utilization of the facility refers to the capacity utilization. The capital utilization measures the how much the capabilities are being utilized in production. It depicts the operational efficiency of the company. It is the percentage of actual output produced to total output that a facility can produce. This helps in understanding how much the capacity is being used and if used 100% how much more output can be produced. It provides insight into the total utilization of resources and how production can be increased without increasing cost. Here, the utilization of facility would the total number of notebooks that the school is producing to the total number of notebooks it can produce.

Utilization rate = (Actual Level of output / Maximum level of output) *100

Actual output in a day = 295+255+260+335 = 1145 (assuming that the school produces as per the daily demand)

Maximum output that can be produced in a day = 1600

Utilization rate = (1145/1600)*100 = 71.56%

This means only 71.56% capacity is being utilized in producing notebooks. There is room for utilizing the capacity more and in a better way to produce more output in a day.