Why do the Factories work in low capacity?
The Answer to the question with every layman that why if a factory has a capacity of X units actually operates in under utilization of full capacity i.e. (X-dx) unit
The answer lies in the facts of sales model
It is taken into consideration that Net working capital when calculated in the form of percentage of sales the growth is shown ideal but that is not the case in actual life, There is already some Working capital involved more than required and the Net working capital is calculated by adding that amount already involved added with the percentage of sales
Networking capital=mY (m stands for the percentage factor &Y stands for sales revenue)
Actual Net working Capital =$50+mY
Another factor is when firm operates in full capacity then to show the rise in sales figure gradually it is not possible unless there is new investment on fixed assets like plant and machinery whereas it becomes easier till a point to add sales if the capacity of the plant is under utilized.
After a point for a small increase in sales one has to undergo a investment on the plant and machinery .
In this Till point A to B the plant can show the increase in sales growth without adding the capacity but after the point B it becomes real necessity to increase the capacity utilization
No comments:
Post a Comment