Question

Given the following information.

Maximum capacity (labor hours):	350 hours per week
Effective capacity ratio:	70%
Actual time worked:	243 hours per week over the last two weeks
On-time delivery %:	60 percent of the jobs are being completed on time

a. Calculate the effective capacity and actual utilization. (Round your answers to 2 decimal places.)

b. Do we need to add more capacity?

	Yes
	No

Answer 1

Solution:
a.	Effective capacity	245
	Actual utilization	69.43%
Working Notes:
	Effective capacity = Effective capacity ratio x maximum capacity
	= 70% x 350
	=245 hours a week
	Utilization = Actual time worked / Maximum capacity
	=243 / 350
	=0.6942857
	=69.42857%
	=69.43%
b.	NO
Working Notes:
	No, need to add more capacity as effective capacity & utilization is currently marginally lesser than available capacity.
Please feel free to ask if anything about above solution in comment section of the question.