Question

Main reason to keep track of capacity efficiency and utilization.

	A.	Companies must keep track of their employees
	B.	Accepted accounting practice
	C.	Stockholders will not like it
	D.	Ignoring them could cause you to expand when not necessary
	E.	To ignore these indices could result in a waterfall of other costs

Answer 1

The main reason to keep a track of capacity efficiency and utilisation is - To ignore these indices could result in a waterfall of other costs.

• The capacity utilization and efficiency is an important factor for companies as it leads to operational efficiency & gives insight into cost structures.
• It helps to know whether the cost will go up or down.
• The higher utilization reduces the cost per unit and healing to gain competitive advantage.
• Ignoring these can create more costs areas without being notices leading to an overall increase in cost per unit.
• It helps to plan for production without increasing the cost.

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