Hoosier Manufacturing operates a production shop that is designed to have the lowest unit production cost at an output rate of 165 units per hour. In the month of July, the company operated the production line for a total of 305 hours and produced 36,400 units of output.

What was its capacity utilization rate for the month? (Round your answer to 1 decimal place.)

The capacity utilization rate for Hoosier Manufacturing was 72.4% for the month of July.

Explanation:

Capacity utilization rate is a ratio used to compare a current usage level against a maximum potential level.

Capacity Utilization Rate: (Actual output / Potential Output) x 100

Given:

Potential Output = 165 units per hour

Actual Output = 36,400 units

Actual Time Taken = 305 hours

Therefore, the potential of the Hoosier manufacturing unit is to produce 165 units per hour. Let us see, as per this rate, how much should be the output for 305 hours (The actual time taken in the month of July) -

Since: 1 hour produces 165 units

Then, 305 hours will produce [165 x 305 ] = 50,325 units

This means that its potential capacity should produce 50,325 units. However, as per actual capacity, it produced just 36,400 units in 305 hours.

Actual output is 36,400 units, potential output is 50,325 units.

Lets calculate the capacity utilization rate -

(Actual Output / Potential Output) x 100

(36,400 / 50,325) x 100 = 72.4 %

72.3%

Explanation:

Hoosier Manufacturing operates a production shop that is designed to have the lowest unit production cost at an output rate of 165 units per hour.

In the month of July, the company operated the production line for a total of 305 hours and produced 36,400 units of output.

Optimal production would have been a total of = 165 units per hour x 305 hours of production in the month = 50,325 units of output

Actual production = 36,400 units

Therefore its capacity utilization rate for the month is 36,400/50,325 x 100 = 72.3%