What Is the Formula Used to Find Capacity Utilization?

By Staff WriterLast Updated Mar 30, 2020 8:25:36 PM ET
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The following is the formula for Capacity Utilization: Capacity Utilization, CU = {(Actual Output - Potential Output) / Potential Output}. On the other hand, Capacity Utilization Rate, CUR = {(Actual Output - Potential Output) / Potential Output} * 100.

Capacity utilization is the degree to which a business entity or an economy actually makes use of its established productive, according to Ready Ratios. This phenomenon is used to depict the relationship between the actual output and the likely output if capacity is utilized fully.

Economically, capacity utilization is highly significant since economic analysts make use of capacity utilization indicators to predict the degree of inflation effects. A flourishing market leads to a rise in capacity utilization, and the reverse is also true.