The product cost of a product is greatly afflicted by the capacity utilization of a firm. Hence the profitability is also affected by the capability utilization. A firm is considered to be working in full capacity when the installed capacity as well as available resources is being utilized to the utmost. But as the use of capacity decreases, the cost also gets influenced. This is applicable for Qatar Airways also. Hence with reduction in capacity utilization, the unit cost is also affected however in two various ways. There exists two kinds of device cost- unit adjustable cost and product fixed cost. Unit variable cost involves the price incurred for labor and materials for producing a single unit of product whereas the unit fixed cost is the cost of fixed assets like machinery that is used for the manufacture of a single device. Thus capacity usage affects both of these costs diversely.
For unit changing cost, a decrease in capacity utilization would cause a decrease in it. This implies there exist a positive relationship between capacity utilization and unit variable cost. But this decrease may not be in a proportionate manner. The following diagram illustrates the relationship between unit varying cost:
Unit Changing cost
Cost per unit
The above graph has capacity utilization in the Y-axis and Unit cost in the X-axis. It can be seen that as capacity utilization decreases the price per unit also reduces.
In the situation of unit fixed cost, there is a negative relationship. This implies as capacity utilization increases, the machine fixed cost lowers. In the following graph, the unit cost is in the X-axis and capacity usage is in the Y-axis:
Capacity Utilization Product Fixed cost
Cost per unit
Hence capacity utilization comes with an impact over the machine cost of a product. The following formula is employed for calculating capacity utilization:
Capacity Utilization (%) = Genuine output monthly (or per annum) x 100%
Maximum possible result per month (or per annum)
In the case of Qatar Airways the capability utilization must be done properly so the maximum use of the resources can be done in the very best manner. Reports show you that the business is not much damaged by the economic downturn and there is still large numbers of British tourists flying through QA. Hence the success of the business is not much affected. The business can alter the seating settings as per the requirements of the customers as well as based upon the machine cost. Both unit variable and device predetermined cost must be looked at while fixing the cost for ticket.
The fuel usage is an essential factor in air travel industry. There are specific factors that have an impact on the fuel utilization of an plane. This consists of the aeroplanes type, chair occupancy, cargo weight etc. Seats and seat occupancy are major determinants of fuel consumption. There is an emission calculator is now used which calls for the average of seats and seats occupancy of a particular air travel and compares it with the typical configuration of aeroplanes manufacturers with regard to seating. The average seating occupancy for scheduled and chartered market segments differs. Also the airline flight region also alters the seating occupancy of appointed flights.
There are present certain requirements for flight industry in regards to to seats. The car seats are fixed out by the firms regarding these specifications. The number of seats is a crucial factor in petrol consumption. The seats will vary for different classes. For example, the seats running a business class are bigger and bulkier than those in current economic climate class. But current economic climate chairs are usually more in quantity when compared with the business course seating. Also the seating that easily fit into a row differ in line with the airline type. The purpose of every company is to arrange the seating in such a way that the client requirements are attained in the best manner.
Extend of capacity utilization is the critical factor that chooses the permanent cost that must be allocated per unit of product. Hence the predetermined cost and capacity utilization are inversely proportional to one another.
Full capacity is a great situation that each firm dreams of. But operating in near full capacity is possible if proper planning is done. Increasing the total capacity can be carried out in many ways. The following are the most suitable methods:
Utilizing more individuals- This way more result can be made in a less amount of time. But at the same time the unit changing cost is increased to a little bit as employee pay are considered as overheads.
Building much larger buildings for production or providing service- In this manner there will be more space for production or service. Hence the company could easily use the available resources.
Purchasing more organic materials/stock- When there is more recycleables, then the company might use them for production and hence raise the production capacity.
A firm is known as to be working in full capacity whenever the capability utilization transforms 100%. This means the firm can use the installed capacity and the available resources to the maximum. Thus operating in full capacity brings many benefits to the organization. But it doesn't imply there are only advantages to this method of operation. There's also certain down sides to it.
The major advantages of full capacity procedure are:
Decrease in product fixed cost: Because the capacity utilization and resolved cost per device is inversely proportional, an increase in the former would reduce the unit set costs. Thus the total unit cost would also be less. Hence the total device cost, i. e. , the cost per ticket for Qatar Airways can be reduced by operating completely or near full capacity.
Maximum usage of resources: When working in full capacity the company utilizes the current resources in the most effective manner. Hence the wastage of resources will be minimized as well as the income increases.
Better chance of survival in most severe times: Situations like economical recession could impact all types of business. But a business that works together with full capacity and work efficiency will be able to forecast such financial turmoil and adapt the operations appropriately. Apart from that they can also anticipate the future demands.
High growth probable: A company dealing with full capacity will be able to generate higher earnings. They can spend this income for new endeavors and broaden.
Enhanced brand value: A high growing company will naturally be successful. Hence employees will be pleased to work for such an organization. Thus the task environment in that organization may also be better.
Following are a few of the downsides or negatives related to capacity usage:
Maintenance and protection issues: The vegetation that run completely capacity usually cannot carry out the daily habit maintenance and safeness procedures according to the restrictions and on correct time. Also there may be break downs that could prevent the company from reaching the demands of customers. This might have an effect on the name or trustworthiness of the business.
Lesser development: In the event the firm is jogging in full capacity then there is certainly little likelihood of improvement. In this manner the business enterprise would be stagnant with no inventions. This also influences the firm's capability to meet unexpected demand and contingency.
Employee issues: A company running completely capacity needs its staff to be there full time per day. This way they can be denied of any time for leisure and entertainment. Also you will see high work pressure on staff which further heightens their disappointment. Thus the effect will be absenteeism and employee turnover. Hence over stress would reduce the productivity.
Poor working environment: Jogging completely capacity demands a business to employ more folks. Thus worker management will be a difficult process to be managed by the management. Also this would result in an unhealthy work environment which affects the task efficiency.
Increase in overall cost: Working in full capacity would also raise the overall cost. It is because the firm must employ more personnel, buy more recycleables as well as build more infrastructures. Thus the entire cost is affected.
Due t this most businesses work between 70%-90% efficiency. This might help them in minimizing the unit set cost as well as unit variable cost. Also invention can be brought about.