What is capacity utilization?

• A. Measures how much of maximum output capacity is used.
• B. Measures how many workers used.
• C. Measures energy usage.
• D. Measures inventory turnover.

Answer: (A)

Capacity utilization measures the proportion of maximum possible output that a business is actually producing. It looks at how much of the plant’s designed or maximum capacity is being used in real production. For example, if a factory could produce 1,000 units in a period at full efficiency but is currently producing 800, the capacity utilization is 80%. This tells managers whether resources like machinery and space are being underused or stretched to their limit, signaling whether there’s room to grow or need to improve efficiency. It’s not about how many workers are used, energy consumption, or how quickly inventory moves; those are different metrics (labor use, energy efficiency, and inventory turnover, respectively).