Managerial perspectives for improving resource utilisation by applying the cost of unused capacity

Zoltan Sebestyen and Tamás Koltai

International Journal of Business and Systems Research, 2009, vol. 3, issue 4, 497-513

Abstract: For production managers, the traditional measures for evaluation resource usage are capacity utilisation and efficiency. These measures concentrate on the amount of resources used, and ignore the value of resources left idle. The concept of the cost of unused capacity developed in conjunction with activity-based costing by Cooper and Kaplan makes it possible to present information for managers about the value of idle resources as well. In this article, a continuous flow operation and a part manufacturing operation are used to illustrate the application of the cost of unused capacity in production and capacity planning-related decisions.

Keywords: unused capacity costs; fixed cost; production planning; resource utilisation; production management; activity-based costing; ABC; idle resources; continuous flow; part manufacturing; capacity planning. (search for similar items in EconPapers)
Date: 2009
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