MANAGEMENT ACCOUNTING.

Running head: MANAGEMENT ACCOUNTING 1
Management Accounting
Name
Institution

MANAGEMENT ACCOUNTING 2
Capacity production refers to the level of output that a particular institution can sustain to
make a product or offer a service. Capacity planning relies on management to mitigate risks
associated to the production process. This is because there is no system that has the capability to
operate in full capacity over a sustained period. In this context, production capacity refers to the
maximum volume that a firm can produce at a given time. The production capacity of a firm is
often increased as a result of an increase in demand (Hull, 2011). In most cases, manufacturing
firms often do not use their equipment to full capacity. In this regard, companies are known to
preserve a capacity for purposes of handling increase whenever a company experiences losses in
production.
Capacity cushion varies from one company to another. In other cases, companies are
forced to rely on outsourcing as means to increase capacity production. A more practical
example of capacity production is explained through relevant range (Chen & Tsai, 2017). For
instance, suppose a firm makes clothes, the equipment used in this manufacturing firm operates
effectively between 2000hours and 3000hours within a given timeframe. If the machines are
made to operate more than these hours, there is likelihood of breakdown hence the need to
manage production at a relevant range.
Therefore, relevant range is the optimum level that a machine can operate without
experiencing challenges. There are numerous challenges that may impact production capacity in
manufacturing firms. Manufacturing can be a dangerous industry and manufacturers should be
aware of their health and safety needs. This requires training of the personnel that handles
equipment. Moreover, manufacturing firms often experience shortage of skilled labor in handling
sophisticated machines. Also, the lack of adoption to latest technology limits production capacity