What is Normal Capacity?

Normal capacity is the amount of production volume that can be reasonably expected over the long term. Normal capacity takes into account the downtime associated with periodic maintenance activities, employee vacations, crewing problems, and so forth. When budgeting for the amount of production that can be attained, normal capacity should be used, rather than the theoretical capacity level, since the probability of attaining normal capacity is quite high. The normal capacity level can decline over time as production equipment ages, since the equipment requires more maintenance effort.

How is Normal Capacity Used?

Normal capacity is employed in several ways. It is used to derive product prices, since it limits the number of units that can be produced. It is also used as a performance baseline, where management compares normal capacity to actual output. A third use is in budgeting, where the budget’s production costs are based on the normal capacity level of the firm’s production operations.