Definition of capacity

ability to produce during a given time period, with an upper limit imposed by the availability of space, machinery, labor, materials, or capital. Capacity may be expressed in units, weights, size, dollars, man-hours, labor cost, etc. Typically, there are five different concepts of capacity.

1. Ideal capacity -volume of activity that could be attained under ideal operating conditions, with minimum allowance for inefficiency. It is the largest volume of output possible. Also called theoretical capacity, engineered capacity,or maximumcapacity.
2. Practical capacity-highest activity level at which the factory can operate with an acceptable degree of efficiency, taking into consideration unavoidable losses of productive time (i.e., vacations, holidays, repairs to equipment). Also called maximum practical capacity.
3. Normal capacity -average level of operating activity that is sufficient to fill the demand for the company's products or services for a span of several years, taking into consideration seasonal and cyclical demands and increasing or decreasing trends in demand.
4. Expected actual capacity-similar to normal capacity, except it is a short-run level based on demand, it minimizes under- or overapplied overhead but does not provide a consistent basis for assigning overhead cost. Per-unit overhead will fluctuate because of short-term changes in the expected level of output. Also called planned capacity.
5. Operating capacity-similar to planned capacity except the time period is within a small slice of a single year (i.e., daily, monthly, quarterly).

one of the five C's of credit-the borrower's ability to pay an obligation when due, normally determined by verifying salary given on a credit application with an employer and considering probability of continued employment.

1. mental ability to make a rational decision.
2. ability to produce during a given time period, with an upper limit imposed by the availability of space, machinery, labor, materials, or capital. Capacity may be expressed in units, weights, size, dollars, man hours, labor cost, etc. Typically, there are five different concepts of capacity.
   1. Ideal capacity: volume of activity that could be attained under ideal operating conditions, with minimum allowance for inefficiency. It is the largest volume of output possible. Also called theoretical capacity, engineered capacity, or maximum capacity.
   2. Practical capacity: highest activity level at which the factory can operate with an acceptable degree of efficiency, taking into consideration unavoidable losses of productive time (i.e., vacations, holidays, repairs to equipment). Also called maximum practical capacity.
   3. Normal capacity: average level of operating activity that is sufficient to fill the demand for the company's products or services for a span of several years, taking into consideration seasonal and cyclical demands and increasing or decreasing trends in demand.
   4. Planned capacity: similar to normal capacity except it is projected against a particular single year. Also called expected actual capacity.
   5. Operating capacity: similar to planned capacity except the time period is within a small slice of a single year (i.e., daily, monthly, quarterly).

Debt: ability to repay loans, as measured by credit grantors. Creditors judge an applicant's ability to repay a loan based on assets and income, and assign a certain capacity to service debt. If someone has many credit cards and credit lines outstanding, even if there are no outstanding balances, that is using up that person's debt capacity.
Economics: the amount of productive capacity in the economy is known as industrial capacity. This figure is released on a monthly basis by the Federal Reserve to show how much of the nation's factories, mines, and utilities are in use. If more than 85% of industrial capacity is in use, economists worry that production bottlenecks may form and create inflationary pressure. On the other hand, if less than 80% of capacity is in use, industrial production may be slack and inflationary pressures low.

maximum that an insurance company can underwrite. The limits of coverage that a property and casualty company can underwrite are determined by its retained earnings and invested capital. reinsurance is a method of increasing the insurance company's capacity, in that a portion of the unearned premium reserve maintenance requirement can be relieved. Commissions earned are ceded, underwriting results are stabilized, and financing of the expansion of the insurer's capacity can take place.