REPORT ON

CAPACITY UTILIZATION: A STUDY OF FU-WANG

FOODS & BEVERAGE LTD.

Patuakhali Science and Technology University

Dumki, Patuakhali
 SUBMITTED TO
M. Takibur Rahman
Lecturer
Department of Accounting and Information System
Faculty of Business Administration and Management

SUBMITTED BY
Group:05 (liberty)
Level: 04; Semester: 01
Faculty of Business Administration and Management
01Md. Mofizer Rahaman Member 12 00671
02 Dipayan Chakma Member 17 00676
03 K.M. Assaduzzaman Member 06 00665
04 Tanjia Sultana Member 10 00669
05 Azmiry Khanom Member 20 00679
06 Shofiq Uddin Khan Member 23 00682

Quantitative Business Analysis

Course code: FBK-416

Date of Submission: 30 May,2009

Patuakhali Science and Technology University

Dumki, Patuakhali
CAPACITY UTILIZATION: A STUDY OF FU-WANG
FOODS & BEVERAGE LTD.
LETTER OF TRANSMITTAL

Date: 30 May, 2009

M.TAKIBUR RAHMAN
Lecturer
Department of Accounting and Information System
Patuakhali Science and Technology University

Subject: Submission Term Paper on “Capacity Utilization: a study of

FU-WANG Foods & Beverage Ltd.”

Dear Sir,

Here we are submitting our term paper on “Capacity Utilization: a

study of FU-WANG Foods & Beverage Ltd.” prescribed by you on
your course Quantitative Business Analysis. For this purpose, we
have gone through internet, different books, articles, and journals,
interview of authorities and employees of the respective
organizations for the relevant information of the assigned topic.

Please call us for any further information at your convenient time

and place.

Yours truly,

Group 05 (Liberty)
BBA
Level- IV Semester- I
Session: 2004-2005
Patuakhali Science and Technology University
LETTER OF AUTHORIZATION

Date: 30 May, 2009

M.TAKIBUR RAHMAN
Lecturer
Department of Accounting and Information System
Patuakhali Science and Technology University

Subject: Declaration regarding the validity of the report.

Dear Sir,

This is our truthful declaration that the “Capacity Utilization: a study

of FU-WANG Foods & Beverage Ltd.” we have prepared is not a copy
of any report previously made by any group.

We also express our honest confirmation in support of the fact that

the said “Report” has neither been used before to fulfill any other
course related purpose nor it will be submitted to any other person
or authority in future.

Yours truly,

Group 05 (liberty)
BBA
Level-IV Semester-I
Session: 2004-2005
Patuakhali Science and Technology University
ACKNOWLEDGEMENT

During the period of surveying FU-WANG Foods & Beverage Ltd. and
preparing the report, we had gained altruistic assistance from a
number of persons including our honorable and respectable course
teacher M. TAKIBUR RAHMAN, Lecturer, department of Accounting and
Information System, faculty of Business Administration and
Management.

We are thankful to the respective personnel of this organization

because they showed their highest degree of temperament in
answering our relentless questions. Such if their friendly cooperation
and kindness did not even allow us to strive for a single moment for.

Last of all, thanks to every members of this group. They put their
spontaneous endeavors and best effort to complete the report
successfully.

TABLE OF CONTENTS
[

Contents
Page no.
[

Letter of transmittal
iii
Letter of authorization
iv

Acknowledgement
v

Executive summary
vii
[

CHAPTER: 1 Introduction 01
ABSTRACT
02
THE OBJECTIVE OF THE STUDY
02
LIMITATION OF THE STUDY

CONCEPTS AND METHODOLOGY 03

CHAPTER: 2

04
CAPACITY UTILIZATION
04
PRODUCTIVE CAPACITY
05
ABOUT FU-WANG FOODS AND BEVERAGE LTD.

FINDINGS OF EARLIER STUDIES 06-07

COMPANY PROFILE

CHAPTER: 3 DISCUSSION AND CALCULATION OF CAPACITY UTILIZATION

08-09
PRODUCTION AND THE DEGREE OF CAPACITY UTILIZATION
RELATIONSHIP BETWEEN UNITS FIXED COST
10-11
AND CAPACITY UTILIZATION

RELATIONSHIP OF CAPACITY UTILIZATION WITH ASSETS

12-13
TURNOVER RATIO AND SALES

13
FACTORS OF INCREASE IN PROFIT DURING 2005-06

14-15

RELATIONSHIP BETWEEN NET PROFIT OR LOSS

AND CAPACITY UTILIZATION

CHAPTER: 4 FINDINGS, IMPLICATION AND CONCLUSION, REFERENCE

[[
16
FINDINGS
IMPLICATION AND CONCLUSION 17
17
REFERENCE
APPENDIX
EXECUTIVE SUMMERY

This report is an assigned job as partial fulfillment of course

requirement by honorable course teacher M. TAKIBUR RAHMAN, Lecturer,
department of Accounting and Information System, faculty of
Business Administration and Management, Patuakhali Science and
Technology University, Dumki, Patuakhali. The view of this report is
to find out Capacity Utilization in the Industry basically in FU-WANG
Foods & Beverage Ltd.

FU-WANG Foods & Beverage Ltd. now makes a great position in the
food and beverage industry sector. For this reason to earn adequate
profit and compete extremely well with the other private
organizations, FU-WANG Foods & Beverage Ltd. needs to calculate
their capacity utilization in order to insure their business effectively
and efficiently.
 CHAPTER: 1 INTRODUCTION
ABSTRACT

There are ever-increasing demands for consumer good in

Bangladesh, but their production at reasonable costs is always a
problem. An optimum utilization of capacities of the industrial units
by production of goods at minimum cost is essential for their
survival and growth. Capacity utilization-meaning using the plant capacities for
production- has an impact upon the cost of the product. This cost comes through the
absorption of fixed cost, i.e. fixed factory and administration overheads. If the total
fixed cost is distributed upon the maximum attainable capacities, the fixed cost per
unit become maximum. Therefore an increased rate of capacity utilization lessens cost
of production. This relieves the consumers the consumers from the burden of high cost
of production at least to some extent. An understanding of the causes and impact of
under-utilization of capacity may, in such a situation; help to identify measures that
can be taken to avoid the possible operating losses or correct any inefficiency that
may be creped into the operation. The present study is limited to one industrial
enterprise of the food industry in Bangladesh. FU-WANG FOOD LTD, the largest
producer of food products in the country, was taken as the sample of study. In this
connection it may be relevant to examine how far the sample enterprise is important
in the context of the industry as a whole. At year 2005-06 their net production was
292,626,507 Taka, which was quite significant food production for our country
demand. Therefore the capacity utilization of this enterprise would affect the cost of
products and hence the prize and availability of food products in our country.

Key words: capacity utilization, optimum utilization, operating cost, under utilization
of capacity.
THE OBJECTIVE OF THE STUDY

The purpose of the study was to measure the extent of capacity utilization in the
selected enterprise over a period of (2005-06), to compare them and to measure the
effect if utilization to the related variables. The objectives were specified as follows:

a) To measure the extent of capacity utilization based on installed capacity, and

budgeted capacity,
b) To identify the causes of underutilization of capacity, if any and
c) To measure the effect of utilization of capacity on cost of production, sales and
profit or loss.

LIMITATION OF THE STUDY

It was not so easy to us prepare such type of report as the following reasons was
existed.

This report is based on capacity utilization. We don’t have sufficient

knowledge about capacity utilization.

This is a calculative and analysis based report. So it needs sufficient time. But
we do not have surplus time to make such kind of analytical and calculative
report.

As the FU-WANG Foods & Beverage Ltd. is a private organization, the

authority try to keep some information confidential. As a result we were not
capable to collect the total expected information from them.

Although we face some limitation, we were trying our best to overcome these
complexities and provide information as far as possible.

CONCEPTS AND METHODOLOGY

The capacity concept has played an important role in the analysis of economic and
operating performance. The term ‘capacity’ has been subjected to alternative
definitions of various natures. This has led to many subjected to alternative definition
since what is technically possible may not be economically desirable. The differences
in definition among economists are economically disabled. The differences in
differences in definition among economists are also significant. These differences are
attributable

(a) To the differences in economic issues under consideration and

(b) To the limitations of measurement procedures.

In this study ‘capacity’ concept has been conceived of two senses. First, the installed
capacity is the maximum outflow id goods that can be achieved from the installed
plant stock in a given period. Second, the budgeted capacity is the desirable maximum
outflow of goods that can be produced with existing supply of men, material and
money, which the management of the enterprise plans for the coming period. The
latter, however, is the economically desirable part of the former. The degree of
capacity utilization is defined here as the ratio of actual production to

(a) Installed capacity and

(b) Budgeted capacity as defined earlier.

The study is based on the financial statements data of FU-WANG FOOD LTD for the
period 2005-06, covering various aspects of operating performance. Data of earlier
periods were also used for studying the relationship between the rate of capacity
utilization and the cost of production. Data were collected from annual reports and
personal interview at the selected enterprise.

CHAPTER: 2
CAPACITY UTILIZATION
Capacity utilization is a concept in economics which refers to the extent to which an
enterprise or a nation actually uses its installed productive capacity. Thus, it refers to
the relationship between actual output that 'is' produced with the installed equipment
and the potential output which 'could' be produced with it, if capacity was fully used.

Capacity Utilization measures the rate at which a firm makes use of their capital
productive capacities, such as factories and machinery. Capacity Utilization generally
rises when the economy is healthy and falls when demand softens. As such, it is useful
as an economic trend indicator, reflecting overall growth and demand. High rates of
Capacity Utilization generally exert inflationary pressures owing to scarce resources
facing high levels of demand. However, it may also lead to new capital investments
(i.e. new factories or plants) which promote future growth.

PRODUCTIVE CAPACITY
Productive capacity is a term used to define maximum possible output of an economy.
The productive resources, entrepreneurial capabilities and production linkages which
together determine the capacity of a country to produce goods and services." The term
‘productive capacity’ is also used in binary economics to mean income-generating
capacity be it of a factory, land, patent or the labor skills of an individual.

ABOUT FU-WANG FOODS AND BEVERAGE LTD.

FU-WANG FOODS AND BEVERAGE LTD was established 17 February, 1997 with
authorized capital Tk. 500 million and paid up capital Tk. 184 million; as a food
production industry. In the starting period its number of employee was 762, and
started production commercially on August 1997. FU-WANG FOOD LTD has got
ISO certificate on 04 November 1998. It has been listed in Dhaka and Chittagong
stock exchange on July 2000.

The factory is equipped with gas converted boiler, water treatment plant and Research
and development centre. The company has further scope of improvement in its
production operation field as well as in the field of cost control in line with more
modern and sophisticated plants.

The Fu-Wang produces various kinds of food products, i.e. Lemon cake, Crown
biscuit, Fu-Wang chips, Family cake, ABC biscuit, popular toast, Queen Cake etc.
The management of the company budgets its annual production in accordance with the
corporations directives. In fixing its budgeting production the management takes into
account the targets fixed by the Corporation, past trends and the existing facilities
available with the unit.
FINDINGS OF EARLIER STUDIES
Year 2005-06 is the year in which Fu-Wang food ltd has performed better than the last
year. Turnover for the year is Tk. 37.54 crore at against Tk. 34.12 crore of 2004-05.
There is thus an increase in turnover by 10.02% over the last financial year. As we
mentioned last year, gradual increase in turnover over the years is the result of our
endeavor to ensure quality products with constant market monitoring. Increase of
turnover does not always fetch proportionate increase in the volume of profit
particularly when there runs inflationary situation in the country. Even than it is good
to have more turnover to maintain profitability trend. The present trend of sales, if
continued, will ensure better financial result during financial year 2006-07. The
directors are striving hard to maintain this trend for brighter operational results in the
years to come.

FU-WANG FOODS AND BEVERAGE LIMITED

FU-WANG Group, since their beginning, always they have been trying to maintain
the best quality standard of products. They produce a comprehensive range of Foods,
Beverage & Ceramic Tiles with high quality & standard. They constantly innovate by
frequently introducing new foods and beverage creations. Their ceramics tiles are
designed to give luxurious and comfortable glance.

Their mission continuously innovates to increase customer satisfaction by offering

high quality taste and standard products.

Company Profile:
Basic Information

Company Name : FU-WANG Foods & Beverage Ltd.

Date of Incorporation: : 17 February 1997

Listed in Dhaka Stock Exchange : Director

Listed in Chittagong Stock

: July 2000
Exchange

Commercial Production : August 1997

ISO Certification : ISO-9002 Certified on 04 November 1998

Business line : Food & Beverage Processing Industry

Authorized Capital : TK. 500 Million

Paid-up Capital : TK. 184 Million

Number of Employees : 762

Owner : HSU HSUEH SHU/ ARIF AHMED CHY.

Trade & Market

Main Markets : Southeast Asia
Mid East
Eastern Asia
Factory Information
Factory Size : 50,000-100,000 square meters
Factory Location : Gazipur Bangladesh
Management Certification : ISO 9000/9001/9004/19011: 2000
Contract Manufacturing : Design Service Offered Buyer Label Offered

Factories:
1. 412 Tejgaon-Gulshan link Road, Tejgaon I/A, Dhaka.
2. Borkan Monipur, Hotapara, Gazi Sadar, Gazipur
3. 348 Gulbagh, Brparipara, Agrabad C/A, Chitagong.
New product

FU-WANG Foods & Beverage existing products

Mini-Bread Tiffin-Bread
Chinese-Bread Family-Bread

Fu-Wang Fu-Wang Orange

Fu-Wang Diasalt Vanilla pie Milkmarie Biscuit Biscuit
Biscuit

And so on.

CHAPTER: 3 DISCUSSION AND CALCULATION OF CAPACITY

UTILIZATION
The achievement of production target in the food industry is not
only the function of machines. The materials have also a great role
to play in food production. Food of Fu-Wang are mainly produced from the Raw
materials, those are Milk, Wheat, various fruits and vegetables, oil, butter, Ghee etc.
They collect those materials from various foreign and home sources.

PRODUCTION AND THE DEGREE OF CAPACITY UTILIZATION

In the following table the degree of capacity utilization has been found out as-

a) Percentage of installed capacity

b) Percentage of Budgeted capacity in the year 2005-06

Table-1

Production and the degree of Capacity Utilization

Years Installed Budgeted Actual Degree of capacity utilization

Capacity production
(in MT) On installed On budgeted
(in MT) (in MT) capacity capacity

(In %) (In %)
1998-99 900 1000 750 83.33 75.00
1999-00 950 1000 800 84.21 80.00
2000-01 950 1100 900 94.74 81.82
2001-02 1000 1100 900 90.00 81.82
2002-03 1050 1100 1000 95.24 90.91
2003-04 1050 1200 1000 95.24 83.33
2004-05 1100 1200 1050 95.45 87.50
2005-06 1180 1250 1100 93.22 88.00
Average 1023 1119 938 91.69 83.82

Chart 1: Production and the degree of Capacity Utilization

It is seen from the above table that FU-WANG has operated as an average on installed
capacities and on budgeted capacities is 95.24% and 87.50% during 2004-05 it has
been changed at 93.22% and 88.00% during 2005-06 respectively. It is specially seen
that capacity utilization has been improving year by year and these 8 year’s actual
production occurred nearly with budgeted production.

Annual production target is broken down into monthly production target. If the target
is not reached in any month for any reason, attempt is made to fulfill the short fall in
the following month or months. There is a relation between the achievement of targets
and the payment of incentives bonus to the employee of the company. The present rate
of incentive bonus is one month’s pay for the achievement of target or budget
production. If the production exceed the target a further bonus equal to three days’ pay
is paid for production exceeding the target by 1%- 10%. This incentive bonus system
creates a great enthusiasm among the company staff and officers to reach and even to
exceed the targets. The linking of incentive bonus to production has contributed much
to the improvement of capacity utilization in recent years. It is to be seen from the
above table that the degree of capacity utilization on budgeted production has
exceeded the target in recent years. It is interesting to note that in 2005-06 the
installed capacity utilization on actual capacity was 93.22% and budgeted capacity
utilization on actual capacity was 88.00%. All this were due, as gathered, to the
application and acceptance of incentive bonus system for achievement of production
target.

RELATIONSHIP BETWEEN UNITS FIXED COST AND CAPACITY UTILIZATION

This presents a justification for the continuance of this incentives system. The FU-
WANG does not maintain idle capacity as a policy in order to restrict over supply in
the market. It is not necessary since FU-WANG products are in high demand in the
market and it enjoys customer’s trust despite the availability of imported food
materials. The reason were-

a) Temporary shortage of food materials supply.

b) Frequent power failure despite our country’s power supply capacity.

Capacity utilization has a direct relationship with the cost of production specially the
fixed cost per unit or per ton of production. The degrees of capacity utilization on
installed capacity and on budgeted capacity have a high negative correlation with the
fixed cost per ton food manufactured. This will be clear from table -2 showing the
relationship between units’ fixed cost and capacity utilization for the years 1998-99
through 2005-06 (8 years) and the values of coefficient correlation (r) calculated from
these variables.
 Table – 2

Relationship between units fixed cost and Capacity Utilization

(1998-99 to 2005-06)
Year 1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- Value Result
99 00 01 02 03 04 05 06 of ‘r’ of ‘T’
1 test

Fixed cost 146.46 145.26 151.44 156.55 158.56 161.25 166.64 182.84
per ton
2 (Tk)

Capacity
utilization:

a. On 83.33 84.21 94.74 90.00 95.24 95.24 95.45 93.22 0.60 Insign
install ificant
3 ed
capaci
ty (%)

b. On 75.00 80.00 81.82 81.82 90.91 83.33 87.50 88.00 0.70 insign
budget ificant
ed
capaci
ty (%)

Correlation ‘r’ = nxy-xynx2-x2ny2-y2 , T test = r1-r2×n-2

Chart 2: Relationship between units fixed cost and Capacity Utilization

In the above table we find that a moderately positive correlation was found between
the fixed cost per ton and the capacity utilization on installed capacity. The value of
‘r’ found 0.60 and it is not significant at 5% level of significance for (n-2) degree of
freedom.

It also found that moderately positive correlation between the fixed costs per ton and
the capacity utilization on budgeted capacity. The value of ‘r’ found 0.70 and it is
insignificant at 5% level of significance for (n-2) degree of freedom.

The fixed cost being an important element of the cost of production varies negatively
with the change of the volume of production. If the volume decreases, the fixed cost
per ton increases and vice -versa. The variable cost (direct materials) is positively
related with the volume of production. If production decreases, material costs will also
decrease and vice-versa. Therefore it is the fixed cost alone that affects the cost of
production per ton of the products. A higher degree of capacity utilization will
proportionately decrease the fixed cost burden per ton of the product and consequently
the cost of production.

RELATIONSHIP OF CAPACITY UTILIZATION WITH ASSETS TURNOVER RATIO AND SALES

Capacity utilization is also directly related with the assets turnover which measures
how efficiently the assets (specially the fixed assets) are utilized for production. The
improvement of capacity utilization is also expected to have a favorable effect upon
the sales of enterprise. Because if there is no hindrance on sales, what is produced to
expected to be sold out keeping the volume inventory normal. But such an ideal
situation might not occur specially in a free market economy. Sales may be affected
by the import policy, presence of competitor’s quality of product, delay in the
observance of sales formalities, etc. Table- 3 below shows the relationship of capacity
utilization with assets turnover and sales volume.
Table- 3
Relationship of capacity utilization with Assets Turnover ratio and Sales
(1998-99 to 2005-06)
Year Capacity Sales in Tk Total assets Sales volume Assets
utilization in % in Tk as % turnover ratio
(on install (over previous
capacity) year’s sales)
1998- 83.33 292645234 282453401 …….. 1.04
99
1999- 84.21 296754679 293085312 101.40 1.01
00
2000- 94.74 299525706 305624865 100.93 0.98
01
2001- 90.00 302528575 312356890 101.00 0.97
02
2002- 95.24 318610890 316309585 105.31 1.01
03
2003- 95.24 325379057 324302540 102.12 1.00
04
2004- 95.45 341231526 333514778 104.87 1.02
05
2005- 93.22 375354679 381656927 110.00 0.98
06
Value 0.664
of ‘r’:
2&5
Value 0.276
of ‘r’:
2&6
Result Not significant Not significant
of ‘T’
test
Assets turnover ratio = sales total assets , Correlation ‘r’ = nxy-xynx2-
x2ny2-y2 ,

T test = r1-r2×n-2

The result shows that capacity utilization and sales are positively correlated. The value
of ‘r’ was .664 and also found not significant at 5% level of significance for (n-2)
degree of freedom. That implies that increase in capacity utilization resultantly tends
to increase in sales but up to a certain limit.

And the result shows that capacity utilization and assets are positively correlated. The
value of ‘r’ was 0.276 and also found not significant at 5% level of significance for (n-
2) degree of freedom.

FACTORS OF INCREASE IN PROFIT DURING 2005-06

If other cost factors remain unchanged decrease in production cost normally results in
increase in net profit of an undertaking. But in the inflationary situation of Bangladesh
economy, increase in the price of imported materials and spares, wage rates of labors
and employees financial cost (interest) on accumulated and over due loans etc. easily
inter into the cost of production and ultimately to net profit or loss of the undertaking.
Hence, a food production analysis can not be made of the degree of capacity
utilization alone on net profit or loss, unless the other cost factors are mentioned
earlier are separately. An analysis of increase of Tk. 11.66 lakhs of net profit during
2005-06 over that 2004-05 revels the following factors.
 Table- 4
Factors of increase in profit during 2005-06
Serial Cost / income factors Calculation Gain Loss

Tk. (in lakh) Tk. (in lakh) Tk. (in lakh)

i) Sales 341.23
ii) Cost of goods sold (275.77)
iii Gross profit 65.46
)
iv Operating expenses (46.7)
)
v) Operating profit 18.78
Contribution to welfare (2.14)
fund
Net profit before tax 16.64
Probation for income tax (4.98)
Net increase in profit 11.66
after tax during 2005-06

It has been noticed by the FU-WANG that there has been a net profit after tax is 11.66
lakhs during 2005-06. Actual production in this year was 1100 MT against budgeted
1250 MT. From 2004-05 the actual production increased in 50 MT. this results higher
sales in 2005-06 than 2004-05. And consequently has created more contribution to net
profit after tax.

RELATIONSHIP BETWEEN NET PROFIT OR LOSS AND CAPACITY UTILIZATION

That to what extend the capacity utilization is related with the net profit of the
undertaking has been tested by finding out the coefficient correlation of the two
variables by taking data 1998-99 to 2005-06. The results have been shown in the
following table -5.

Table- 5

Relationship between net profit or loss and Capacity Utilization

1 Year 1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- Value Result of ‘T’
99 00 01 02 03 04 05 06 of ‘r’ test

2 Pre tax 367.05 368.95 369.68 372.15 372.80 374.10 376.79 393.34
profit (in
lakh Tk.)

3 Capacity
utilizatio
n:

a. On 83.33 84.21 94.74 90.00 95.24 95.24 95.45 93.22 0.96 Significant
installed
capacity
(%)

b. On 75.00 80.00 81.82 81.82 90.91 83.33 87.50 88.00 0.60 Insignificant
budgeted
capacity
(%)

Correlation ‘r’ = nxy-xynx2-x2ny2-y2 , T test = r1-r2×n-2

Chart 3: Relationship between net profit or loss and Capacity Utilization

The result indicates that the net profit and the capacity utilization on install capacity
were highly positively correlated during the 8 years period shown above. This implies
that increase in capacity utilization rate has a favorable effect on the net profit of the
undertaking. The result of ‘r’ between the net profit (pre tax) and on the installed
capacity utilization rate was found to be 0.96 and also found significant at 5% level of
significance for (n-2) degree of freedom.

And for the budgeted capacity utilization and the net profit are positively correlated.
This implies that increase in capacity utilization rate has also a favorable effect on the
net profit of the undertaking. The result of ‘r’ between the net profit (pre tax) and on
the budgeted capacity utilization rate was found to be 0.60 and found significant at 5%
level of significance for (n-2) degree of freedom.
 CHAPTER: 4 FINDINGS, IMPLICATION AND CONCLUSION, REFERENCE
FINDINGS

1. FU-Wang has been increasing their budgeted capacity during

the 8 years.
2. They also improved their actual production capacity year to year. Here we see
that their actual production was only 750 MT in year 1998-99, which was
increased in 1100MT in year 2005-06. This shows that their production
capacity is increasing.
3. They are nearly produced their budgeted production.
4. Relationship between the fixed cost and capacity utilization is positively
correlated. But it shows insignificant at 5% level of significance for the (n-2)
degree of freedom.
5. Relationship between fixed cost and the installed capacity utilization is positive
and the value of ‘r’ is 0.60.
6. Relationship between the fixed cost and the budgeted capacity utilization is
positive and the value of ‘r’ is 0.70.
7. Capacity utilization has a positive correlation with the total assets turnover
ratio. The value of ‘r’ is 0.276 but it is not found significant at the 5% level of
significance for (n-2) degree of freedom.
8. The sales volume has also a highly positive correlation with the capacity
utilization. The value of ‘r’ is 0.664.
9. There is highly positive correlation between the net profit and the capacity
utilization on installed capacity. And it is found significant at the 5% level of
significance and the value of ‘r’ is 0.96.
10. There is positive correlation between the capacity utilization on budgeted
capacity and the net profit but it is found insignificant at 5% level of
significance. The value of ‘r’ is 0.60.
IMPLICATION AND CONCLUSION

The study was based on a single sample of FU-WANG Foods and Beverage Ltd. The
capacity utilization on budgeted capacity shows that from 1998-99 on wards the actual
production has close to the production targets. There appeared to have some relation
of the use of incentive bonus system with the achievement of production targets. It has
been proved that the capacity utilization and the cost of production are positively
correlated.

Since fixed cost is important element of cost of production the underutilization of

capacity increases the cost of production through the absorption of install or budgeted
fixed cost. Therefore, if the full capacity utilization was possible the cost of
production could have been lessened to the extend of unabsorbed fixed cost in
production. It has been found that capacity utilization and assets turnover ratio
positively correlated. But the significance level is insignificant.

REFERENCE

1. FU-WANG Foods and Beverage ltd. Annual report 2005-06.

2. Gupta S P & Gupta N P; Business Statistics; 3rd edition, Prentice hall of
India private limited.
3. Besly Scott & Brigham F. Eugene; Essentials of Managerial Finance;
13th edition; Thomson South Western.
APPENDIX

Daily / Weekly Cost of Quality Summary

LOCATION: _____________________________
DATE: _____________________________

MON TUES WED THUR FRI SAT WKLY TOTALS

A TOTAL WORK DAYS

B VACATION / ABSENT
HOURS

C TOTAL HOURS
WORKED

D TONS PROCESSED

E TONS PER HOUR

D C

F HOURS PER TON

C D

G VARIABLE HOURS

(WORST MINUS
BEST)

H % CAPACITY
UTILIZATION

(BEST F X BEST D)
C

I % YIELD

J % COIL UTILIZED
(THROUGH PUT)
K % COIL BACK TO
STOCK

L % SCRAP

M EARNED HOURS

N ACTUAL HOURS

O AVAILABLE HOURS

P ORDERS COMPLETED

Q TOTAL ORDERS
SCHEDULED

R % ATTAINMENT

P Q

S % PRODUCTIVITY

M O

T % EFFICIENCY

M N

U % UTILIZATION

N O

V REJECTION HOURS

W SAFETY LOST TIME

HOURS

HOURS

X FREIGHT COSTS PER

SHIPMENT

Y DOWNTIME HOURS

Z BACKLOG TONS

AA % ON-TIME
SHIPMENTS
 Monthly / Quarterly Cost of Quality Summary

LOCATION: _____________________________
DATE: _____________________________

WEEK 1 WEEK 2 WEEK 3 WEEK 4 TOTALS

A TOTAL WORK DAYS

B VACATION / ABSENT
HOURS

C TOTAL HOURS
WORKED

D TONS PROCESSED

E TONS PER HOUR

D C

F HOURS PER TON

C D

G VARIABLE HOURS

(WORST MINUS
BEST)

H % CAPACITY
UTILIZATION

(BEST F X BEST D)
C

I % YIELD

J % COIL UTILIZED
(THROUGH PUT)

K % COIL BACK TO
STOCK

L % SCRAP

M EARNED HOURS
N ACTUAL HOURS

O AVAILABLE HOURS

P ORDERS COMPLETED

Q TOTAL ORDERS
SCHEDULED

R % ATTAINMENT

P Q

S % PRODUCTIVITY

M O

T % EFFICIENCY

M N

U % UTILIZATION

N O

V REJECTION HOURS

W SAFETY LOST TIME

HOURS

HOURS

X FREIGHT COSTS PER

SHIPMENT

Y DOWNTIME HOURS

Z BACKLOG TONS

AA % ON-TIME
SHIPMENTS
 DOWNTIME REPORT

ASSOCIATE __________________________________________________

SHIFT __________________________________________________ DATE _________________________________

CO DOWNTIME REASON 7:00 8:00 9:00 10:00 11:00 1:00 2:00 2:00 TOTALS
DE 8:00 9:00 10:00 11:00 12:00 3:00

A WORK ORDERS

B RAW MATERIAL

C CRANE

D RAW MATERIAL

APPROVAL

E BACK END

F MAINTENANCE

G MACHINE DOWN

H UNCOATED
REPLACEMENT

I TENSION
REPLACEMENT

J GAGE REPLACEMENT

K COATING
REPLACEMENT

L SECONDARY
REPLACEMENT

M SCRAP PROBLEMS

N PACKING LINE
BACKUP

O COILS NOT PULLED

AND STAGED

P OPERATOR
MACHINE
 ADJUSTMENT

Q DAMAGED
MATERIAL

R DIFFICULT JOB

S TRAINING

T SAFETY MEETING

U MISCELLANEOUS

TOTAL HOURS