INTERDEPENDENCY BETWEEN UTILISATION LEVEL OF PRODUCTION CAPACITIES AND ACTUAL PROFIT OF A COMPANY

Marko Šarčević

doi:10.7251/OIK1301001S

Authors

Marko Šarčević University of East Sarajevo, Faculty of Economics East Sarajevo-Pale

DOI:

https://doi.org/10.7251/OIK1301001S

Keywords:

costs, fixed costs, capacities, utilization level of capacities, profit, cost price, selling price

Abstract

High level of interdependency between the utilization level of production capacities and the actual profit of a company lies in the existence of fixed costs conditioned by the production capacities and their behaviour both in absolute amount and per unit of a product. If the capacity is utilised in the projected volume and if the market, at the same time, accepts the production achieved, made affordable to the consumers, then the company will accomplish a positive financial result and income. Otherwise, if the capacity is not utilised sufficiently, the fixed cost shall encumber the price, resulting in the company’s inability to offer a competitive selling price, which will lead to further reductions in utilization of capacities, thus leading the company into disaster.

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