# Memo

Calculating Good Production
If 2% of production is lost the good production will be 98% of actual production required.
Therefore take the good production required at 21,560 units and divided by 98 then multiply by 100
21,560
98         X   100   = 22,000 units (total production)
To complete simply insert the balancing figure of 440 units of scrapped production
88,000 hours would be required if labour worked at its normal efficiency level.
However with a 12% loss of efficiency labour will work at 88% of its normal rate.

Therefore to find the actual hours required divided by 88 and multiply by 100.
As the actual hours required are 100,00 against the normal working requirement of 88,000 hours the hours lost as a result of lost efficiency is 12,000 hours
Capacity
Capacity for our purposes is the maximum amount of product a business can produce.
For example:
Given the size of our factory, and cash funds available we have the capacity to produce 100,000 units.
Activity
Example 1
* However – because of a lack of sales activity we can only sell 80,000 units. There would be little point in producing more than could actually be sold, then in this case the business would be working at 80% of capacity.
* Example 2
* It could be possible to sell 80,000 units but because of staff shortages, we can only produce 70,000 units – in this case we would be working at 70% capacity
* Efficiency
* Efficiency is a measure of how effective a business uses its resources.
* In order to measure efficiency, we need to compare what has actually happened against an acceptable Benchmark. Such benchmarks are technically referred to in business as Standards.