Capacity Cost

Capacity Cost is the amount of funds or expenses that a company uses or needs to increase the efficiency. This category of expenses remains stable during the activity of the company, even though the volume of production can change – increase or decline.

These expenses are supposed to initiate expansion and increase activities (purchase new equipment, rent machinery or new apartment for business or other activity).

Examples of capacity costs:

Property taxes, depreciation on equipment, insurance, rent payments, etc.

Main features of capacity costs:

  • Fixed in nature even when the level of output varies;
  • Help company with expansion, establishments, increase of activities.

If you’d like to expand your business operations, you will need to deal with capacity costs.

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