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.