Will A Decrease In Capacity Utilization Affect Unit Cost?

Utilization determines the degrees, to which resources utilized, which resources are absolute states (aircraft utilization in average hours per day or per year) or a little bit, of what is possible (floor space of cabin utilization is a fraction seat factor). Capacity utilization of airlines declared in relative to aircraft seats. If the fleet utilization rises then the output increased.  

Aircraft capacity utilization affects the unit cost heavily. For this reason, increase the capacity utilization and allows yield to creating the balanced increase in predetermined costs (they are labor cost, annual depreciation and insurance charges). In addition, capacity utilization increased in reducing wastage’s  does not control cost and low average cost per unit. After, objective of the increased capacity utilization is that takes with it a small number of famous complications.

On other hand, fixed costs (such as insurance charges and annual depreciation) not affect by the decreased capacity utilization. Moreover, increase the unit costs per unit. Lesser utilization rate interprets to increased cost for every unit (Holloway). Now it becomes slight change in aircraft capacity utilization and it will found the effect the unit cost. In addition, unit costs will increase in the decreased capacity utilization. Therefore, the utilized capacity will disburse (pay) the unutilized capacity. 

In the above diagram, U-shaped long –run and short-run average cost curves explained. The short-run output pointed as Ym and Ym1. In addition, other similar long-run output pointed as Yt and Yt1.  The two prospective outputs join at the y1 level.  If the scale in increasing then y1< ym .otherwise the scale in decreasing yt1>ym1.

Evaluate the similar consequences for an increased capacity utilization operation (seating occupancy).

          Increased capacity utilization is consequences in some complications for an aircraft.

          Firstly, the capacity allows exact fixed costs and that is not differ with the yield. Creation of fixed cost for each unit of the result is high when the yield is little relative to present capacity.  For this reason, if current capacity varies then output increases, predetermined capacity costs are spreads across the bigger output and it will be defines in unit basis. 

The increase incapacity of utilization of an aircraft is due to even though there will reduction of wastage still there is no declination of cost .This is  because there is no control on price. The production process with precised ability will have a certain level of rigid costs which is characteristic to the resource, and  used to form and maintain it. By observing this here it can notice that increase in the production due to below prearranged capacity doesn’t manage the resources.

It can  only helped to reduce wastage. Here it derive that, when there is increase in utilization of capacity there will decrease in average costs, this might permit lower prices. In detail,if  demand is high then  it endorse lower prices sales so that  there will be increase in operating costs. This is much obscured task for the accountants of airlines that are the deliberation of revenue creation is connect to further issues of product quotation and pricing. 

When there is increase in capacity utilization then air craft will decide whether incremental production creates a profit to them and also decide operation is direct with the issue of what entailed the profitability. Here accountant will check for the profits after separating all the expenditure cost, which was spent for the production of product. It includes all variable costs as well as fixed costs. Here accountant should take good decision for allocation of cost to crosswise products and for markets etc and he should also decide about scheduling. The other problem is when we produce the additional products .then they will checks whether it covers all the fixed and variable costs.

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