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Theoretical framework of the model can be either cost theory or production theory. In a model based on the production theory, the volume of activity is measured by input volume. In a model based on the cost theory, the volume of activity is measured by output volume. Accounting technique, i.e. how measurement results are produced, can differ.
Capacity planning is the process of determining the production capacity needed by an organization to meet changing demands for its products. [1] In the context of capacity planning, design capacity is the maximum amount of work that an organization or individual is capable of completing in a given period.
In the productivity model the input volume is used as a production volume measure giving the growth rate 1.063. In this case productivity is defined as follows: output volume per one unit of input volume. In the growth accounting model the output volume is used as a production volume measure giving the growth rate 1.078.
In production this brings about an increased ability to pay salaries, taxes and profits. The growth of production and improved productivity generate additional income for the producing community. Similarly, the high income level achieved in the community is a result of the high volume of production and its good performance.
Production planning is the future of production. It can help in efficient manufacturing or setting up of a production site by facilitating required needs. [2] A production plan is made periodically for a specific time period, called the planning horizon. It can comprise the following activities:
The cost-volume-profit analysis is the systematic examination of the relationship between selling prices, sales, production volumes, costs, expenses and profits. This analysis provides very useful information for decision-making in the management of a company.
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