Plant Utilization Budget

Plant utilization budget means the budget which estimate the requirement of machines or other equipment each product in each cost center. When we know that in A cost center, we need 25 machines for producing m and n product, we will install 25 machines in cost center A. If we do not estimate these numbers, it may be possible that we can install more or less machines in cost center A. With this, we can use our machines effectively. In other words, it will be the misuse of our total plant capacity. Suppose, we have total 100 machines, if we keep 75 machines in A cost center without any correct estimation of the need of A cost center, 50 machines will be free. All these machines are not producing anything. But using repair charges, depreciation, holding charges and other maintenance cost. Other side, we need more machines in other cost center, due to not availability, our production will delay due to this, our sales will decrease. So, plant utilization budget is important.

How to Calculate Plant Utilization Budget? 

Following is the simple formula for calculating the estimated number of machines per cost center.

= (No. of units in a product X No. of hours for producing one unit ) / to hours available per machine 

We have just 2500 hours per machine (estimated) for production.

Production	Units	Cost Center
		A			B
		hours per unit	Total machines hours	No. of machines required	hours per unit	Total machines hours	No. of machines required
M	5000	30	150000	60	70	350000	140
N	2500	200	500000	200	100	250000	100
O	2000	30	6000	24	20	40000	16