What is Ideal Capacity?

Ideal capacity is the maximum output that a manufacturing facility can produce, assuming no downtime and no waste. It is nearly impossible to attain the ideal capacity figure, since it involves 24x7 production with no maintenance downtime, no employee breaks, no damaged equipment, and no reworked goods. The concept can be used in budgeting for the output of a production facility but is not recommended, since the actual output will certainly be lower, generating an unfavorable variance.

Despite its theoretical nature, there are a few areas in which the ideal capacity concept can be useful. They are as follows:

When searching for efficiencies. You can compare actual capacity levels to the theoretical capacity level throughout your operations to find those areas operating the furthest below their theoretical capacity levels. This can be useful for spotting those areas in which it is most likely that more efficiencies can be produced.
When managing the bottleneck. The bottleneck operation drives the throughput of a business, and so is the central profit driver. Given its importance, it should be operated as close to the ideal capacity level as possible. Consequently, this is a good area in which to have a firm understanding of the highest possible capacity level that can be attained.