Certain elements of business show that to achieve high profitability a better and diverse product mix will result in more capacity utilization. Therefore capacity utilization has a direct relation to profitability and product mix. This is because if capacity is fully utilized will the profit be reaching to the maximum as fixed costs will remain the same.
However if the profit is to be further increased it is necessary to enhance the capacity as a result more capacity would need to be used to first cover the fixed costs of the new capacity installed. Similarly in one machine, a number of products can be made; therefore not all products will be made to the fullest as one product or the other production will be scarified. What companies try to achieve is the right product mix so that optimal profitability is achieved and therefore make the business more versatile.
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Though it is the decision of the person in charge to decide either to fully utilize the capacity using the most profitable product or make a number of products to focus on product diversity rather than on profitability. (Source: Reliance Industries Limited, High Density Polyethylene Pipes Beyond Water Supply)References 1. Ms Poorvi C. Desai – Polymers, Reliance Industries Limited, High Density Polyethylene Pipes Beyond Water Supply. Retrieved on October 5, 2008, from http://www. polymerupdate. com/poorvidesai/pdf/HDPE_Pipes. pdf
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