ability to produce during a given time period, with an upper limit imposed by the availability of space, machinery, labor, materials, or capital. Capacity may be expressed in units, weights, size, dollars, man-hours, labor cost, etc. Typically, there are five different  concepts of capacity.

(1) IDEAL CAPACITYvolume of activity that could be attained under ideal operating conditions, with minimum allowance for inefficiency. It is the largest volume of output possible. Also called theoretical capacity, engineered capacity, or maximum capacity.

(2) PRACTICAL CAPACITYhighest activity level at which the factory can operate with an acceptable degree of efficiency, taking into consideration unavoidable losses of productive time (i.e., vacations, holidays, repairs to equipment). Also called maximum practical capacity.

(3) Normal capacityaverage level of operating activity that is sufficient to fill the demand for the company's products or services for a span of several years, taking into consideration seasonal and cyclical demands and increasing or decreasing trends in demand.

(4) Expected actual capacitysimilar to normal capacity, except it is a short-run level based on demand, it minimizes under- or overapplied overhead but does not provide a consistent basis for assigning over-head cost. Per-unit overhead will fluctuate because of short-term changes in the expected level of output. Also called planned capacity.

(5) Operating capacitysimilar to planned capacity except the time period is within a small slice of a single year i.e., daily, monthly, quarterly).