Manufacturing operations must pay out large sums of money for various types of expenses, including real estate, labor and energy. They must maximize their profits by maximizing the amount of production they can gain from these expenses. When their manufacturing equipment is in "downtime" — meaning that it's not manufacturing anything — they lose money. One important step in maximizing profits for a manufacturing business is calculating the amount of money the business loses when its machines aren't running.
Things You Will Need
Actual operating time report
Planned production schedule
Total production figures
Gross profit per unit
Consult your report of the actual operating time for the given production equipment. Sum up the total amount of time for which your equipment was in operation and manufacturing the product within the given time frame.
Sum up the planned operating time for the given production equipment within the given period. For instance, if you want to calculate downtime losses for the month of May and you were operating for 20 days in May for eight hours per day, multiply 20 by 8 to get 160.
Subtract the actual operating time for this period from the planned operating time to get the total amount of downtime.
Divide the total number of units produced by the actual operating time to get the average production rate for your equipment.
Multiply the total downtime by your average production rate to find the total number of units you failed to produce during planned production hours.
Multiply the total number of units you failed to produce by your gross profit per unit. This equals your total downtime losses for the period according to average production rate.
