Load Factor

and finance Allah shmoop What is a load factor All

right people You know those wide load trailer's right know

and not the NFL linemen These wide loads they're just

like normal trucks on ly wider like maybe twenty percent

thirty percent wider If you're moving this fine two bedroom

with a den from here to here well you'd better

figure in plenty of room for the extra with it'LL

take during the mountain pass turns Okay well that's sort

of how load factors factor into proper cost allocations in

a company you have to add in the load will

load Factors generally measure how much a given system can

handle like it's used a lot in airlines The load

factor measures how full airplanes are when they fly Like

if you have three hundred seats on a plane and

it flies with two hundred passengers Welcome Your load factor

is about sixty six point seven percent That's two hundred

divided by three hundred The term also gets used in

energy output Like the load factor measures How much energy

is getting used now compared to the maximum output possible

Well the key factor in both these common examples how

much are we using Our resource is that's key question

Can we get Mohr out of what we have Okay

you have this airplane you flight with a hundred empty

seats The fuel costs the cost for the pilots the

flight attendants the peanuts the thin foam pillows They're all

essentially the same with two hundred passengers as they are

with three hundred So whatever you can do to get

a plane full well that's probably worth it Cut prices

have ticket raffles for publicity whatever it takes Or you

own the grill factory not a barbecue joint A dental

office Yeah these bad boys you've purchased five Ortho bought

five thousand units the latest in robot dental implant technology

They fully replaced those pesky human orthodontist You had to

pay two hundred grand a year The Ortho Baht can

install five grills in a typical eight hour day It

costs five hundred bucks a day to operate the machines

and that includes power maintenance appreciation and the grill itself

Meanwhile the office costs one hundred grand a month and

overhead and that includes renting the office space insurance magazines

for the waiting room WiFi marketing Free grill work for

your family salary for the receptionist and so on Though

you've been looking at the possibility of getting the robo

receptive about X nine The current receptionist is your cousin

Jenny though so well you can't pull the trigger just

yet anyway All that stuff rolled together two hundred grand

a month all in You have to pay that amount

no matter what Plus the costs of powering up the

ortho bots comes to fifty Grand Mohr a month That's

five hundred a day times five days a week and

four weeks a month Time Five robots Yeah that's fifty

grand so the office costs hundred fifty thousand dollars a

month to run Meanwhile you have the capacity of five

hundred grilling and plants a month That's a five a

day for each of the five bodies Time Five days

a week times four weeks In a month we'LL a

grill implant costs two thousand dollars to perform raw materials

on that implant or seven hundred fifty bucks Each one

has a gross profit of twelve hundred fifty dollars ignoring

all the other load factors there So if the machines

run at full capacity you'LL have gross profit of six

hundred twenty five thousand dollars or twelve hundred fifty times

five hundred procedures Then you subtract one hundred fifty grand

overhead and you're netting four hundred seventy five grand a

month before taxes and such Yeah not bad But that

figure only counts if you're at full capacity a load

factor of one hundred percent Well it gets trickier if

that load factor is lower So let's say the load

factor for a month comes in at only twenty percent

Like you only do one hundred procedures in a month

We'LL then gross profit is only one hundred twenty five

grand and you gotta subtract out there in the one

hundred fifty grand in fixed overhead And oh now you're

twenty five thousand bucks in the red Well at that

point you might think about taking some steps to increase

the load Factor lowering prices toe fifteen hundred procedure But

note that the gross profit if you lower prices on

each one well then that drops to seven hundred fifty

bucks But if it pushes the load factor from twenty

percent tough fifty percent well then it might be worth

making the change Two hundred fifty procedures times seven hundred

fifty equals one hundred eighty seven thousand five hundred dollars

and you subtract the overhead of one hundred fifty and

then you're back in the black of thirty seven five

a month Well on the other end if your load

factor gets too high it might be time to expand

capacity So say your typical month runs at ninety percent

Load factor Then prom season comes up in A bunch

of teenagers want grills for their prom pictures Demand is

twenty percent higher than normal but you can't absorb all

that demand You have to turn people away And wow

that's expensive to dio So if load factor starts to

get too high might be time to add another ortho

bod Just don't get tempted by the Recep Toba Next

time you're browsing it Robot Corp We'LL never hear the

end of it at Thanksgiving If you give your cousin

the boot Yeah no