Cost Accounting: What is a Load Factor?

What is a Load Factor? Load factor is used in conjunction with transportation to determine how much it is being used. High load factors are ideal because it means that for every ride on whatever transportation, all or most seats are occupied, meaning more income to offset fixed costs.

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Transcript

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

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

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

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of how load factors factor into proper cost allocations in

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a company you have to add in the load will

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load Factors generally measure how much a given system can

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

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factor measures how full airplanes are when they fly Like

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if you have three hundred seats on a plane and

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it flies with two hundred passengers Welcome Your load factor

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

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divided by three hundred The term also gets used in

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energy output Like the load factor measures How much energy

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is getting used now compared to the maximum output possible

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Well the key factor in both these common examples how

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

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Can we get Mohr out of what we have Okay

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you have this airplane you flight with a hundred empty

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seats The fuel costs the cost for the pilots the

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

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essentially the same with two hundred passengers as they are

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with three hundred So whatever you can do to get

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

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have ticket raffles for publicity whatever it takes Or you

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own the grill factory not a barbecue joint A dental

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

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five thousand units the latest in robot dental implant technology

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They fully replaced those pesky human orthodontist You had to

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pay two hundred grand a year The Ortho Baht can

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install five grills in a typical eight hour day It

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costs five hundred bucks a day to operate the machines

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and that includes power maintenance appreciation and the grill itself

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Meanwhile the office costs one hundred grand a month and

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overhead and that includes renting the office space insurance magazines

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for the waiting room WiFi marketing Free grill work for

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your family salary for the receptionist and so on Though

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

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receptive about X nine The current receptionist is your cousin

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

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yet anyway All that stuff rolled together two hundred grand

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a month all in You have to pay that amount

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no matter what Plus the costs of powering up the

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

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five hundred a day times five days a week and

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

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grand so the office costs hundred fifty thousand dollars a

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month to run Meanwhile you have the capacity of five

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

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day for each of the five bodies Time Five days

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

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grill implant costs two thousand dollars to perform raw materials

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on that implant or seven hundred fifty bucks Each one

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has a gross profit of twelve hundred fifty dollars ignoring

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all the other load factors there So if the machines

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

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hundred twenty five thousand dollars or twelve hundred fifty times

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five hundred procedures Then you subtract one hundred fifty grand

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

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month before taxes and such Yeah not bad But that

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

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factor of one hundred percent Well it gets trickier if

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

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factor for a month comes in at only twenty percent

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Like you only do one hundred procedures in a month

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

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grand and you gotta subtract out there in the one

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

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twenty five thousand bucks in the red Well at that

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point you might think about taking some steps to increase

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the load Factor lowering prices toe fifteen hundred procedure But

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note that the gross profit if you lower prices on

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each one well then that drops to seven hundred fifty

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bucks But if it pushes the load factor from twenty

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percent tough fifty percent well then it might be worth

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making the change Two hundred fifty procedures times seven hundred

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fifty equals one hundred eighty seven thousand five hundred dollars

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and you subtract the overhead of one hundred fifty and

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

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a month Well on the other end if your load

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factor gets too high it might be time to expand

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capacity So say your typical month runs at ninety percent

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Load factor Then prom season comes up in A bunch

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of teenagers want grills for their prom pictures Demand is

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

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that demand You have to turn people away And wow

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

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get too high might be time to add another ortho

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

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

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end of it at Thanksgiving If you give your cousin

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the boot Yeah no