Definition: Inadequacy refers to the lack of production capacity or insufficient production capacity of a company’s current assets to meet its current or future production demands. In other words, growing manufacturers reach a point where their current equipment can’t produce enough to meet the growing demand of their productions.
These manufacturers need to continue to invest in more machinery in order to increase production. Their current equipment is said to be inadequate because it can’t produce enough.
What Does Inadequacy Mean?
Inadequacy is usually used to help determine the useful life of a plant asset or fixed asset. Remember, the useful life isn’t always how long the asset will be able to produce products. The useful life is also called the service life because it takes into consideration factors like inadequacy and obsolescence. Both of these factors may cut the useful life of an asset shorter than the actual physical life.
Example
Most of the time inadequacy is difficult to predict because of unpredictable future demand and production innovations. For instance, a piece of machinery might be able to produce products just fine, but a newer technology is invented and renders the old machine obsolete. Companies can usually estimate the inadequacy of a piece of equipment better when they have experience in that industry.
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