2.4.2 CAPACITY UTILISATION

Question 1

calculate Capacity Utilisation

Answer 1

(Current output/Total output) x100​

Question 2

Benefits of over utilization

Answer 2

• The fixed costs per unit will be at their lowest level.
• Profitability can be maximized.
• The business will be seen as successful.
  (This could lead to a motivated workforce and a positive customer perception of a quality product. They may consider investing in new premises or machinery for expansion)

Question 3

Draw backs of Over utilization

Answer 3

• You may have to turn away potential customers.​
• Workers may feel overworked and underpaid if they are not rewarded for success.​
• Increased overtime costs​
• Mistakes in production​
• Maintenance of equipment may be postponed which could lead to equipment failure or reduced efficiency.

Question 4

Under utlisation Benefits

Answer 4

• It may mean you can react to increased consumer demand quicker than competitors​
• Workloads of managers and staff may be more manageable resulting is less absenteeism, sickness and a lower turnover of staff

Question 5

Drawbacks Under Utlisation

Answer 5

• Spare capacity represents a waste of resources​
• Businesses are paying for labour & machinery that is not being fully utilised.​
• Can have a negative impact on profit, motivation & morale of staff and public image.

Question 6

Ways of improving capacity utilization

Answer 6

• Rationalisation - reorganising to gain greater efficiency usually be removing capacity by redundancy, selling equipment and closing factories.​
• Stimulate demand (improve marketing, or by competitors leaving the market)​
• Redeployment - move resources to another area of the business​
• Subcontract / Outsource​
• Balancing seasonal demand