Define capacity utilisation
How effectively a business uses its available production capacity
What is the formula for capacity utilisation?
Current (actual) output / maximum possible output x 100
What capacity utilisation shopuld bus aim for and why
80-90%
-maximises efficiency
Lowers unit cost
Maintains flexibility
Define capacity
highest possible outcome a business can achieve
The higher a businesses capacity utilisation, what does this result in
bus more effective at using their resources
What are 2 drawbacks of operating at 100% capacity?
-poor quality due to a rushed production process
-employees become demotivated and stressed due to the increasing pressure on them to work at a high capacity
Give a benefit of a business operating at low capacity utilisation?
-has more flexibility to change its level of output as and when it is needed
Give a drawback of a business operating at low capacity utilisation?
-higher cost per unit
what is the formula for unit costs?
total costs/ output
What 4 ways help to improve capacity utilization?
-downsizing (removes excess cap)
-increase sales (produce more)
-increase usage
-outsourcing
how does outsourcing improve capital utilisation?
-subcontracting some tasks to outside the business can increase the level of output
because.. theres access to experts therefore they are more efficient
Conclusion sentence on capacity utilisation
(FOR operating at high cap U)
as capacity utilisation increases
Unit costs decrease
As fixed costs are spread over more units
Decreased unit costs
Capital intensive
production relies heavily on machinery
Strength of capital intensive
higher productivity levels (can work 24/7)
High quality as no human errors- dec waste
Limitation of capital intensive
breakdowns are expensive and can completely stop a business production
Labour intensive
production relies mainly on humans
Strength of labour intensive
Cheaper set up (ideal for start up)
Allows for tailored products
Limitation of labour intensive
high labour costs (wages and training)
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2.1.1 Internal finance6
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2.1.2 External finance9
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2.1.3 Liability9
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2.1.4 Planning11
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2.2 formulas9
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2.2.1 Sales forecasting19
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2.2.2 Sales, revenue and cost8
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2.2.3 Break even15
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2.2.4 Budgets14
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2.3.1 Profit27
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2.3.2 Liquidity25
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2.3.3 Business Failure10
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2.4.1 Production, productivity and efficiency28
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2.4.2 Capacity utilisation18
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2.4.3 Stock control14
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2.4.4 Quality management16
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2.5.1 Economic influences40
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2.5.2 Legislation19
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2.5.3 Competitive environment13
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2.1+ 2.2 KEY TERMS26
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2.3 KEY TERMS12
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2.4 KEY TERMS34
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2.5 KEY TERMS30
