2.4.2 Capacity utilisation

Question 1

Capacity

Answer 1

the capacity of business is a measure of how much output it can achieve in a given period

Question 2

Capacity utilisation

Answer 2

the proportion of a businesses capacity that is actually being used over specific period

Question 3

Capacity utilisation formula

Answer 3

actual level of output/ maximum level of output x 100

Question 4

Negatives of 100% capacity - over utilisation

Answer 4

• employess can be stressed and demotivated
• demand may be low - seasonal business
• impact of machinery and equipment

Question 5

Under utilised

Answer 5

business is producing significantly below what they are capable of

Question 6

over utilised

Answer 6

demand is greater than what the business is capable of producing

Question 7

Why does a business operate at less than 100% capacity utilisation?

Answer 7

• lower demand
• increase in capacity not yet matched by demand - possibly new technology introduced and may provide some slack
• inefficiency - poor maintenance, quality or employee distribution

Question 8

How can a business increase its capacity utilisation?

Answer 8

• increase workforce hours
• sub-contract some production activities
• reduce time spent maintaining production equipment

Question 9

Negatives of working at high capacity

Answer 9

• negative on quality - production is rushes so less time for quality control
• employee suffer - added workload and stress, demotivating of sustained for too long
• loss of sales - less able to meet sudden or unexpected increases in demand
• production equipment may require repair

Question 10

Implication for working under utilisation

Answer 10

• high fixed costs per unit with low profit margins

- not making the most out of expansion