2.4.2 capacity utilisation

Question 1

define capacity utilisation?

Answer 1

the use that a business makes if its resources

Question 2

what is excess or surplus capacity?

Answer 2

when a business has too many resources, such as labour and capital than its desired level of output

Question 3

what is over-capacity utilisation?

Answer 3

when a business is running at full capacity

Question 4

what is under-capacity utilisation?

Answer 4

the position where a business is producing at less than full capacity

Question 5

what are the complications of working under-capacity?

Answer 5

• unit costs rise
• unmotivated staff - no work to do
• can ruin brand image
• business may need to rationalise
  + opportunities for growth

Question 6

what are the implications of working over-capacity?

Answer 6

• employees are overworked and unhappy
• mistakes are more likely
• unit costs rise
• can damage brand image
  + opportunities for growth

Question 7

how do you calculate capacity utilisation?

Answer 7

current output
_____________ x 100
maximum output

Question 8

how do you improve capacity utilisation?

Answer 8

• increase demand through price cut and promotion
• staff redundancies
• sell off assets
• could lease out capacity to other businesses

Question 9

how do you decrease capacity utilisation?

Answer 9

• rationalisation

- subcontract in work from other businesses