2.4.2 capacity utilization

Question 1

what is capacity utilization

Answer 1

is about the use that a business makes of its resources

- linked to productivity and efficiency

Question 2

how do you calculate capacity utilization

Answer 2

existing output
———————— x100
maximum possible output

Question 3

what are some benefits and limitation of performing below capacity utilization?

Answer 3

Idle resources costing money but not being used
unit costs rise
opportunity to increase capacity utilization by taking on new order

Question 4

what are some problems with over capacity utilization

Answer 4

• employees become overworked
• mistakes more likely
• unit costs rise die to the above
• opportunity for growth

Question 5

how would a business increase capacity

Answer 5

• sub contract out production to another business
• offer overtime pay to workforce
• employ workers on a temporary contractors