38. Capacity utilisation

Question 1

capacity utilisation =

Answer 1

(current output/ maximum possible output) x 100

Question 2

Drawback of under-utilisation

Answer 2

Business is not making the most of its resources and it will be operating inefficiently because its unit costs are not minimised

Question 3

Benefits of under-utilisation

Answer 3

• A business would be able to cope more easily with sudden increases in demand.
• When working below fill capacity there is likely to be less work-related stress

Question 4

Drawbacks of over-utilisation:

Answer 4

• Pressure of constantly working at full capacity can put a strain on some of the resources and causing stress and tiredness to the workforce increasing the risk of accidents
• business may not be able to respond to an increase in demand

Question 5

Benefits of over-utilisation

Answer 5

• Average costs will be lower because fixed costs will be spread across more units of output, this will help improve competitiveness and raise profits
• Staff motivation might be good if workers feel secure in their jobs.