Capacity

Question 1

What is capacity?

Answer 1

it is the measure of how much output can be achieved in a given period.

Question 2

Why is capacity a dynamic concept?

Answer 2

• production facilities
• seasonality
• demand / consumer preference

Question 3

What is the ideal operating capacity?

Answer 3

90% with a 10% buffer region

Question 4

Why do businesses want a 10% buffer region of stock?

Answer 4

1) Maintenance
2) Additional orders
3) innovation
4) balance in workload for staff

Question 5

What is capacity utilisation?

Answer 5

the proportion (percentage) of a business capacity that is actually being used over a specific period

Question 6

How to calculate capacity utilisation?

Answer 6

(actual level of output/maximum level of output) x 100

Question 7

What are dangers of low capacity utilisation?

Answer 7

• low output
• higher unit costs (profit margins)
• demotivated staff
• competitiveness
• high waste
• less likely to reach break even
• capital tied in under utilised assets

Question 8

What are dangers of high capacity utilisation?

Answer 8

• quality
• staff are demotivated
• pressure on resources
• loss of sales
• equipment need repair
• no unexpected order