capacity utilisation

Question 1

define capacity utilisation

Answer 1

the use a business makes of its resources

Question 2

formula for capacity utilisation

Answer 2

current output/max possible output x100

Question 3

3 negative implications of under utilitsation

Answer 3

• not making the most of its resources, unit costs are not minimised
• can affect morale of workers, as they feel that the business is struggling to generate orders
• workers are used to light worklads, and may resent working harder if the business suddenly gets more orders

Question 4

2 benefits of under utilisation

Answer 4

• business is able to cope easily with sudden increases in demand
• less work related stress, both managers and workers feel more relaxed with their workload, this reduces sickness and absenteeism

Question 5

3 negative implications of over utilisation

Answer 5

• too much pressure
• stress and tiredness of workforce, absenteeism and accident rates increase
• may not be able to respond to increases in demand

Question 6

3 benefits of over utilisation

Answer 6

• lower average cost as fixed costs are spread over more units per output: improve competitiveness
• staff motivation is good as workers feel secure
• improves the companys image

Question 7

4 ways of improving capacity utilisation

Answer 7

• reduce capacity (get rid of resources the business can live without) by selling assets, move to smaller premises with lower costs or reduce staff
• increase sales: if they sell more, they need to produce more, increasing capacity utilisation
• redeployment: if there is too much utilisation, the business can deploy them to another part, e.g asking employees to work at another branch for a while
• outsourcing