Capacity utilisation 2.4.2

Question 1

what is the equation for capacity utilisation

Answer 1

(current actual output/maximum potential output) * 100

Question 2

give 3 negative implications of under-utilised capacity

Answer 2

1. fixed costs will remain the same meaning that unit costs are higher than they should be
2. workers may be demotivated
3. increases breakeven level (less likely to reach)

Question 3

give 2 negative implications of over-utilised capacity

Answer 3

1. overwhelmed workers which may lead to quality suffering
2. machinery breakdown with no time to prepare

Question 4

what are the 2 basic ways to improve CU

Answer 4

1. increase current output (only if it can be sold)
2. reduce maximum capacity level

Question 5

how would a company increase their current output

Answer 5

marketing methods to boost the volume of sales (advertising or reducing selling price)

Question 6

how would a company reduce their maximum capacity level

Answer 6

selling off assets or laying off staff