Capacity Utlisation

Question 1

What is capacity utilisation

Answer 1

It is is about the use that business makes of its resources

Linked to productivity, efficiency and utilisation

Question 2

How do you calculate capacity utilisation

Answer 2

It measures the existing output as a percentage of the maximum possible output
Existing output
————————- X100
Maximum possible output

Question 3

What can happen when you work under capacity utilisation

Answer 3

• idle resources costing money but not being used
• unit costs rise
• opportunity to increase capacity utilisation

Question 4

What can happen when u perform over capacity utilisation

Answer 4

• employees overworked and unhappy
• mistakes more likely
• unit costs rise due to the above
• however opportunity for growth
• Can cause cash flow problems

Question 5

What happens to a business when utilisation increases

Answer 5

Unit costs will fall as the business experience economies of scale
- however unit costs may also rise as a business approaches maximum capacity due to stress

Question 6

How can a business increase capacity

Answer 6

They can do this by

• subcontract out production to another business
• offer overtime pay to the workforce
• employ workers temporary contracts
• buy more machinery

Question 7

How can you decrease capacity

Answer 7

• Rationalisation

- sun contract in work from another business