2.4.2 Capacity Utilisation (1/2)

Question 1

Capacity

Answer 1

that maximum output that an organisation can produce in a given period of time

Question 2

Capacity Utilisation

Answer 2

Measures level of output a business is producing in relation to its capacity.

Question 3

When a business is unable to increase output then it is said to be at what percentage of capacity?

Answer 3

100% Capacity

Question 4

Full capacity

Answer 4

The point where a business cannot produce any more output

Question 5

Formula for Capacity Utilisation

Answer 5

Current Output
———————————– X 100
Maximum possible output

Question 6

Underutilisation

Answer 6

The position in which a business is operating and producing at less than full capacity

Question 7

implications may arise due to underutilisation T/F?

Answer 7

True - can be positive & negative

Question 8

3 implications/ cons that arise due to underutilisation

Answer 8

1) Unit costs rising (go to notes)
fixed cost e.g machiney spread over fewer units, so unit costs increases.

2) may reduce employee motivation as prolonged periods of time doing nothin > May resent working harder in future if demand increases as they are accustomed to ‘light’ workload

3) can lead to negative brand image being percieved by customers (E.g empty restaurant) -> Looks poor quality

Question 9

2 benefits of underutilisation

Answer 9

1) Would be able to cope more easily if demand suddenly increases. This will satisfy customers resulting in them not going to rivals.

2) More flexibility for the business
e.g time to train staff & time to maintain/update machinery + technology

Question 10

Over utilisation

Answer 10

The position in which a business is running at close to full capacity

Question 11

Implications may arise due to over utilisation T/F?

Answer 11

True - can be both positive & negative

Question 12

4 Implications/disadvantages that arise due to over utilisation

Answer 12

1) Business may not be able respond to an increase in demand -> may result in a loss of potential new customers

2) Too much pressure + strain on staff as there is little margin for error -> may lead to accidents + absence

3) Quality may suffer as staff may make mistakes due to being overworked

4) NO flexibility -> can’t maintain machinery which can reduce the life of the machine

Question 13

2- Benefits of over utilisation

Answer 13

1) Average costs may be lower as can achieve EOS (Economies of scale)

2) Staff may be motivated as they may feel secure in their job ( they know they are needed due to high demand)