2.4.2 Capacity Utilisation

Question 1

Maximum capacity

Answer 1

The maximum amount of output achievable if all resources are fully utilised

Question 2

Capacity utilisation

Answer 2

Measures what proportion of percentage of the theoretical maximum possible outcome is actually produced

Question 3

Under utilisation of capacity

Answer 3

Means that some resources are not being used and production is not as high as it could be

Question 4

Over utilisation

Answer 4

Means that the business is trying to produce more than the capital equipment was designed for

Question 5

Unit costs =

Answer 5

Total costs (FC + VC) / current output

Question 6

How can capacity be increased

Answer 6

By acquiring more resources eg bigger premises, more machinery

Question 7

How can capacity be reduced

Answer 7

Downsizing resources eg laying of workers and smaller premesis

Question 8

Capacity utilisation % =

Answer 8

Current output / maximum possible output X 100

Question 9

Why can having under capacity be a good thing?

Answer 9

Gives business degree of flexibility. If last min orders arrive or if machinery breaks down

Question 10

Importance of getting capacity right

Answer 10

Ability to match supply to demand, inverse relationships between capacity utilisation and unit costs, workforce motivation, reputation

Question 11

How to fix undercapacity utilisation

Answer 11

Increase demand - Improve marketing to increase sales, diversify into new markets, adding a new production line to the range, taking on production for another business, downsize, lease of spare capacity eg machinery

Question 12

What to do if capacity is over utilised

Answer 12

Temporarily increase production, staff could work more shifts, temporary part time staff taken on. Permanently invest in production - invest in more capacity, recruit more staff, improve productivity