2.4.2- Capacity Utilisation

Question 1

Capacity Utilisation

Answer 1

• the amount a business can produce can depend on buildings, employees, raw materials and equipment
• capacity utilisation is important as it has a bearing on EOS
• high capacity utilisation- fixed costs are spread out on unit produced
• low capacity utilisation- fixed costs can be too high to stay in business or keep producing that good

Question 2

Capacity Utilisation formula

Answer 2

current output/ maximum output x 100%

Question 3

Interpreting Capacity Utilisation

Answer 3

• 100% capacity isn’t often possible

- 80% is cool cus the business can be flexible and can sometimes perform a rush order for a client

Question 4

Implications of under utilisation

Answer 4

• higher fixed costs per unit
• unmotivated staff as they may have nothing to do
• impact on brand image (empty restaurant)
• business may have to rationalise (redundancies, sale of assets, hiring temporary staff rather than full time staff)

Question 5

Implications of over utilisation

Answer 5

• can put too much strain on resources
• no time to maintain machinery which may break at a later date
• quality may suffer as mistake are made in production

Question 6

Ways of improving capacity utilisation

Answer 6

• increase demand for the product
• increase usage for the product in off-peak times
• make staff redundant
• sell unused assets such as machinery