2.4.2 Capacity Utilisation

Question 1

Amount business can produce depends on:

Answer 1

• buildings
• employees
• raw materials
• equipment
  economies of scale - fixed costs spread over more units
  running just below 100% = good

Question 2

Calculation

Answer 2

capacity utlilisation = current output ÷ maximum output X 100

Question 3

Implications of under utilisation

Answer 3

• higher fixed costs per unit
• unmotivated staff - standing around and not busy
• impact on brand image - e.g empty
• business may need to rationalise - can mean redundancies
• increases flexibility of businesses

Question 4

Implications of over utilisation

Answer 4

• can damage reputation
• manufacturing can put too much strain on resources
• staff may do too much overtime - tired - accidents
• no time to maintain machinery or train staff
• quality suffers as mistakes are made in production

Question 5

How to improve capacity’s

Answer 5

• increase demand through price cut or promotion
• increase usage at off peak times through promotion
• redundancies
• lease capacity
• sell assets