2.4.2 - Capacity Utilisation

Question 1

What is CAPACITY UTILISATION

Answer 1

is the PERCENTAGE of TOTAL CAPACITY that’s ACTUALLY BEING ACHIEVED in a GIVEN PERIOD

Question 2

What is CAPACITY UTILISATION FORMULA

Answer 2

(CURRENT OUTPUT / MAXIMUM POSSIBLE OUTPUT) x100

Question 3

REASONS for POOR CAPACITY UTILISATION

Answer 3

• LACK of DEMAND due to : income economy, season, external shock, trends, competition, interest rates
• POOR MANAGEMENT of RESOURCES

Question 4

What is a REASON for UNDER UTILISATION

Answer 4

IF it’s EXPERIENCES a DROP in DEMAND, e.g due to INCREASED COMPETITION
seasonal demand

Question 5

What are BENEFITS and DRAWBACKS of UNDER UTILISATION

Answer 5

+ ABLE to COPE MORE EASILY with SUDDEN INCREASES in DEMAND
+ LESS LIKELY to be WORK RELATED STRESS which is the case in Full Capacity

• NOT MAKING MOST of ITS RESOURCES

Question 6

What are 2 BENEFITS and 1 NEGATIVE of OVER UTILISATION

Answer 6

+ AVERAGE COSTS will Be LOWER as FIXED COSTS will be MORE SPREAD OUT Help IMPROVE COMPETITIVENESS and RAISE PROFITS
STAFF MOTIVATION might be GOOD
- PRESSURE of Constantly WORKING at FULL CAPACITY can PUT STRAIN on RESOURCES

Question 7

WAYS to IMPROVE CAPACITY UTILISATION

Answer 7

REDUCE CAPACITY
INCREASE SALES

Question 8

How does REDUCING CAPACITY IMPROVE CAPACITY UTILISATION

Answer 8

INVOLVES REDUCING EXCESS CAPACITY by GETTING RID of RESOURCES that the BUSINESS can DO WITHOUT :
- SELL of UNUSED FIXED ASSETS e.g. Vehicles, Machinery

Question 9

How does INCREASE SALES IMPROVE CAPACITY UTILISATION

Answer 9

IF a BUSINESS SELLS MORE OUTPUT it WILL PRODUCE MORE
therefore Capacity Utilisation will rise