2.4.2 Capacity Utilisation

Question 1

What is capacity utilisation?

Answer 1

The use that a business makes of it’s recourses.

Question 2

What is the formula for capacity utilisation?

Answer 2

Capacity utilisation = Current output / Max possible output x 100

Question 3

What is under utilisation and when may a business face it?

Answer 3

A business may be under-utilising capacity if it has experienced a drop in demand, e.g. ^ competition + seasonal demand.

Question 4

What are the drawbacks of under-utilisation?

Answer 4

-May be operating inefficiently as it’s unit costs are not minimised.
-Operating with too much space capacity may also affect the morale of workers.
-They May feel insecure in their jobs.
-If the workers become accustomed to a light workload, they may resent working hard.

Question 5

What are the benefits of under-utilisation?

Answer 5

-A business would be able to cope more easily with sudden increases in demand, meeting immediate customer needs.
-Customers may go to businesses who are able to deal with demand fluctuations.
-Less work-related stress = reduced sickness + absenteeism.

Question 6

What is over-utilisation and when may a business face it?

Answer 6

A business may be over-utilising it’s resources, meaning resources are stretched uncomfortably. For example, staff being asked to work long periods of overtime without a reasonable break.

Question 7

What are the drawbacks of over-utilisation?

Answer 7

-Strain on some of the resources.
-Stress + tiredness for the workforce = ^ risk of accidents + absence.
-Machines May be overworked + broken.
-Breakdowns on a production line may be extremely costly.
-May not be able to respond to an ^ in demand.

Question 8

What are the benefits of over-utilisation?

Answer 8

-Avg costs will be lower as fixed costs will be spread across more units of output.
- ^ competitiveness + profits.
-Staff motivation may be ^ if workers feel their jobs are secure.
-Staff May be happy with opportunities to ^ earnings through overtime.
-A busy operation can improve the company’s image.

Question 9

What are the 5 ways of improving capacity utilisation?

Answer 9

1.) Reduce capacity
2.) Increase sales
3.) Increase usage
4.) Outsourcing
5.) Redeployment