2.4.2 Capacity utilisation

Question 1

definition of capacity utilisation:

Answer 1

Capacity utilisation measures extent to which a business’ productivity is being used. Looks at output level being achieved at a given time.

Question 2

capacity utilisation calculation:

Answer 2

(Current output/ max possible output) X 100.

Question 3

Definition of over and under utilisation of capacity:

Answer 3

Over utilisation of capacity is when business attempt to produce more than its capital is able to= increased costs & decreased efficiency.
Under utilisation of capacity is f.c are divided by lower levels of output meaning production levels arent as high as should be.

Question 4

Implications of over utilisation of capacity:

Answer 4

-production may be rushed- less time for quality checks-quality is effected- unhappy customers- lose brand value.
-employees overworked- tasks become monotonouse due to production- demotivated- high labour turnover.

Question 5

Implications of under utilisation of capacity:

Answer 5

• operating at less than full capacity- lose competitiveness in market- loss of market share.
  -by producing at lower lovels business cannot gain EoS in production- higher costs.

Question 6

Ways of improving capacity:

Answer 6

-expanding range of products so that the costs of production are wide spread
-balancing seasonal demand by reducing inputs eg making products limited edition which avoids over utilisation
- employing more staff when experiencing over utilisation to avoid high staff turnover