2.4.2 Capacity Utilisation ⛴

Question 1

What is capacity utilisation?

Answer 1

Is the extent to which maximum capacity for output that is being used (expressed in a percentage)
Current output/ max output *100

Question 2

What happens we have high capacity utilisation ?

Answer 2

Fixed costs are more spread across units leading to a lower unit cost

Question 3

What is underutilisation?

Answer 3

When the business is producing less than its full capacity

Question 4

What is overutilisation ?

Answer 4

When the business is running at full capacity and straining resources

Question 5

What are the implications of Underutilisation ?

Answer 5

Drawbacks -

Higher fixed cost per unit

Staff may lack tasks and be inactive - leads to unmotivated workforce due to lack of moral

May impact brand image of business is inactive - like restaurants

Rationalisation- make staff redundant or sell fixed assets
Reduce over time hours
Partial shut down

Positives-

Increases flexible of business- has the time and resources to meet an immediate large order( non- standard )

Has the time and resources to maintain machinery and update tech

Can train staff more

Question 6

What are the implications of over utilisation?

Answer 6

Business may be unable to provide product or service due to overselling - damage rep

Too much stain on resources for manufactures
Too much over work for work force decreases Moral - unable to make product to high quality
No time to maintain or train staff

Cannot take on non standard orders or a decreased in demand

Benefits - lower unit cost and fixed costs are speed out on more units of output

Can increase competitiveness and improve profits

Increase staff motivation - staff feel more secure in job due to ability to afford more training and maintenance of matching
Can improve brand image

Question 7

What are the 5 ways to improve capacity utilisation?

Answer 7

Reducing capacity through rationalising - getting rid or resources the business does not need
Reduce staff - redundancies
Sell fixed assets -
Mothball resources
Lease to other businesses

Cost of retaining May increase

Move to smaller premises - fixed costs are lower

flexibility to respond to change may decrease

Increase sales- sell more output they will have to produce more - CU will rise !
However have to promote more

Increase usage of products - through
discounts - lower the price of product

Outsourcing - to areas that have a lower average unit cost or low utilisation rates

But profit margins we need to be reduced

Having redeployment - have temporary staff - less wages cost