2.4.2 Capacity utilisation Flashcards
Define capacity utilisation
the percentage of total capacity that’s actually being achieved in a given period
Define capacity
The maximum output a business can produce in a given time period with the available resources
What is the formula for capacity utilisation?
Current (actual) output / maximum possible output x 100
What is capital utilisation often used as a measure of?
productive efficiency
What are 2 benefits of operating at 100% capacity?
-economies of scale (rise in output so average production costs decrease) which can maximize revenue
-minimize waste
What are 2 drawbacks of operating at 100% capacity?
-poor quality due to a rushed production process
-employees become demotivated and stressed due to the increasing pressure on them to work at a high capacity
Give a benefit of a business operating at low capacity utilisation?
-has more flexibility to change its level of output as and when it is needed
Give a drawback of a business operating at low capacity utilisation?
-higher cost per unit
what is the formula for unit costs?
total costs/ output
What 4 ways help to improve capacity utilization?
-reduce capacity
-increase sales
-increase usage
-outsourcing
how does reducing capacity improve capital utilisation?
-Downsizing, selling fixed assets or reducing staff to remove exess capacity
how does increasing sales improve capital utilisation?
-if sales increased, more units need to be produced eg. (decrease price on elastic products and marketing)
how does increasing usage improve capital utilisation?
-encouraging sales when demand is usually lower stabilises capacity utilisation
how does outsourcing improve capital utilisation?
-subcontracting some tasks to outside the business can increase the level of output
because.. theres access to experts therefore they are more efficient
