2.4.2 capacity utilisation Flashcards
formula capacity utilisation
currant output/max possible output 100
def capacity utilisation
extent to which max capacity is being used
relationship unit/costs
high capacity utilisation = low unit costs –> fixed costs spread over more units (Economies of dcale)
low capacity utilisation = high unit costs –> fixed costs high per unit
measures efficiency –> comp advantage
ideal capacity utilisation
90-95%
if high break even output
high level of capacity due to significant costs of production
reasons why businesses operate below full capacity
lower than expected demand
loss of market share
higher comp
sealpnal variations
recent increase in capacity
maintenance of machinery
allow ofr unexcpected demand
staff training
allows for downtimes
how to imporve capacity utilisation
**increase demand ** : price cut, higher promotions
cut capacity: make staff redundant, sell machinery, lease capacity CP: QUal+time, move to smaller premises
implications of under.utilisatoin
higher FC / unit
unmotivated staff –> lower productivity and qual
impact on brand image
lower profitability
inefficiency –> waste
may ned to rationalize
comp disadvantage –> comp efficient offer lower prices –> loss market share
cash flow problems
options to increase decrease capacity
increase or decrease working hours
subcontroact production activites
recude increase time maintian and train
increase decrease amout assets
hire fixed or temp staff
shutdown or expand
reduction or increase in overtime
Implications of Overutilisation
decline qual
staff burn out
increade breakdown risk
strain on resource –> not operate efficiently
staff work too much overtime so stress–> qual mistakes
less opportunity for staff training
limited flexibility ofr unexpected demand and growth