2.4.2 Capacity utilisation

Question 1

capacity

Answer 1

-maximum possible output of a business

given moment best way with its existing resources
predict demand = adapt capacity

Question 2

capacity utilisation

Answer 2

proportion of maximum possible output being used by a business

• predict demand = plan = sales forecasting)
• hard to predict dynamic market

Question 3

equation for capacity utilisation

Answer 3

current output divided by maximum output times 100

Question 4

7 benefits of having a high capacity utilisation/full capacity

Answer 4

1. output increase = unit cost decrease
2. staff productive (motivate)
3. less wasted space
4. bulk buy = EOS (large output)
5. FC over more units = lower av cost & EOS (profit)
6. maximise resource efficiency
7. boost rep = audience/exposure

unit cost decreases =price decreases=more competitive

Question 5

Revenue

Answer 5

money earnt from selling something

selling price per unit x output (sppu)

Question 6

total variable cost

Answer 6

variable cost per unit x output

TVC = Vcpu x output

Question 7

total cost

Answer 7

fixed cost + total variable cost

TC = FC + TVC

Question 8

profit

Answer 8

total revenue - total cost

TR - TC

Question 9

4 Benefits of under capacity

Answer 9

anything under maximum

1-respond to new demand
2-less stress on staff
3-less maintenance (time to maintain)
4-effective quality control

Question 10

4 Cons of under capacity

Answer 10

1-wasted resources (space & idol staff = productive)
2-missed sales opportunity
3-FC per unit is high = profitability
4-no EOS

Question 11

4 Cons of being full capacity/having a high capacity utilisation

Answer 11

1. stressed staff (absenteeism, morale) = high staff turnover
2. poor quality (unhappy customer, less demand)
3. unsustainable
4. can’t respond to demand = outsource/expand more capital intensive

Question 12

demand

Answer 12

level of interest customers have in buying a product

Question 13

supply

Answer 13

quantity of a product producers can deliver within a specific time period

Question 14

7 causes of spare capacity for a business

Answer 14

1-quality (brand image) 
2-competitors
3-demand 
4-ethical stance = boycott 
5-productivity (motivation, turnover, absenteeism 
6-taste and trend 
7-change in economy (recession)

Question 15

8 ways a business can increase/improve capacity utilisation

Answer 15

1-marketing (promotion/new product/ad) 
2-decrease price 
3-reduce capacity (reduce staff, change premises
4-nothing (temporary) 
5-boost demand (innovation)
6-motivate staff (financial and non financial) 
7-sub contracting for someone else 
8-rationalisation

Question 16

4 things to do if demand is too high for capacity

Answer 16

1-do nothing
2-expand capacity
3-sub control (offer work to other companies)
4-increase price

Question 17

rationalisation

Answer 17

closing inefficient areas

Question 18

under utilisation of capacity

Answer 18

capacity utilisation % is low

Question 19

over utilisation of capacity

Answer 19

capacity utilisation close to 100% or even above

Question 20

2 ways of improving under utilisation

Answer 20

1. outsource (other business use space, forecast/adapt)
2. relocate/downsize
   - lower price
   - reduce unit costs = boost profit
   - reduce FC (rent)

Question 21

3 ways of improving over utilisation

Answer 21

1. outsource (short term)
2. relocate to larger premises
3. raise price = reduce demand

Question 22

higher CU

Answer 22

lower unit cost

Question 23

lower CU

Answer 23

higher unit cost