2.4.2 Capacity utilisation Flashcards
1
Q
Capacity
A
the capacity of business is a measure of how much output it can achieve in a given period
2
Q
Capacity utilisation
A
the proportion of a businesses capacity that is actually being used over specific period
3
Q
Capacity utilisation formula
A
actual level of output/ maximum level of output x 100
4
Q
Negatives of 100% capacity - over utilisation
A
- employess can be stressed and demotivated
- demand may be low - seasonal business
- impact of machinery and equipment
5
Q
Under utilised
A
business is producing significantly below what they are capable of
6
Q
over utilised
A
demand is greater than what the business is capable of producing
7
Q
Why does a business operate at less than 100% capacity utilisation?
A
- lower demand
- increase in capacity not yet matched by demand - possibly new technology introduced and may provide some slack
- inefficiency - poor maintenance, quality or employee distribution
8
Q
How can a business increase its capacity utilisation?
A
- increase workforce hours
- sub-contract some production activities
- reduce time spent maintaining production equipment
9
Q
Negatives of working at high capacity
A
- negative on quality - production is rushes so less time for quality control
- employee suffer - added workload and stress, demotivating of sustained for too long
- loss of sales - less able to meet sudden or unexpected increases in demand
- production equipment may require repair
10
Q
Implication for working under utilisation
A
- high fixed costs per unit with low profit margins
- not making the most out of expansion
