2.4.2 Capacity utilisation Flashcards
1
Q
Capacity utilisation Def.
A
proportion / percentage of a business’ capacity that is actually being used over a period of time
2
Q
Capacity utilisation Calculation.
A
actual level of output / maximum possible output x 100
3
Q
Why capacity utilisation matters.
A
- useful measure of product efficiency
- high utilisation can reduce unit costs
- business will aim for 100% utilisation
4
Q
Costs.
A
- equipment e.g. production line
- facilities e.g. rent
- labour e.g. wages / salaries
5
Q
Why businesses operate below 100% capacity.
A
- due to undergoing maintenance
- demand might be lower than expected
- seasonal variation in demand
6
Q
Risks of operating below 100% capacity.
A
- higher unit costs
- less likely to reach breakeven level of output
- capital is still tied up in under-utilised assets
7
Q
Risks of operating at 100% capacity.
A
- quality could suffer
- employees could suffer
- loss of sales
