2.4.2 Capacity Utilisation (INCOMPLETE)

Question 1

Define capacity utilisation

Answer 1

Capacity utilisation is how much capacity a business is using.

Question 2

How do you work out capacity utilisation?

Answer 2

Capacity utilisation (%)= current output / maximum possible output x 100

Question 3

What is capacity?

Answer 3

The maximum output an organisation can produce without buying any more fixed assets such as machinary or factory space

Question 4

What is Under capacity utilisation?

Answer 4

When there is low capacity utilisation e.g. 60%

Question 5

What is over capacity utilisation?

Answer 5

When there is high capacity utilisation e.g. 115%

Question 6

What is the advantage of under capacity utilisation?

Answer 6

Easier to grow

Question 7

What is the advantage of over capacity utilisation?

Answer 7

Opportunity for growth

Question 8

What are the disadvantages of under capacity utilisation?

Answer 8

• Idle resources costing money but not being used

- Unit costs rise

Question 9

What are the disadvantages of over capacity utilisation?

Answer 9

• Employees are overworked and unhappy

- Mistakes are more likely to occur causing unit costs to rise

Question 10

What should businesses working near 100% capacity do?

Answer 10

Increase capacity

Question 11

How can businesses decrease capacity/ utilise idle resources?

Answer 11

• Increase demand (by changing the demand mix- Price, Product, place or promotion)
• reduce capacity by closing down part of their facilities (rationalism/ downsizing)
• Reducing overtime
• Selling factories
• Making workers redundant

Question 12

How can businesses increase capacity?

Answer 12

• Buy more assets such as machinary or facilities
• Employ staff
• Employ new workers on temporary contracts
• Outsource work
• Offer overtime pay to workers
• not replacing workers who retire (natural wastage)