2.4.2 Capacity Utilization Flashcards
(9 cards)
what is capacity utilisation
the use a business makes of its resources
whats under utilisation
a position when a business is producing less than capacity
whats over utilisation
a position when a business is running at full capacity straining resources
how to improve capacity utilisation ?
1) increase demand through price cut or promotion
2) increase in off peak usage through promotion
3) reduce staff numbers
4) sell unused fixed assets
5) leave out spare capacity
advantages of capacity under- utilisation
allows a business to respond quickly to changes in demand
may incur lower variable costs related to production
can provide space for expansion and growth
can focus on improving product quality and reducing defects
can lead to reduced stress for employees
disadvantages of capacity under - utilisation
can lead to wasted resources and increased costs per unit
lost revenue opportunities
may signal inefficiency to stakeholders
equipment and technology may become outdates if not used regularly
advantages of capacity over - utilisation
higher production levels, leading to maximising revenue
can lower costs per unit, improving profit margins
efficient use of resources
gain a competitive edge in the market
can lead to better returns on fixed assets
disadvantages of capacity over - utilisation
can lead to a decline in product quality
can lead to a decrease in employee morale
increased maintenance costs
difficult to respond to sudden changes in demand
what is outsourcing
when a business hires outside companies to handle certain tasks or services instead of doing them in-house
