2.4.2 - Capacity Utlisation Flashcards
1
Q
Def capacity
A
Is the term used to describe the maximum possible output of a business
2
Q
Why do businesses aim to operate close to full capacity
A
To avoid waste and boost profitability
3
Q
Def capacity utilisation
A
Is the proportion of maximum capacity being used by the business
4
Q
Capacity utilisation formula
A
(Current output / maximum possible output) x 100
5
Q
3 reasons capacity utilisation is important
A
- measures efficiency due to measuring unused resources in the business
- production costs fall as output rises so higher utilisation making businesses more competitive
- helps business produce as close to 100% capacity as possible
6
Q
Implications of under-utilisation of capacity
A
- fixed costs per unit will be higher
- leads to fears for job security among staff, damaging motivation
- cause poorer moral among managers
- contribute to poor reputation for the business especially in service sector
7
Q
Why businesses operate below 100% capacity
A
- lower than expected market demand due to change in consumer tastes
- seasonal variations in demand - weather changes limiting demand
- maintenance and repair programmes meaning capacity is temporarily unavailable
8
Q
Implications of over-utilisation of capacity
A
- possible negative effect on quality, less time for quality control
- employees suffering due to added workload and stress
- loss of sales because unable to meet sudden or unexpected increases in demand
9
Q
Ideal level of capacity utilisation
A
Close to 100% though never at 100% for too long
10
Q
Ways of improving capacity utilisation
A
- increase current output
- reduce maximum capacity
- outsource
- increase price (less demand)
