25 - Capacity utilisation

Question 1

Define capacity utilisation

Answer 1

the proportion of maximum output capacity currently being achieved

Question 2

Define outsourcing

Answer 2

using another business to undertake a part of the production process rather than doing it within the business using the firm’s own employees

Question 3

Define maximum capacity

Answer 3

the highest level of sustained output that can be achieved

Question 4

Rate of capacity utilisation formulae

Answer 4

current output level/ maximum output level X 100

Question 5

Define excess capacity

Answer 5

this exists when the current levels of output are less than the full-capacity output of a business; also known as spare capacity

Question 6

Define rationalisation

Answer 6

reducing capacity by closing factories/production units

Question 7

Define capacity shortage

Answer 7

when demand for a business’s products exceeds production capacity

Question 8

Define business process outsourcing (BPO)

Answer 8

a form of outsourcing that uses specialist contractors to take responsibility for certain business fuctions, such as humena resources and finance