25 Capacity utilisation and outsourcing

Question 1

Capacity utilization

Answer 1

The proportion of maximum output capacity currently being achieved.

Question 2

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

Maximum (full) capacity

Answer 3

The highest level of sustained output that can be achieved.

Question 4

Excess capacity

Answer 4

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

Question 5

Rationalisation

Answer 5

Reducing capacity by closing factories/production units.

Question 6

Capacity shortage

Answer 6

When demand for a business product exceeds production capacity.

Question 7

Business process outsourcing (BPO)

Answer 7

A form of outsourcing that uses specialist contractors to take responsibility for certain business functions such as human resources and finance.