4.2 analysing operational performance

Question 1

define productivity

Answer 1

How well a business uses resources such as raw materials and labour in order to create their product.

Question 2

define labour productivity (formula)

Answer 2

Measures the output per employee

Labour productivity = Output (per period)
Number of employees (per per

Question 3

Problems associated with labour productivity:

Answer 3

• Do you measure the productivity of all staff?
• What about maintenance staff, admin and management?
• Should only direct labour i.e shop floor workers have their productivity managed?
• How should part time employees be treated?
• Long term sick?

Question 4

unit costs formula:

Answer 4

Unit costs = total costs

output

Question 5

Q: Fixed costs are £2,000, variable costs are 50p for 750 units. What is the unit cost?

Answer 5

0.50 x 750 = £375
£375 + £2,000 = £2,375 total cost
£2,375 / 750 = £3.17 = unit cost

Question 6

define capacity utilisation:

Answer 6

the capacity measures the maximum a business can produce with its existing resources.

-> If a business is using all resources, they are at maximum capacity.

Question 7

capacity utilisation formula:

Answer 7

Capacity Utilisation = current output

Maximum possible output x 100

Question 8

what is low capacity utilisation?

Answer 8

• > Suggests that demand is reasonably low
• > Unused resources
• > Costs per unit are likely to be high (fixed costs are spread over small amount of units)

Question 9

what is high capacity utilisation?

Answer 9

• > Can be lack of room for errors
• > Depends on the business
• > Lacks some degree of flexibility