4.2b Capacity Flashcards
1
Q
Capacity definition
A
Maximum output that a business can produce in a given period with the available resources
2
Q
Capacity utilisation definition
A
Percentage of total capacity that is actually being achieved in a given time period
3
Q
Capacity shortage definition
A
Too much output
4
Q
Under-utilised/spare capacity definition
A
Too little output
5
Q
Capacity utilisation formula
A
Capacity utilisation = (actual level of output ÷ maximum possible output) x 100
6
Q
Advantages of operating below max output
A
- More time to maintenance and repair
- Less pressure
- Can cope better with sudden increase in demand
7
Q
Disadvantages of operating below max output
A
- Higher proportion of fixed cost per unit
- Lower profit levels
- Negative image
8
Q
Disadvantages of working at high capacity
A
- Negative effect on quality possible
- Employees suffer from added workloads and stress
- Loss of sales as less able to meet sudden increases in demand
9
Q
Capacity can be increased by
A
- Building new factories
- Encouraging staff overtime
- Hiring new staff
- Outsourcing
10
Q
What does capacity depend on?
A
- Number of employees
- Technology the business has
- Production process used e.g. lean production
- Investment in business
11
Q
How can businesses deal with spare capacity?
A
- Stimulate demand by changing marketing mix
- Fill spare capacity by outsourcing for other firms
- Reduce capacity by closing down part of production
- Reduce capacity by stopping overtime
- Reduce capacity by making staff redundant
