Capacity Flashcards
1
Q
What is capacity?
A
it is the measure of how much output can be achieved in a given period.
2
Q
Why is capacity a dynamic concept?
A
- production facilities
- seasonality
- demand / consumer preference
3
Q
What is the ideal operating capacity?
A
90% with a 10% buffer region
4
Q
Why do businesses want a 10% buffer region of stock?
A
1) Maintenance
2) Additional orders
3) innovation
4) balance in workload for staff
5
Q
What is capacity utilisation?
A
the proportion (percentage) of a business capacity that is actually being used over a specific period
6
Q
How to calculate capacity utilisation?
A
(actual level of output/maximum level of output) x 100
7
Q
What are dangers of low capacity utilisation?
A
- low output
- higher unit costs (profit margins)
- demotivated staff
- competitiveness
- high waste
- less likely to reach break even
- capital tied in under utilised assets
8
Q
What are dangers of high capacity utilisation?
A
- quality
- staff are demotivated
- pressure on resources
- loss of sales
- equipment need repair
- no unexpected order
