Capacity And Capcity Utilisation

Question 1

What is Capacity Utilisation?

Answer 1

Capacity utilisation measures the existing output over a given period as a percentage of the maximum output

Question 2

How is capacity utilisation calculated?

Answer 2

(Existing Output /Max. Possible Output)

x100

Question 3

What is capacity?

Answer 3

Capacity is the maximum output of a business at a moment in time given its resources

Question 4

At what level of capacity utilisation will fixed costs per unit be lowest of any firm?

Answer 4

100%

Unit (average) cost falls as capacity utilisation increases

Question 5

What is meant by the term 100% capacity utilisation?

Answer 5

Maximum capacity

Question 6

What are the pros and cons of high capacity utilisation?

Answer 6

Pros:
• No (or little) assets are idle
• Minimises Unit Costs

Cons:
• Negative effect on quality
• Employees suffer

Question 7

What are the pros and cons of low capacity utilisation?

Answer 7

Pros:
• Less stress for employees
• May be better quality

Cons:
• Increased unit costs
• Idle assets