Capacity Management Flashcards
1
Q
Define capacity
A
the capacity of a business is a measure of how much output it can achieve in a given period.
2
Q
What are some examples of when/why capacity can change?
A
- when a machine is having maintenance, capacity is reduced.
- capacity is linked to labour: more labour, more capacity.
- capacity needs to take account of seasonal or unexpected changes in demand, eg higher demand for ice cream factory in summer.
3
Q
Define capacity utilisation
A
The proportion (percentage) of a business’ capacity that is being used over a specific period.
4
Q
How do you calculate capacity utilisation?
A
(actual level of output/maximum possible output) x 100
5
Q
Why does capacity utilisation matter?
A
- measure of productive efficiency by looking at unused resources.
- higher utilisation can reduce unit costs, making a business more competitive.
- a high level of capacity utilisation is required if a business has a high breakeven output due to significant fixed costs of production.
6
Q
What are the key costs of capacity?
A
- equipment, eg production line.
- facilities, eg building rent, insurance.
- labour, eg wages and salaries of employees in production.
7
Q
Why do most businesses operate below capacity?
A
- lower than expected market demand.
- a loss of market share.
- seasonal variations in demand.
- recent increase in capacity.
- maintenance and repair programmes.
8
Q
What are the dangers of operating at low capacity utilisation?
A
- higher unit costs: impact on competitiveness.
- less likely to reach breakeven output.
- capital tied up in underutilised assets.
9
Q
How can a business operate at more tan 100% capacity utilisation?
A
- increase workforce hours.
- sub contarct some production.
- reduce time spent maintaining production equipment.
10
Q
What are the problems of working at high capacity?
A
- possible negative effect on quality.
- employees suffer.
- loss of sales.
