Capacity Utilisation Flashcards
Capacity utilisation
The % of the firms total possible production capacity that is actually being used
Capacity Utilisation Formula
Capacity Utilisation= (Current output/maximum possible output) x100
Advantages of spare capacity
Less stress on workers
Firm can cope with new ideas
Better customer experience EG; gyms or planes
More time for maintenance and repairs
Problems with spare capacity
Higher fixed costs per unit
Staff become bored/ demoralised
Can portray negative business image
Ways of improving capacity utilisation
Increase sales
Increase usage
Over utilisation of capacity
Too much pressure for workers which can make them less efficient
Cause stress and fatigue
Business may not know how to respond to increased demand
Causes of low capacity
New competitors may take over the market
Unsuccessful marketing
Fall in demand
Seasonal demands
External shocks