Capacity utilisation

Question 1

Capacity

Answer 1

Measure of how much output a business can achieve in a given period.

Question 2

Capacity utilisation

Answer 2

Percentage of a businesses capacity that is actually being used over a specific period.

Question 3

Capacity utilisation Formula

Answer 3

Actual level of output/ Maximum possible output x 100

Question 4

Why capacity utilisation matters?

Answer 4

Useful measure of productive efficiency.
Higher utilisation can reduce unit cost.
Higher level of capital utilisation needed for higher break even.

Question 5

Why most businesses operate below capacity?

Answer 5

Lower than expected market demand
Loss of market share
Seasonal variations in demand.

Question 6

What do businesses do when capacity utilisation is low?

Answer 6

Increase promotion

Question 7

Dangers of low capacity utilisation

Answer 7

Higher unit costs
Less likely to reach break even

Question 8

Can businesses work at high levels of capital utilisation?

Answer 8

Increase workforce hours
Reduce time spent maintaining production equipment.

Question 9

Dangers of high capacity utilisation

Answer 9

Negative effect on quality
Employees suffer
Loss of sales as less likely to be able to meet demand