capacity utilisation Flashcards
what is capacity
the maximum output a business can produce in a given period
what does capacity of business depends on
number of employees
technology the business has
machinery
what kind of production process it uses
capacity utilisation
how much capacity a business is using
capacity utilisation formula
output / capacity x 100
What is a drawback of 100% capacity utilisation related to potential customers?
The business may have to turn away potential customers because it cannot increase output anymore.
Why is a lack of downtime a drawback of 100% capacity utilisation?
Machines breaking down may cause delays since there is no time for maintenance.
How does 100% capacity utilisation increase the chance of errors?
There is no margin of error, leading to stress and potential mistakes.
Why is 100% capacity utilisation problematic for seasonal demand or one-off orders?
The business cannot temporarily increase output to meet these demands.
What happens if output exceeds demand in 100% capacity utilisation?
There will be surplus stock, which ties up working capital in inventory.
How can a business increase capacity by using its facilities?
By using facilities for more of the working week, such as extending operating hours or adding shifts.
What is one way to increase capacity involving equipment and staffing?
Buy more machines (if affordable) and employ more staff to operate them, ensuring proper training to maximise efficiency.
How can staff levels be increased to boost capacity in the long term?
By recruiting permanent new staff, which can ensure consistent production levels over time.
What is a short-term staffing solution to increase capacity?
Employ temporary staff during peak periods or seasonal demand to handle extra workload without long-term commitment.
How can a business improve capacity without adding new resources?
By increasing productivity through better processes, technology upgrades, or targeted training programs.
How can motivation affect capacity?
Increasing motivation, such as through incentives or improved working conditions, can enhance efficiency and output.
What can a business do to increase capacity if a rise in demand is temporary?
Outsource production to trusted third parties, which allows flexibility without investing in long-term resources.
What is under-utilisation, and why is it inefficient?
Under-utilisation occurs when a business is not using its full capacity. It is inefficient because fixed costs are spread over fewer units, leading to higher unit costs.
How does under-utilisation increase unit costs?
Fixed costs remain constant, so producing fewer units means that each unit has a higher share of fixed costs.
What are two ways businesses deal with under-utilisation?
Stimulate demand: Use marketing or promotions to increase demand.
Reduce capacity: Close factories, stop overtime, or lease spare capacity to other firms.
What must firms consider when planning for capacity changes over time?
Demand changes over time.
Use market research to predict future demand.
Short-term changes provide flexibility.
Long-term solutions may lower unit costs but involve some risk.
What is the formula for capacity utilisation?
CapacityUtilisation(%)=
MaximumPossibleOutput
ActualOutput
×100
What is the long-term benefit of aligning capacity with demand?
Lower unit costs and more efficient use of resources.
