capacity utilisation

Question 1

what is capacity

Answer 1

the maximum output a business can produce in a given period

Question 2

what does capacity of business depends on

Answer 2

number of employees
technology the business has
machinery
what kind of production process it uses

Question 3

capacity utilisation

Answer 3

how much capacity a business is using

Question 4

capacity utilisation formula

Answer 4

output / capacity x 100

Question 5

What is a drawback of 100% capacity utilisation related to potential customers?

Answer 5

The business may have to turn away potential customers because it cannot increase output anymore.

Question 6

Why is a lack of downtime a drawback of 100% capacity utilisation?

Answer 6

Machines breaking down may cause delays since there is no time for maintenance.

Question 7

How does 100% capacity utilisation increase the chance of errors?

Answer 7

There is no margin of error, leading to stress and potential mistakes.

Question 8

Why is 100% capacity utilisation problematic for seasonal demand or one-off orders?

Answer 8

The business cannot temporarily increase output to meet these demands.

Question 9

What happens if output exceeds demand in 100% capacity utilisation?

Answer 9

There will be surplus stock, which ties up working capital in inventory.

Question 10

How can a business increase capacity by using its facilities?

Answer 10

By using facilities for more of the working week, such as extending operating hours or adding shifts.

Question 11

What is one way to increase capacity involving equipment and staffing?

Answer 11

Buy more machines (if affordable) and employ more staff to operate them, ensuring proper training to maximise efficiency.

Question 12

How can staff levels be increased to boost capacity in the long term?

Answer 12

By recruiting permanent new staff, which can ensure consistent production levels over time.

Question 13

What is a short-term staffing solution to increase capacity?

Answer 13

Employ temporary staff during peak periods or seasonal demand to handle extra workload without long-term commitment.

Question 14

How can a business improve capacity without adding new resources?

Answer 14

By increasing productivity through better processes, technology upgrades, or targeted training programs.

Question 15

How can motivation affect capacity?

Answer 15

Increasing motivation, such as through incentives or improved working conditions, can enhance efficiency and output.

Question 16

What can a business do to increase capacity if a rise in demand is temporary?

Answer 16

Outsource production to trusted third parties, which allows flexibility without investing in long-term resources.

Question 17

What is under-utilisation, and why is it inefficient?

Answer 17

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.

Question 18

How does under-utilisation increase unit costs?

Answer 18

Fixed costs remain constant, so producing fewer units means that each unit has a higher share of fixed costs.

Question 19

What are two ways businesses deal with under-utilisation?

Answer 19

Stimulate demand: Use marketing or promotions to increase demand.
Reduce capacity: Close factories, stop overtime, or lease spare capacity to other firms.

Question 20

What must firms consider when planning for capacity changes over time?

Answer 20

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.

Question 21

What is the formula for capacity utilisation?

Answer 21

CapacityUtilisation(%)=
MaximumPossibleOutput
ActualOutput
​
×100

Question 22

What is the long-term benefit of aligning capacity with demand?

Answer 22

Lower unit costs and more efficient use of resources.