capacity utilisation Flashcards
what is capacity?
maximum total level of output a business can produce. q
what is the capacity utilisation?
this is a % of a firms total possible output - usually 95%
what is under utilisation?
when a business is producing under what they can potentially produce.
what is spare capacity?
what capacity is left, which gives a business room to meet unexpected demand.
what is a capacity shortage?
when a firm lacks the resources to meet high levels of demand.
what is the formula for capacity utilisation?
the total possible level of output being produced X 100
why is under utilisatiion bad?
- fixed costs are not being spread out = making unit costs higher
- suggests you are not benefiting from technical eos
- waste of human and technological resources
- un-motivated staff if they are not utilised
- no opportunities for over time
- suggests a business is not selling enough
is 100% capacity utilisation good short term?
this point is very important:
- short-term it is a good thing as its a one off burst of demand and sales rev
- may have know choice due to seasonal demand e/g/ a pub garden in summer.
is 100% capacity utilisation good in the long-term?
- no
- as it means turning customers away
- overcrowding
- possible quality problems
- no time for maintenance e.g. cleaning
- no time for training
- no time for production
what is the idea capacity utilisation?
- depends on the context
examples of how a firm may operate over 100% capacity?
- additional hours
- subcontracting the work
