Capacity Utilisation Flashcards
1
Q
What is meant by capacity?
A
Describes the maximum possible output of a business
2
Q
What is meant by capacity utilisation?
A
The proportion of maximum capacity being used by the business
3
Q
What is the formula for capacity utilisation?
A
Current output/ maximum possible output x 100
4
Q
3 implications to a business of under utilisation
A
- lead to fears for job security among staff, damaging motivation
- cause poor morale among managers
- contribute to poor reputation for the business, especially in the service sector
5
Q
2 ways of improving capacity utilisation
A
- increase current output: use marketing methods to boost the volume of sales, cut selling price
- reduce maximum capacity: selling off assets or laying off staff
6
Q
State 2 reasons why 100% capacity utilisation can be a problem
A
- form may be unable to accept any new orders, potentially turning away new customers to rivals
- there will be little or no time to carry out maintenance on machines or train staff
7
Q
Why is capacity utilisation an important concept?
A
- useful measure of productive efficiency since it measures whether there are unused reservoirs in the business
8
Q
Reasons why businesses operate below full capacity
A
- lower than expected market demand
- a loss of market share
- seasonal variations in demand
- recent increase in capacity
- maintenance and repair programmes
