Capacity Utilization (2.4.2)

Question 1

What is Capacity utilization?

Answer 1

A measure of how much capacity a business is using. If a business is running at full capacity its capacity utilization will be 100%.

Question 2

What is the percentage that capacity utilization wants to be at? Why?

Answer 2

85%-90% so the business can take additional orders if demand increases suddenly.

Question 3

What’s the equation for Capacity Utilization?

Answer 3

Capacity Utilization= (Current Output/ Maximum Possible Output) x100

Question 4

What are the ways in which you can improve Capacity utilization?

Answer 4

-Reduce Capacity
-Increase Sales (Various Methods)
-More consistent orders
-Outsourcing idle departments
-Redeploying Idle Staff

Question 5

What happens when working at full capacity? (Costs, Staff)

Answer 5

• Spreads costs over more units of output so lower unit costs
  -Improves staff morale as job security will be higher

Question 6

What happens when working below full capacity?

Answer 6

-Allows firm to meet unexpected orders
-Workers have higher workload reducing stress/ absenteeism