Capacity utilization and outsourcing 4.3

Question 1

Define the term “Capacity utilization”

Answer 1

The proportion of maximum output capacity currently being achieved.

Question 2

How can we calculate capacity utilization?

Answer 2

Current output level/Maximum output level x 100

Question 3

Define the term “Excess capacity”

Answer 3

Exists when the current levels of demand are less than the full capacity output of a business - also known as spare capacity.

Question 4

Define the term “Rationalization”

Answer 4

Reducing capacity by cutting overheads to increase efficiency of operations, such as closing a factory or office department, often involving redundancies.

Question 5

Define the term “Full capacity”

Answer 5

When a business produces at maximum output

Question 6

Define the term “Capacity shortage”

Answer 6

When the demand for a business’s products exceeds production capacity.

Question 7

Define the term “Outsourcing”

Answer 7

Using another business to undertake a part of the production process rather than doing it within the business using the firm’s own employees.

Question 8

Define the term “Business process outsourcing (BPO)”

Answer 8

A form of outsourcing that uses a third part to take responsibility for certain business functions, such as HR and finance.