Chapter 25: Capacity Utilisation And Outsourcing

Question 1

Define capacity utilization

Answer 1

Capacity utilisation: the proportion of maximum output capacity currently being achieved.

Question 2

Define excess capacity

Answer 2

Excess capacity: exists when the current levels of demand are less than the full capacity output of a business – also known as spare capacity.

Question 3

Define rationalization

Answer 3

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

Question 4

Define full capacity

Answer 4

Full capacity: when a business produces at maximum output.

Question 5

Define capacity shortage

Answer 5

Capacity shortage: when the demand for a business’s products exceeds production capacity.

Question 6

Define outsourcing

Answer 6

Outsourcing: using an other business (a‘thirdparty’) to undertake a part of the production process rather than doing it within the business using the firm’s own employees.

Question 7

Define business process outsourcing

Answer 7

Business-process outsourcing (BPO): a form of outsourcing that uses a third party to take responsibility for certain business functions, such as HR and finance.

Question 8

Define maximum capacity

Answer 8

Maximum capacity is the total possible level of sustained output a business can achieve in a given period of time and with the existing resources and facilities