Chapter 38: Capacity Utilisation Flashcards
What is capacity utilisation
a measure of the extent to which the productive capacity of a business is being used.
Formula fro capacity utilisation
CU= current output/ maximum possible output *100
What is under-utilising?
A situation where a business is operated at output levels below the output level at which short-run avergae cost is at a minimum
3 drawbacks of under-utilising
Not be making full use of resources
May be operating inefficently
Workers lack motivation, therfore begin to fel insecure about their job.
3 benefits of under-utilizing
Able to cope more easily with the sudden increase in demand.
Less work related stress for the staff as there is more comfortable work load
More able to meet certain customer needs, this increases loyalty
3 drawbacks of over-utilisation
Can put a strain on resources
If flow production is used, breakdowns can be hugely expenssive
Insufficent time for staff traianign and important maintence work
3 benefits of over utilisation
Average costs will be lower because fixed costs will be spread across more units of output
Staff motivation levels will be high as workers feel more secure in their jobs
Busy operation will improve comany image and put more trust in the company’s image
3 ways of improving capacity utilisation
Reduce capacity: reducing excess capacity by getting rid of resources
Increase sales: spend more on promotion to increase sales
Increase usage: increase usuage during off peak hours
Outsourcing: a business practice in which services or job functions are farmed out to a third party.
Redeployment: deploy reosurces into another part of the business
What is rationalisation?
Reducing numbers of resources, particulary labour and capital, put into the production process, usually undertaken because a business has excess capacity
