More business

Question 1

How is labour productivity calculated?

Answer 1

Output (per period) / Number of employees (per period)

Question 2

How is capital productivity calculated?

Answer 2

Output / Capital employed

Question 3

How can productivity in the workplace be improved?

Answer 3

• Technology
• Lean Production
• Training
• Workplace reorganisation

Question 4

What are the advantages of high productivity?

Answer 4

• increased economies of scale, as the business is more productive, the business buys more supplies from suppliers and thus there cost per unit is likely to decrease
• Increased competitiveness, businesses are able to match and sometimes outdo existing competition which results in more efficiency within the workplace and industry.
• Spreading of fixed costs over higher output
• Lower unit costs
• Performance bonuses to workers.

Question 5

What are the problems of a business operating at spare capacity?

Answer 5

• Demotivation of staff, overtime is not available, bonuses are limited, threat of redundancy
• increased costs to the business, businesses may be forced to make workers redundant in which they’ll have to pay redundancy payments.
• reduced profits, this will limit capital for investment and development.
• lack of return on investment capital, producer goods will continue to depreciate, even though they are no being used to full capacity.

Question 6

How can a business deal with spare capacity?

Answer 6

• Subcontracting of production; If there is low utilisation then it might make sense to subcontract to another business. This means getting someone else to produce the goods for you. By using a subcontractors there is a reduction in risk to the business. If the business is not making the goods it does not have to buy the machines to make the goods.
• Rationalisation :
  This means concentrating on core products or services and disposing of those products or services that are not seen as profitable or necessary to the business’s long term success. rationalisation implies redundancy costs.
  Increasing use of assets:
  most attractive option as it removes many of the costs associated with the other methods of rationalisation. e.g supermarkets could include hairdressers or chemists.

Question 7

What are the problems with working at full capacity?

Answer 7

• Lack of flexibility
• more breakdowns/failures
• pressure on staff
• possible fall in quality

Question 8

What is capacity?

Answer 8

• This is the maximum amount of output that can be achieved over a period of time.
• The level of capacity a business has will depend on many factors but mainly the firms resources such as machinery, buildings and labour.
• A business can change their resources over time and so therefore they can change their capacity.

Question 9

What is capacity utilisation? How is it worked out?

Answer 9

• The percentage of a firm’s total possible production level that is being reached. Capacity utilisation is measured using the following formula
• current output / maximum possible output X 100

Question 10

What are the reasons for under utilisation?

Answer 10

• New competitors or new products entering the market
• fall in demand for the product as a whole due to the changes in taste and fashion
• unsuccessful marketing
• seasonal demand
• over investment in fixed assets
• a merger of takeover leading to duplication of many resources

Question 11

How can under affect a business?

Answer 11

• Under utilisation can benefit a business as it allows for routine maintenance and other machinery checking to take place, staff are usually less stressed too
• However, low capacity levels can cause unit costs to rise. The business may have to increase the produce price to meet these rising costs. Also staff can become bored and demotivated

Question 12

How can businesses push production as much as possible?

Answer 12

• By increasing the hours of the workforce, taking on temporary staff or allowing over time
• subcontract the work to others, this is an effective way of meeting short term demand
• reallocate workers, this is achieved by making workers flexible and placing them where they are needed.

Question 13

What are the drawbacks of over utilisation?

Answer 13

• Poor quality of output and poor customer service
• stress and strain on staff and other resources
• possible loss of sales