Paper 2- Theme 2.4- Resource Management

Question 1

define capacity

Answer 1

maximum amount of output a firm can produce at a given moment with its existing resources

Question 2

define capacity utilisation

formula

Answer 2

% of a business maximum output that a business is actually producing at

current output
___________ x 100
maximum output

Question 3

Benefits of high capacity utilisation

reversed for being under capacity

Answer 3

• fixed cost per unit at lowest (more profit)
• maximise resource efficiency- staff more productive and efficient
• –> and less wasted space
• maximise sale opportunities –> meet demand
• positive brand image- look busy (only in stores)
• higher chance of meeting break even output

Question 4

Negatives of high capacity utilisation

reversed for being under capacity

Answer 4

• stressed staff (lower morale) —> - high staff turnover
• less quality as more possible mistakes
• can’t respond to new demand
• possible downtime if machinery need mantainence –> lower customer satisfaction as delay

Question 5

implications of over capacity utilisation

Answer 5

√- overtime costs to allow factory to run above capacity maximum, produce more
X - mistakes increase or drop in quality if using machinery or staff above recommended limits
X - staff fatigue, lower motivation
X - cant maintain machinery, inevitable repairs will disrupt production

Question 6

causes of having spare capacity

Answer 6

• management want to be agile in responding to demand
• developments of technology lead to higher capacity
• fall in demand (change in taste and trends)
• increase in competition
• economy worsen (recession), so lower disposable income for consumers
• mismanagement of resources

Question 7

ways to increase capacity utilisation

Answer 7

• motivate staff
• increase workforce hours
• increase demand- marketing, release new product
• rationalisation and redundancy (close down some areas if capacity is larger than demand suggests it should be (excess capacity))