resource management

Question 1

capacity

Answer 1

the maximum possible output of a business

Question 2

why do businesses continually aim to operate close to full capacity

Answer 2

to avoid waste and boost profitability, assets sitting around a business producing no profit are inefficient

Question 3

calculation capacity utilisation

Answer 3

(current output/ maximum possible output) x 100

expressed as a percentage

Question 4

capacity utilisation

Answer 4

the proportion of maximum capacity being used by a business

Question 5

implications of under utilisation in relation to fixed costs

Answer 5

this means that fixed costs per unit will be higher as a greater amount of revenue generated by each product must be used to cover fixed costs, reducing operating margins.

Question 6

other implications of under utilisation

Answer 6

• lead to fears for job security among staff, damaging motivation
• causes poor morale among managers
• contribute to poor rep especially in services sector

Question 7

implications of over utilisation

Answer 7

• the firm may be unable to accept new order, possibly turning away new customers to rivals
• there will be little or no time to carry out maintenance on machines or train staff

Question 8

what is the ideal level of capacity utilisation

Answer 8

close to 100% without ever staying at 100% for a long period of time

Question 9

ways of improving capacity utilisation (boosting the proportion of maximum output

Answer 9

• increase current output: e.g by using marketing methods to boost volume of sales, or cutting selling price
• reduce maximum capacity: involve selling off assets or laying off staff, as this will reduce fixed costs