Topic 23 - Making Operational Decisions

Question 1

Define capacity and give the formula for capacity utilisation

Answer 1

Maximum output that a firm can achieve with its existing resources

Current output / maximum output X100

Question 2

Define and give the formula for unit cost

Answer 2

Average cost per unit of output.

Formula: total costs / total output

Question 3

Why match production(capacity) to demand?

Answer 3

So that excess or not enough capacity does not occur which causes problems.

Question 4

Causes of problems that make it difficult to match production to demand

Answer 4

Seasonal demand, economic growth or recession, staff absences, machinery breakdowns.

Question 5

Methods of matching production to demand

Answer 5

Overtime
Temporary staff
Efficiently managing stocks
Rationalisation (cutting back on staff / capacity)

Question 6

A drawback to rationalisation

Answer 6

De motivating for staff

Doesn’t cater for future demand increases

Question 7

A drawback of overtime

Answer 7

Possibly less productive and higher unit costs

Question 8

Give some examples of operational areas for a business that are given targets to attain maximum efficiency

Answer 8

Product range, new products, suppliers, quality standards, customer service.