1.38 Capacity Utilisation Flashcards
(11 cards)
Front
Back
What is the formula for capacity utilisation?
(Current output ÷ Maximum possible output) × 100
What does 100% capacity utilisation mean?
The business is using all its available resources at full capacity.
What is under-utilisation?
When a business operates below its full capacity.
Give one problem of under-utilisation.
Higher unit costs due to fixed costs being spread over fewer units.
What is over-utilisation?
When a business operates above sustainable full capacity, stretching resources.
State one drawback of over-utilisation.
Staff may become overworked, leading to mistakes or burnout.
What is rationalisation?
Reducing resources like labour or capital to cut excess capacity.
What is meant by ‘mothballing’?
Leaving machines/equipment unused but maintained for future use.
How can outsourcing help capacity utilisation?
It handles excess demand without overloading internal resources.
Name two ways to improve capacity utilisation.
Increase demand (e.g. off-peak discounts) or reduce capacity (e.g. sell assets).
