3.4 - Operational Managment

Question 1

What is capacity

Answer 1

The capacity of a business is a measure of how much output it can achieve in a given period

Question 2

What is capacity utilisation

Answer 2

The proportion (percentage) of a business capacity that is actually being used over a specific period

Question 3

Why is capacity utilisation important

Answer 3

a useful measure of productive efficiency
higher utilisation can reduce unit costs
producing close to full capacity can reduce unit costs
a high level of capacity utilisation is required if a business has a high break even output

Question 4

Why businesses operate below 100%

Answer 4

lower than expected market value
a loss of market share
seasonal variations in demand
recent increase in capacity
maintenance and repair programmes

Question 5

What are the dangers of high utilisation

Answer 5

negative effect on quality
employees suffer
loss of sales

Question 6

What are the danger of low utilisation

Answer 6

high unit cost
less likely to reach breakeven output