Capacity utilisation Flashcards
(11 cards)
What is capacity?
The maximum output produced in a given period with current resources.
What are some factors that influence capacity?
No. of employees
Technology
Production process
What is capacity utilisation?
The percentage of total possible output that is actually being produced.
What is the formula for capacity utilisation?
Capacity utilisation = output/capacity x 100
Why is it not good to have 100% capacity utilisation?
Can’t respond to sudden increases in demand
Machines may breakdown
No time for maintenance or repairs
What are some ways a business can increase its capacity?
Hire more staff
Buy more machines
Outsource production
What is outsourcing?
Paying another business to do work for you.
How does under-utilisation increase costs?
It causes fixed costs to be spread over fewer units of output.
How do businesses deal with under-utilisation?
By increasing demand or reducing capacity.
How can a business increase demand?
By offering promotions or discounts.
How can a business reduce capacity?
By closing underused facilities or reducing working hours.
