Capacity Utilisation Flashcards
(12 cards)
Capacity utilisation
the measure of the % of potential output being achieved
Formulae
current output/maximum possible output x100
Spare capacity
when actual production is less than full capacity
What does capacity affect?
the ability of a firm to match supply to demand
What does capacity utilisation affect?
whether resources are being used efficiently or whether they are lying idle
What does over-utilisation mean that?
resources are not being made to work effectively for the business, this will result in a higher unit cost
What does over-utilisation mean?
the firm is sweating its assets i.e. they are being made to work hard
What does over- utilisation cause?
Results in a lower unit cost
May affect quality and cause stress to the resources
Importance of capacity
Ability to match supply and demand
Use more of the production capacity, it usually costs less to make each item
Image/ precipitation
Workforce motivation
Ability to achieve business objectives
Ways to improve under- utilisation
Increase demand through innovation
Decrease unit costs
Lay of workers
ways to improve over-utilisation
Increase capacity
Outsource parts of business operations
Preventive maintenance
