Capacity utilisation(2.4.2)

Question 1

What is capacity utilisation?

Answer 1

a measure of the level to which a businesses assets are being used to produce output

Question 2

Capital utilisation

Answer 2

compares current output to the maximum possible output q business can produce using all its assets
percentage

Question 3

Capacity utilisation equation

Answer 3

(current output / maximum possible output) x 100

Question 4

Under utilisation

Answer 4

if a business has low level of capacity utilisation it will not be making the most of capacity
fixed costs are spread over fewer units of output resulting in higher average total costs
workers may be under deployed leading to fear of dismissal
does provide a business with flexability
may be opportunity to engage workers in maintenance tasks
business can respond to sudden increase in demand

Question 5

Over utilisation

Answer 5

if a business has a high level of capacity utilisation it will not have the flexibility to respond to new orders from customers
staff will be under a lot of pressure to produce high levels of output
overworked staff may be inclined to leave increasing staff turnover
machinery may be pushed to its limits and prone to breakdowns which disrupts production and increase costs
will minimise average costs and increase business competitiveness

Question 6

Factors that improve capacity utilisation

Answer 6

increase demand
outsourcing
increase usage
reduce capacity
redeployment

Question 7

Increase demand - factors that improve capacity utilisation

Answer 7

increased sales require more units to be produced
but promotional spending may need to be increased

Question 8

Outsourcing - factors that improve capacity utilisation

Answer 8

subcontracting some tasks to outside businesses can increasr the level of output
but profit margins may be reduced

Question 9

Increase usage - factors that improve capacity utilisation

Answer 9

encouraging sales when demand is usually lower stabilises utilisation
but prices may need to be lowered

Question 10

Reduce capacity- - factors that improve capacity utilisation

Answer 10

sell fixed assets or reduced staffing levels to remove excess capacity
but flexibility to respond to increased demand is reduced