capacity utilisation

Question 1

what is capacity?

Answer 1

maximum total level of output a business can produce. q

Question 2

what is the capacity utilisation?

Answer 2

this is a % of a firms total possible output - usually 95%

Question 3

what is under utilisation?

Answer 3

when a business is producing under what they can potentially produce.

Question 4

what is spare capacity?

Answer 4

what capacity is left, which gives a business room to meet unexpected demand.

Question 5

what is a capacity shortage?

Answer 5

when a firm lacks the resources to meet high levels of demand.

Question 6

what is the formula for capacity utilisation?

Answer 6

the total possible level of output being produced X 100

Question 7

why is under utilisatiion bad?

Answer 7

• fixed costs are not being spread out = making unit costs higher
• suggests you are not benefiting from technical eos
• waste of human and technological resources
• un-motivated staff if they are not utilised
• no opportunities for over time
• suggests a business is not selling enough

Question 8

is 100% capacity utilisation good short term?

Answer 8

this point is very important:

• short-term it is a good thing as its a one off burst of demand and sales rev
• may have know choice due to seasonal demand e/g/ a pub garden in summer.

Question 9

is 100% capacity utilisation good in the long-term?

Answer 9

• no
• as it means turning customers away
• overcrowding
• possible quality problems
• no time for maintenance e.g. cleaning
• no time for training
• no time for production

Question 10

what is the idea capacity utilisation?

Answer 10

• depends on the context

Question 11

examples of how a firm may operate over 100% capacity?

Answer 11

• additional hours

- subcontracting the work