Capacity

  • Created by: Charlotte
  • Created on: 31-10-18 18:37
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  • Capacity
    • Capacity Definition
      • A measure of how much output it can achieve in a given period.
        • In exams give what this period is e.g. per day, month, week, year etc.
    • Capacity Utilisation
      • The percentage of a business' capacity that is actually being used over a specific period.
      • Expressed as a percentage.
      • Actual level of output / maximum possible output  X100
      • Why capacity utilisation matters
        • It is a useful measure of productive efficiency since it measures whether there are idle (unused) resources in the business.
        • Businesses usually aim to produce as close to full capacity (100% utilisation) as possible in order to minimise unit costs.
    • Capacity is a dynamic concept
      • Capacity can change.
      • Capacity is linked to labour
        • e.g. by working more production shifts, capacity can be increased.
      • Capacity needs to take account of seasonal or unexpected changes in demand e.g. doctors or Garsons.
    • The costs of capacity
      • Equipment e.g. production line
      • Facilities e.g. building rent, insurance.
    • Can a business operate at more than 100% capacity?
      • Can be possible in the short term
      • Increase workforce hours
        • Extra shifts; encourage overtime; temporary staff.
      • Sub-contract some production activities
        • Some problems of doing this could include ethics-morals could not be the same, out of your control-quality, time-might not be completed in your specifies time limit. Consequently, brand issue could suffer.
        • E.g. assembly components
      • Reduce time spent maintaining production equipment.
    • Problems working at High Capacity
      • Negative effect on quality (possibly)
        • Production is rushed.
        • Less time for quality control- less time for making sure the product is perfect.
      • Loss of Sales
        • Less able to meet sudden or unexpected increases in demand.

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