Capacity utilisation

  • Created by: noe
  • Created on: 21-03-20 15:08
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    • The use a business makes of its resources
      • Full capacity- the point where the business cannot produce more output
      • Excess/surplus capacity- when a business has too many resources to produce its desired level of output
    • Capacity utilisation = current output/ maximum possible output *100
    • Under-utilisation
      • A business that is producing at less than full capacity
      • Drawbacks
        • The business may be operating inefficiently as its unit costs are not minimised
        • It might make workers feel insecure in their jobs as they may feel the business is struggling to generate orders.
        • Workers may become accustomed to a 'light' workload and may dislike working hard if the business gets more orders.
      • Benefits
        • A business will be able to cope more easily with a sudden increase in demand so customers won't be lost to rivals.
        • Less work-related stress for both workers and managers, reducing sickness and rates of staff absence.
    • Over-utilisation
      • A business that is running at full capacity and putting strain on resources
      • Benefits
        • Lowe average costs because fixed costs will be spread across more units of output - improves competitiveness and raises profits
        • Workers will feel secure at their jobs and they may be happier if there are opportunities to increase their earnings by doing overtime
        • A busy operation can improve the company's image, increasing the confidence in customers.
      • Drawbacks
        • It causes stress and tiredness on the workforce, increasing the risk of accidents or absence
        • Machines more likely to breakdown resulting in high costs and losses for the business
        • A business may not be able to respond to an increase in demand, losing orders from customers
        • There may be insufficient time for staff training and importance maintainance work


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