Capacity utilisation

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  • Created by: Loren
  • Created on: 26-04-13 14:14
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  • Capacity utilisation
    • The percentage of total capacity that is actually being achieved in a given period
    • Actual level of output/ maxium possible output X 100
    • Why is it important?
      • Measure of productive efficiency
      • Average production costs tend to fall if output rises
    • Why do businesses operate at less than 100%
      • Lower demand
        • Loss of market share
        • Seasonal
        • Overall market demand falls
      • Increase in technology not yet matched by increase in demand
      • Inefficiency
        • Poor quality
        • Poor maintanance
        • Employee diruption
    • How can a busines improve its capacity ultilisation
      • Increase work hours
      • Sale and lease back
      • Reduce maintanance time
    • Whats wrong with performing too high?
      • Possiblity for negative effect on quality
        • Less time for quality control
        • Production is rushed
      • Loss of sales
        • Less able to ddeal with sudden changes in demand
        • Reduce production machine repairing time
      • Employees will suffer
        • Demotivated
        • added stress




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A useful revision tool which covers all the main aspects of capacity utilisation including its benefits, drawbacks and how to improve it.

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