Capacity Utilisation

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  • Capacity Utilisation
    • Capacity is the maximum output that a business can produce in a given period with the available resources
      • A company producing at this level is working at full capacity
    • Capacity Utilisation is the percentage of the total capacity that is actually being achieved in a given period
      • A company large enough to produce 100 units a week but producing 92 units has a capacity Utilisation of 92% (92/100 x 100=92%)
    • Spare capacity is the units or percentage that isn't being made out of the full capacity
      • Producing 2,800 units when could be making 3, 500 units ... spare capacity of 700 units or 20%
    • Why have spare Capacity???
      • Lower market demand
      • Increase in capacity (provides slack)
      • New competitors
      • Seasonal demand
      • Help cope with unexpected problems
      • Less stress on staff
    • Negatives of spare capacity
      • Higher proportion of fixed costs
      • Increase selling price to maintain profit
      • Portray a negative image
      • Demoralising for workers
    • Rationalis-ation is a process where a firm improves its efficiency by cutting the scale of its operations
      • Selling off all or a part of its production area
      • Shorter working week/day
      • Redundant staff
      • Transferring resources from another area
    • Subcontacting is when an organisation asks another business to make all or a part of its product
    • Stock control is the management of levels of raw materials, work in progress and finished goods in order to reduce storage costs while still meeting the demands of the customer
      • High levels of stock...
        • Demands promptly met
        • No loss of good service
        • Production lines are not halted because of shortages of raw materials
        • Companies benefit from bulk buying and longer production runs
      • Low stock levels...
        • Reduced storage/ warehouse costs are possible
        • Opportunity cost low
        • Products less likely to become out of date/fashion
        • Cash flow problems due to cash in stock is less likely
    • Non standard orders is a business decision relating to a one-off contract. Usually the non-standard order needs a response to a request to supply a fixed quantity of a product at a particular (lower than usual) price
      • Agreed on the influence of...
        • Effect on production
        • Flexibility of capacity
        • Impact on costs
        • Potential for future (profitable) orders
        • Effect on staff


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