Capacity utilisation

Created by: Michelle
Created on: 24-10-13 13:45

What is capacity utilisation?

It means: Using the resources of the business in an effective and efficient manner - this is essential to a successful business.

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What is the maximum percent of capacity?

100%

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What is the minimum percent of capacity?

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If a business is operating at a higher utilisation of capacity, what will the business be able to reduce?

The business will be able to reduce its costs and become more competitive.

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How do you calculate the capacity utilisation?

Actual/current level of output / Maximum possible output (X100)

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Name the 3 main ways you can obtain full capacity?

1 - Increase the demand for the products produced. 2 - Producing different additional products with the same resources. 3 - Reducing capacity.

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What are the possible constraints on reaching full capacity?

1 - The level of competition within the market in relation to the size of the market. 2 - The stage of the product life cycle. 3 - If the product is seasonal, therefore possible fluctuations in demand etc.

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What are some benefits of operating at full capacity?

1 - As c.u increased, the average unit cost will fall, meaning variable costs may benefit from economies of scale (bulk-buying). 2 - Less waste of resources. 3 - Profits may increase, as a result of falling unit costs. 4 - Opportunities for bonuses.

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What are some costs/disadvantages of operating at full capacity?

1 - There is little or no opportunity for maintenance and therefore if there are breakdowns, this will cost the business. 2 - Additional orders will either be impossible to meet or will require significant additional costs. 3 - Demotivated employees

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What is Over-utilisation of capacity?

This is only a short-term factor, when resources are pushed beyond their normal levels.

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Other cards in this set

Card 2

Front

What is the maximum percent of capacity?

Back

100%

Card 3

Front

What is the minimum percent of capacity?

Back

Card 4

Front

If a business is operating at a higher utilisation of capacity, what will the business be able to reduce?

Back

Card 5

Front

How do you calculate the capacity utilisation?

Back

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Capacity utilisation