capacity utilisation

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capacity utilisation definition
the optimum level is 90% allowing fixed costs to be low as they are spread over large number of units, scope to meet new orders
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reasons why a firm may be operating below max capacity
new competitors, fall in demand, seasonal demand, merger/takeover
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how would business cut capacity
reduce number of shifts, move to smaller premises, sell off fixed assets (machinery)
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how would a business increase capacity
overtime, flexible workforce, building factories, hire new staff
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advantages of spare capacity
time for maintenance repair/training, less stress, business can cope with a sudden increase in demand
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disadvantages of spare capacity
higher unit costs, lower profit levels, can portray a negative image (fitness club), employees may become bored and demotivated
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drawbacks of working at 100% capacity utilisation
staff feel under pressure leading to mistakes-absenteeism-labour turnover, overtime is expensive, overcrowded factory space, cant take on new orders, no time for maintenance
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rationalisation definition
reducing capacity to save unnecessary expenditure
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ways of rationalising
lay off workers, shorter working days, sell part of production area
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Other cards in this set

Card 2

Front

reasons why a firm may be operating below max capacity

Back

new competitors, fall in demand, seasonal demand, merger/takeover

Card 3

Front

how would business cut capacity

Back

Preview of the front of card 3

Card 4

Front

how would a business increase capacity

Back

Preview of the front of card 4

Card 5

Front

advantages of spare capacity

Back

Preview of the front of card 5
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