A measure of how much output it can achieve in a given period.
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How can capacity change?
A machine could be having maintenance, by working more production shifts. Season or unexpected changes
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What is Capacity Utilisation?
The proportion (%) of a business' capacity that is being used over a specific period.
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What is the formula for capacity utilisation?
(Actual Level of Output / Maximum Possible Output) x 100
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Why is Capacity Utilisation important?
Useful measure of productive efficiency since it measures whether there are idle resources in a business. Average production costs tend to fall as output rises. Businesses usually aim to produce as close to full capacity as possible. to break-even
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What are they key costs of capacity?
Equipment e.g. production line. Facilities e.g. building, rent, insurance. Labour: wages and salaries
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Why do businesses operate below full capacity?
Lower demand than expected, A loss of market share, Seasonal variations in demand, Recent increase in capacity, Maintenance and repair programmes.
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What are the dangers of operating at low capacity utilisation?
Higher unit costs - impact on competitiveness. Less likely to reach breakeven output. Capital tired up in under-utilised assets
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How can a business work above full capacity utilisation (100%)
Increase workforce hours, Sub-contract some production activities, Reduce time spent maintaining production equipment - ALL SHORT TERM.
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What are problems of working at a high capacity?
Possibily a negative effect on quality, Employees may suffer and a loss of sales
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Other cards in this set
Card 2
Front
How can capacity change?
Back
A machine could be having maintenance, by working more production shifts. Season or unexpected changes
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