Capacity

• What does capacity refer to in a business context?

  Maximum amount of goods or services produced
• What are the advantages of increasing business capacity?

  • Meet consumer demand
  • Maximize revenues
  • Competitive advantage
• What are the disadvantages of increasing business capacity?

  • Higher costs
  • Potential impact on shareholder profits
  • Employee motivation effects
• Why might a business increase its capacity?

  To meet consumer demand and avoid lost sales
• What could happen if a business cannot meet demand due to low capacity?

  It could result in lost sales and reputational issues
• How can higher capacity lead to a competitive advantage?

  By fulfilling higher order volumes and demand
• What might higher costs from increasing capacity include for a car manufacturer?

  More factory space or equipment needed
• What might a courier company need to do to increase its capacity?

  Hire more staff or acquire more vehicles
• What could a gym do to increase its capacity?

  Expand space or extend opening hours
• What should a business evaluate when considering increasing capacity?

  Whether additional revenues exceed additional costs
• How can higher costs affect shareholders?

  It could lead to lower profits and dividends
• What impact can increased capacity have on employee motivation?

  It can affect motivation for better or worse
• What should a business consider regarding financing capacity increases?

  Whether they have cash or need loans
• What is the difference between capacity and capacity utilization?

  Capacity is maximum output; utilization is actual output
• What happens if capacity increases but sales only increase by 5%?

  It results in falling capacity utilization
• What could falling capacity utilization indicate for a business?

  It may lead to higher average costs per unit
• How can increased capacity affect employee morale?

  It can improve flexibility and reduce fatigue
• What does a flexible capacity allow a business to do?

  Quickly adjust to changes in demand
• What is one way to enable a business to be flexible in capacity utilization?

  Using zero hours contracts for employees
• What should businesses consider regarding capacity utilization?

  • Current capacity utilization levels
  • Flexibility of capacity to adjust
  • Impact on efficiency and costs
• What does capacity mean in the context of utilization?

  Maximum output in a given time period
• What is capacity utilization?

  Percentage of maximum output being used
• What is the formula for capacity utilization?

  Actual output / Capacity × 100
• How is capacity utilization expressed?

  As a percentage
• How is capacity utilization calculated in a factory?

  1,500 produced out of 3,000 capacity is 50%
• Why is higher capacity utilization generally better?

  It suggests more efficiency and less waste
• How does higher capacity utilization affect unit costs?

  It can lead to lower average unit costs
• Why is high capacity utilization important for businesses with high fixed costs?

  It lowers average fixed costs per unit
• How can lower unit costs from higher capacity utilization affect pricing?

  It allows for lower prices in competitive markets
• How does capacity utilization relate to marketing?

  Low utilization can harm reputation and marketing
• What can low capacity utilization indicate in terms of employee morale?

  It may negatively affect morale and motivation
• What is one benefit of having spare capacity?

  It provides operational flexibility for demand changes
• How can spare capacity improve product quality?

  It allows more time for quality control processes
• What can spare capacity allow for in terms of labor?

  Time for training and upskilling employees
• How can spare capacity benefit machinery maintenance?

  It allows for repairs and servicing of machinery
• What is rationalization in the context of capacity?

  Increasing efficiency by reducing scale
• Why might a business reduce its capacity?

  To eliminate unnecessary spare capacity
• What might prompt a business to increase its capacity?

  To meet expected additional demand
• How can a business increase capacity through labor?

  By hiring additional employees
• What is one way to increase capacity through capital?

  By acquiring more machinery or factories