Capacity Utilisation

• what is capacity utilisation?

  the current output of a carpet measured as a percentage of the total maximum potential output
• capacity utilisation equation?

  current output/maximum possible output x100
• causes of under utilisation?

  • new competitors
  • seasonal factors
  • changes in tastes and fashions
  • unsuccessful marketing
• advantages of under utilisation?

  • able to meet unexpected demand
  • firm has more time for training and maintanence
• disadvantages of under utilisation?

  • high unit costs
  • lower profit margins
  • staff morale falls
  • negative brand image
• solutions for under utilisation?

  • do nothing
  • increase marketing activity
  • cut capacity
  • subcontract
• causes of over utilisation?

  • changing tastes and fashions
  • successful marketing
  • seasonal factors
• advantages of over utilisation?

  • lower unit costs
  • improved profitability
  • increased job security
  • more motivation
• disadvantages of over utilisation?

  • more stress on staff
  • overtime costs
  • unable to meet additional demand
  • not enough time for maintanence
• solutions for over utilisation?

  • do nothing
  • expends capacity
  • subcontract
  • increase price