Capacity Utilisation

• What is capacity utilisation?

  The extent to which a business is using its productive capacity.Formula:(Actual Output / Maximum Possible Output) × 100
• Why is high capacity utilisation important?

  • Indicates efficient use of resources.
  • Lowers unit costs (economies of scale).
  • Higher profit margins.
• Disadvantages of operating at full capacity (100%)?

  • No flexibility to meet unexpected demand.
  • Increased pressure on employees → burnout.
  • Risk of declining quality.
• What are the consequences of low capacity utilisation?

  • Wasted resources and higher unit costs.
  • Poor financial performance.
  • May signal falling demand or inefficiencies.