4.4.2

• capacity

  maximum amount of output achievable if all resourcers are fully utilised
• factors effecting capacity 


  machinery having maintenance

  capacity linked to labour

  seasonal or unexpected changes in demand
• capacity utilisation 


  the proportion of a businesses' capacity that is actually being used over a specific period

  90% is seen as ideal
• capacity utilisation calculation 


  actual level of output / maximum possible level of output X 100
• costs of higher capacity utilisation 


  fixed costs are being spread across more units resulting in lower average costs
• costs of lower capacity utilisation 


  fixed costs are being spread across lower units, resulting in higher average costs
• dangers of under utilisation

  fixed costs remain the same, average unit costs increase

  less likely to reach break even output

  lower profit margins

  capital tied up in under-utilised assets

  bored and demotivated employees
• positives of working at high capacity 


  lower unit costs

  sense of job security

  improved profitability

  funding for expansion

  image and reputation
• problems of working at high capacity

  negative effects of quality

  employees suffer

  loss of sales
• how do you under-utilise efficiently?

  increase demand

  downsize

  lease off space capacity
• how do you over-utilise capacity efficiently?

  reduce demand

  outsource parts of the business operations

  increase capacity by investing in more resourcers