T38- capacity utilisation

• What is the calculation for capacity?

  Capacity = (actual level of output / maximum possible output) x100
• what is the capacity of a business?

  measures of how much output it can achieve in a given period.
• Average production costs tend to fall as output rises so therefore higher utilisation means lower unit costs making your business more competitive. Target close to 100% as possible. Also, a high level of capacity utilisation may be required if the business has a high beak even level of output.
• what are implications of under utilisation? (50-60% capacity utilisation)


  unit costs are not minimised, operating with too much spare capacity may affect the moral of workers meaning they may feel insecure in their jobs and become accustom to a light work-load .
• what are benefits of under utilisation?

  the business can cope with a sudden increase of demand otherwise they can lose this customer to competitors, less likely to be work stress or absenteeism.
• what are implications of over utilisation?

  many businesses work close to full capacity and resources may be stretched uncomfortably sometimes.
• what are drawbacks of over utilisation?

  workers are more stressed

  • so more accidents are likely to occur.
  • more sick workers
  • more machines breakdowns
  • business may not be able to respond in. a sudden increase in demand
  • bad quality (rushed)
  • insufficient trained staff
• what are benefits of over utilisation?

  average cost will be lower because fixed costs will be spread over more units of output.

  helps improve competitiveness and raise profits, staff motivation will be goof and a high motivated workforce as people feel secure in their jobs

  people have opportunities to increase earnings
• what are ways to improve capacity utilisation?

  • Get rid of unwanted assets like machines or people
  • Increase sales- if business sell more they have to produce more, capacity utilisation will rise
  • Increase usage- this can be a problem for many businesses as sometimes their assets are near full capacity while at other times are at low capacity.n
  • Outsourcing- it could be more efficient for the business to sub contract or outsource the work, eg, deliveries.
  • Redeployment- if a business has too many resources not being used redeploy them elsewhere in the business.