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17 Cards in this Set
- Front
- Back
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Capacity |
A measure of how much output it can give in a given period |
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Fast food outlet |
May be able to serve 1000 customers per hour |
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Call centre |
May be able to take 10,000 calls per day |
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Football stadium |
May be able to seat no more than 45,000 fans at each match |
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Car production line |
May be able to complete 50,000 cars per year |
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Examples of when capacity is changed |
Capacity is reduced when a machine is having maintenance. Working more production shifts can increase capacity. |
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Seasonal or unexpected changes in demand |
Chocolate factories need to make capacity to make large amounts of Easter eggs in November before shipping them to shops after Christmas. Ice cream factories in the UK need to quickly increase capacity during a summer heat wave. |
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Capacity utilisation |
The proportion of a business' capacity that is actually being used over a specific period. |
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Capacity utilisation formula |
Actual level of output ------------------------------------- x100 Maximum level of output |
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What does capacity utilisation measure |
Product efficiency as it measures whether there are unused resources in the business |
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How can high capacity utilisation cause unit costs to fall? |
Production costs tend to fall as output rises making the business more competitive |
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Why produce close to 100% capacity utilisation? |
Maximise efficiency and minimise unit costs |
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When is a high level of capacity utilisation necessary? |
If a business has a high break even output due to significant fixed costs of production |
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Why most businesses operate below 100% capacity utilisation |
Demand lower than expected due to changes in customer tastes. Loss of market share as competitors gain customers. Seasonal variations in demand such as weather changes leading to lower demand. Recent increases in capacity such as a new production line being added. Maintenance and repair programmes making capacity temporarily unavailable. |
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Dangers of operating at low capacity utilisation |
Higher unit costs impacting on competitiveness. Business will be less likely to break even. Wasted capital will be tied up in under-utilised assets. |
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How to more at more than 100% capacity utilisation |
Possible in the short term Increase workforce hours by offering extra shifts, overtime, or temporary staff. Subcontracting production activities such as assembly of components. Reducing time spent maintaining production equipment. |
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Problems of working at high capacity utilisation |
Negative impact on quality if production is rushed as less time for quality control. Added workloads and stress to employees which could be de-motivating if kept for a while. Loss of sales if business is unable to meet sudden or unexpected increases in demand. Production equipment may need repairing causing delays |
