3.4.2 Capacity Utilisation

What is the maximum output that an organization can produce in a given period without buying any more fixed assets called?

• Capacity Utilisation

• Capacity

• Output

• Investment

Which of the following factors does NOT affect the capacity of a business?

• Number of employees

• Technology

• Production process

• Marketing strategy

How is capacity utilisation calculated?

• (Capacity / Output) x 100

• (Output / Capacity) x 100

• (Output / Investment) x 100

• (Capacity / Investment) x 100

What is an example of a business with 70% capacity utilisation?

• A hotel with half its rooms booked out

• A clothing factory with an output of 70,000 shirts per month and a capacity of 100,000 shirts per month

• A restaurant with all tables occupied

• A car factory producing 50 cars per day with a capacity of 100 cars per day

Why is 90% capacity utilisation considered better than 100% capacity utilisation?

• It allows for more downtime

• It reduces the need for investment

• It helps maintain quality levels and reduces stress

• It increases the number of employees

What is a potential drawback of 100% capacity utilisation?

• Increased downtime

• Higher margin of error

• Surplus stock

• Reduced working capital

What can businesses do to increase their capacity in the long run?

• Reduce staff levels

• Increase staff levels

• Decrease productivity

• Reduce working hours

What is subcontracting?

• Increasing staff levels

• Buying more machines

• When a business uses another firm to do some work on its behalf

• Increasing productivity

What is under-utilisation in the context of capacity utilisation?

• Efficient use of machines and facilities

• Inefficient use of machines and facilities

• Over-utilisation of resources

• Optimal use of resources

What happens to unit costs when there is under-utilisation?

• Unit costs decrease

• Unit costs remain the same

• Unit costs increase

• Unit costs are unaffected