Capacity - edexcel business AS/ALEVEL PDF

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edexcel business AS/ALEVEL...

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Capacity utilisation The use that a business makes of its resources Not able to increase output is working a full capacity Business choice to work just under full capacity to be flexible – want spare capacity to cope with increased orders from regular customers because they might risk loosing them Current output / maximum possible output X 100 Under utilisation – producing less than full capacity Due to a drop in demand , increased competition in the market , seasonal demand Not making most of its resources o Operating inefficiently unit cost are not minimised o When capacity utilisation is raised unit cost falls as fixed cost are spread over more units of output o Operating with too much spare capacity affect the morale of workers . they may feel business is struggling to generate orders makes them feel insecure in their jobs . if they get used to light workload may resent working harder if business suddenly gets more orders

o Operating below capacity means business able to cope with sudden increase in demand. customers wont go to rivals as business able to meet immediate customer needs o Less work related stress , more relaxed and comfortable with their workloads reduce sickness and absenteeism

If business is operating at full capacity it may be over utilising its resources. o Resources stretched uncomfortably.

o Strain on some resources and causing stress and tiredness to the workforce increasing risk of accidents and absences machines may be also overworked that it need to be repaired. o Not respond to an increase in demand o Insufficient time for staff training and important maintenance work. Might save money in short term but in the long term staff may be lacking vital skills and machinery may break down.

o Average units cost lower and fixed cost will be spread across more units of outputs. Help improve competitiveness and raise profits . o Staff motivation might be good if workers feel secure in their jobs o People may be happier because theirs opportunists increasing earnings by working overtime o Busy operation improve firms image as a result consumers will be more confident when placing orders

Ways to improve capacity utilisation Reduce capacity – reducing excess capacity getting rid of resources business don’t need , staff redundant , sell of unused fixed assets , move to smaller premises where costs are low Increases sales – sells more of its outputs it will have more to produce , increase in capacity utilisation . can do this by increase in promotion Increase usage – reduce price/ deals Outsourcing – when capital equipment has low capital utilisation rates appropriate to outsource Cost advantages , more specialised , more efficient Redeployment – ask workers to work at another branch...