Capacity Utilisation & Outsourcing (Cambridge (CIE) A Level Business): Flashcards
Exam code: 9609
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Define capacity utilisation.
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Define capacity utilisation.
Capacity utilisation measures how effectively a business uses its assets to produce output, comparing current output with the maximum possible output.
Capacity utilisation = Current output ÷ Maximum possible output × 100
A factory can produce a maximum of 68,400 units a month. In May it produced 51,420 units. What is its capacity utilisation?
Capacity utilisation in May is 75%. This is 51,420 ÷ 68,400 × 100.
True or False?
Low capacity utilisation leads to lower unit costs.
False.
Unit costs are likely to be higher, because fixed costs are spread over fewer units of output.
What are the positive impacts of under-capacity utilisation?
The business can easily increase production or take on unexpected orders. Spare time can also be used for checking and fixing machinery.
If staff are not fully occupied, they may worry about losing their jobs, which can affect ____ and motivation.
If staff are not fully occupied, they may worry about losing their jobs, which can affect morale and motivation.
What are three ways a business can increase capacity utilisation?
A business can increase customer demand, accept more orders even at lower profit margins, or produce for other businesses. It could also improve scheduling, spread launches across the year or close under-used facilities.
True or False?
Closing under-used parts of a business can improve its capacity utilisation.
True.
Shutting down regularly unused facilities reduces maximum capacity, which can cut costs and improve overall efficiency.
How can operating at maximum capacity affect a business's staff?
Staff are under pressure to increase output. Overworked staff may leave, increasing staff turnover.
Machinery operating at its limit is more prone to ________, which disrupts production.
Machinery operating at its limit is more prone to breakdowns, which disrupts production.
Define outsourcing.
Outsourcing is the process where a business delegates specific business activities, such as IT or customer support, to external service providers.
How does outsourcing give a business increased flexibility?
Outsourcing allows a business to scale operations up or down based on demand fluctuations, which is valuable when demand is seasonal or unpredictable.
True or False?
Outsourcing makes it easier for a business to ensure consistent quality.
False.
Outsourcing makes it harder to ensure consistent quality and adherence to company standards.
Why does outsourcing allow a business to focus on core competencies?
The business can concentrate its resources and efforts on its core competencies, where it can add value.
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