Capacity utilisation measures the extent to which a business is using its production potential.
Capacity utilisation can be defined as - the percentage of total capacity that is actually being achieved in a given period
The Problems Of High Capacity Utilisation:
100% capacity utilisation is not always a positive thing for businesses.
By operating at maximum capacity for long periods of time the business might experience the following issues:
No time for the maintenance of machinery.
Extra stress upon staff.
Increased overtime costs
Unable to accept additional orders.
Harder to maintain quality standards.
The Benefits of High Capacity Utilisation:
· Increased job security and motivation.
· Lower unit costs.
· Improved profitability.
Thorntons Chocolate operate three eight hour shifts in the run up to Valentines day:
Under-Utilisation of Capacity (Excess Capacity):
Operating at low levels of capacity utilisation bring
with them their own problems:
Higher unit costs that may mean either lower profit
margins or higher costs for the consumer.
margins or higher costs for the consumer.
Motivational issues for staff e.g. employee boredom.
Possible Cause of Under Utilisation:
· New competitors entering the market
· Changing tastes and fashions in the market.
· Seasonal factors.
· Over-investment in fixed assets.
Possibilities that under capacity utilisation brings:
Sufficient space in the factory to meet new orders.
Maintenance and repair of machines is easier to
organise.
organise.
