Business Management HL: Operations Calculations

productivity rate (definition)

measures the average efficiency of production and is expressed as of outputs to inputs within the production process

productivity rate (equation)

total output/total input x 100

labour productivity (definition)

measures the output per worker over a defined period of time.

Labour productivity (equation) 

total output/number of employees

capital productivity (definition)

measures how efficiently a business utilises its capital to generate output. the higher the capital productivity rate, the more efficient a business is at utilising its fixed assets

capital productivity (equation)

total output/capital input or machine hours

if labour and capital are more productive…

the lower the unit costs, improving profit margins because lower unit costs reduces total costs.

unit costs (equation)

total costs/output

defect rate (definition)

the percentage of output that does not meet expected quality standards

defect rate (equation)

defects/output tested x 100

operating leverage (definition)

the measure of a company’s fixed costs relative to total costs

higher operating leverage

the business spends relatively large sums of fixed costs

low operating leverage 

lower fixed costs and higher variable costs 

operating leverage (equation)

quantity (price - variable cost per unit) / quantity (price - variable cost per unit) - fixed costs
total contribution/profit

capacity utilisation (definition)

the percentage of a company’s total capacity that is current being used. When capacity utilisation rates are higher, average fixed costs will fall because they will be divided by a larger output

capacity utilisation (equation)

actual output/productivity capacity or max capacity x 100