Topic 14 - Capacity Utilisation

Capacity

The maximum level of output a business can produce in a given time with current resources.

Capacity Utilisation

A measure of how much of the available capacity a business is using.

Capacity Utilisation Formula

(Current Output ÷ Maximum Output) × 100

Spare Capacity

When a business is producing below its maximum output — less than 100% utilisation.

Full Capacity

When a business is producing at its maximum possible level — 100% utilisation.

Under-Utilisation

Occurs when resources are not fully used — leads to inefficiency and higher unit costs.

Over-Utilisation

When a business is operating beyond its optimal capacity — can lead to quality issues and staff stress.

Drawbacks of Under-Utilisation

Higher fixed cost per unit, Staff demotivation, Waste of resources, Risk of downsizing.

Drawbacks of Over-Utilisation

Staff burnout and low morale, Poor quality control, No flexibility for new orders, Risk of equipment breakdowns.

Why Businesses May Not Operate at Full Capacity

Seasonal demand, Recent expansion, Staff shortages, Strategic choice to retain flexibility.

Benefits of High Capacity Utilisation

Lower unit costs, Economies of scale, Higher competitiveness, Better return on investment.

How to Increase Capacity Utilisation

Increase demand through marketing, Offer discounts or promotions, Lease spare space or machines, Downsize or reduce excess capacity, Improve productivity and scheduling.