Capacity Utilization Summary

Capacity Utilization

• Definition: Maximum output achievable over time based on resources (machinery, buildings, labor).

Capacity Utilization Calculation

• Formula: Capacity Utilisation (%) = ( \frac{\text{Current Output}}{\text{Maximum Possible Output}} \times 100 )
• Example Calculation: If a firm can produce 1200 units but produces 600, then Capacity Utilisation = ( \frac{600}{1200} \times 100 = 50\% ).

Under-Utilization

• Definition: Producing less than full capacity.
• Reasons: Drop in demand, seasonality.
• Implications: Inefficient use of resources, potential worker demotivation, increased unit costs.
• Benefits: Easier management of sudden demand increases; lower work-related stress.
• Solutions: Reduce capacity, increase sales through promotions, outsourcing, and redeploying resources.

Over-Utilization

• Definition: Operating at full capacity, leading to stressed resources.
• Implications: Employee stress, machinery breakdown, inability to meet increased demand.
• Solutions: Outsourcing, redeploying resources, temporary resource acquisition, expansion for long-term demand.