the measurement of capacity utilisation
4.3 Capacity Utilisation and Outsourcing – Capacity Utilisation
What is Capacity Utilisation?
Capacity utilisation measures how much of a company’s total production capacity is actually being used. It tells us whether a business is running at full speed or has room to grow.
📈 Formula: $CU = \frac{\text{Actual Output}}{\text{Maximum Possible Output}} \times 100\%$
Think of a pizza oven that can bake 20 pizzas per hour. If you bake 15 pizzas, the oven is 75% utilised. 🍕
Example Calculation
• A factory’s maximum capacity: 1,000 units per month. • Actual output: 850 units.
$$CU = \frac{850}{1000} \times 100\% = 85\%$$
?? The factory is operating at 85% capacity utilisation.
Why It Matters
- High utilisation can mean higher profits but may also lead to wear‑and‑tear.
- Low utilisation indicates unused resources and higher per‑unit costs.
- Managers use it to decide on expansion, maintenance, or outsourcing.
Capacity Utilisation Over Time
| Month | Actual Output | Maximum Capacity | Capacity Utilisation |
|---|---|---|---|
| January | 800 | 1000 | 80% |
| February | 950 | 1000 | 95% |
| March | 700 | 1000 | 70% |
Exam Tip: Calculating Capacity Utilisation
- Identify Actual Output and Maximum Capacity from the question.
- Plug them into the formula: $CU = \frac{\text{Actual Output}}{\text{Maximum Capacity}} \times 100\%$
- Show the calculation step‑by‑step; examiners appreciate clarity.
- Always state the result as a percentage (e.g., 85%).
💡 Example Question: “A factory can produce 1,200 units per month but only produced 900 units. What is its capacity utilisation?”
Answer: $$CU = \frac{900}{1200} \times 100\% = 75\%$$
Revision
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