Business Studies – 1.3.2 The methods and problems of measuring business size | e-Consult

A business can use the 'volume of output' as a key indicator to assess whether its current production facilities are adequate. If the business consistently struggles to meet demand due to limited production capacity, it signals a need for expansion. Here are two specific examples:

1. Increased Customer Demand: If a company experiences a significant and sustained increase in customer demand for its products, leading to a backlog of orders, the volume of output will likely be exceeding the current capacity. This indicates the need to expand production facilities (e.g., adding a new production line, increasing shift hours, or relocating to a larger factory).

2. Missed Sales Opportunities: If a business regularly experiences situations where it cannot fulfill orders due to insufficient production volume, it is missing out on potential sales revenue. This demonstrates that the current production capacity is a constraint and expansion is necessary to capitalize on these opportunities. For example, a bakery consistently selling out of its daily bread before closing time.

By monitoring the volume of output and comparing it to demand, businesses can proactively identify and address potential bottlenecks in their production processes.