What is meant by capacity utilisation?

Capacity utilisation is the percentage of total capacity that is actually being used.

What do the terms 'actual output' and 'maximum possible output' represent in the capacity utilisation formula?

Actual output is the quantity currently being produced; maximum possible output is the highest quantity the business could produce using all its existing resources.

Calculate the capacity utilisation when actual output = 6500 units, maximum possible output = 7100 units.

Capacity utilisation = (6500 ÷ 7100) × 100 = 91.5 %.

Explain how high capacity utilisation improves a firm's competitiveness.

High capacity utilisation spreads fixed costs over more units, reducing unit costs and making the business more price competitive.

Why does under-utilisation of capacity reduce profitability?

Fixed costs are spread over fewer units, raising the cost per unit and squeezing profit margins.

What problems can arise when a business operates above its normal capacity for extended periods?

Increased strain on machinery, higher maintenance costs, staff burnout, and reduced product quality.

AQA A-Level Business 7132

What Is Business?

Topic overview Why businesses exist and their objectives Revenue, costs and profit Calculating and presenting business data Business forms, sectors and liability Share capital, market capitalisation and dividends What moves a share price, and how ownership shapes objectives Competition, market conditions and incomes Interest rates, demographics and environmental issues

Managers, Leadership and Decision Making

Topic overview Management, leadership and the four leadership styles The Tannenbaum Schmidt continuum Choosing a leadership style and its limitations Scientific and intuitive decision making, and expected value Reading a decision tree Risk, uncertainty and opportunity cost What influences a management decision Stakeholders and stakeholder mapping Stakeholder needs and managing the relationship

Marketing Management

Topic overview Why businesses set marketing objectives Brand loyalty and calculating the marketing measures Primary and secondary market research Sampling methods Correlation, confidence intervals and extrapolation Price and income elasticity of demand Calculating market share, market growth and sales growth Segmentation and the bases for it Niche and mass marketing, targeting and market mapping The elements of the marketing mix Product portfolio analysis and the Boston Matrix The product life cycle and extension strategies Pricing, branding, place and the influences on the mix

Operational Management

Topic overview Operational objectives: cost and quality Speed, flexibility and environmental objectives Added value and the trade-offs between objectives Labour productivity and unit costs Capacity and capacity utilisation Improving capacity utilisation Raising labour productivity, and the obstacles Lean production and Just in Time Labour-intensive and capital-intensive production Technology in operations Quality control and quality assurance The benefits and costs of improving quality Matching supply to demand The inventory control chart Influences on inventory and choosing a supplier Supply chain management Outsourcing: benefits and drawbacks

Financial Management

Topic overview Financial objectives and return on investment Gross profit, operating profit and profit for the year Budgets and variance analysis Cash flow forecasts Break-even, contribution and the margin of safety Break-even charts and how they shift The uses and limits of break-even analysis Profit margins, payables and receivables Internal sources of finance Short-term external finance Share capital, loans, venture capital and crowd funding Choosing a source of finance Methods of improving cash flow Methods of improving profits The difficulties and trade-offs in improving cash flow and profit

Human Resource Management

Topic overview Human resource objectives and their value Hard and soft human resource management Calculating labour turnover and labour productivity Employee costs as a percentage of turnover, and labour cost per unit Using and interpreting human resource data Types of organisational structure Span of control, hierarchy and delegation Human resource flow The value of a motivated workforce, and Taylor Maslow's hierarchy of needs Herzberg's two-factor theory Financial methods of motivation Non-financial methods of motivation Choosing and assessing methods of motivation Employee involvement and the influences on it Trade unions, works councils and communication channels The value of good employer-employee relations

Analysing the Strategic Position of a Business

Topic overview Influences on the mission and corporate objectives Mission, objectives, strategy and tactics Functional objectives and their influences SWOT analysis and its limitations Return on capital employed and the current ratio Gearing and the ratios of working capital Financial statements and the categories of ratio Using ratio analysis, and its limits Non-financial measures of performance Benchmarking and core competences The Triple Bottom Line Competition law and labour market legislation Environmental legislation and government support Regulators, infrastructure and environmental incentives Trade policy and responding to political change GDP, taxation and exchange rates Inflation, fiscal policy and monetary policy Trade, protectionism and responding to economic change Demographic and social change Corporate social responsibility and its critics Carroll's pyramid and technological change Porter's five forces: entry and buyer power Supplier power, rivalry and substitutes Using five forces to shape strategy Payback period and average rate of return Net present value and the time value of money Investment criteria, risk and sensitivity analysis

Choosing Strategic Direction

Topic overview The Ansoff matrix: penetration and market development New product development and diversification Influences on the choice of strategic direction Porter's generic strategies Choosing a positioning strategy Competitive advantage and the threats to it

Strategic Methods: How to Pursue Strategies

Topic overview Organic growth, external growth and retrenchment Economies and diseconomies of scale, synergy and overtrading Methods of external growth The advantages and disadvantages of organic and external growth Product and process innovation and its drivers Kaizen, research and development, and intellectual property The causes of globalisation and its opportunities Methods of entering international markets Choosing a country to trade with or invest in Off-shoring, re-shoring and multinationals Global, multi-domestic and transnational strategies Digital technology and the pressure to adopt it The value and the limits of digital technology

Managing Strategic Change

Topic overview Types of change and Lewin's force field analysis Flexible organisations, restructuring and delayering Reasons for resistance and overcoming it through education, participation and support Overcoming resistance: negotiation, manipulation and coercion Organisational culture and Handy's four types Recognising cultures and what shapes them Changing organisational culture and the difficulties Leadership, communication and structure in implementation Network analysis and reading a network diagram Float, the critical path and the value of network analysis

Problems with Strategy and Why Strategies Fail

Topic overview Uncertainty and cognitive bias in strategic decisions Resource and organisational barriers to implementation Planned and emergent strategy Reasons for strategic drift Financial and non-financial measures of strategic performance The balanced scorecard, KPIs and the limits of evaluation The value of strategic planning Contingency planning and crisis management

Operational Management

Improving capacity utilisation

3 things to know
Papers 1, 2 and 3

Overview

Raising demand, subcontracting and rationalisation, and the problems of running above normal capacity.

What you need to know

Answer each one before you reveal it.

Your recallNot started

Numbers

What is capacity utilisation, and what do actual and maximum output mean?

Evaluation

Why does under-utilisation reduce profit, and what problems come with over-utilisation?

Numbers

How can a business raise capacity utilisation, and what does efficiency mean?

Questions from this subtopic

Each one with the model answer underneath.

1
What is meant by capacity utilisation?
Model answer
Capacity utilisation is the percentage of total capacity that is actually being used.
2
What do the terms 'actual output' and 'maximum possible output' represent in the capacity utilisation formula?
Model answer
Actual output is the quantity currently being produced; maximum possible output is the highest quantity the business could produce using all its existing resources.
3
Calculate the capacity utilisation when actual output = 6500 units, maximum possible output = 7100 units.
Model answer
Capacity utilisation = (6500 ÷ 7100) × 100 = 91.5 %.
4
Explain how high capacity utilisation improves a firm's competitiveness.
Model answer
High capacity utilisation spreads fixed costs over more units, reducing unit costs and making the business more price competitive.
5
Why does under-utilisation of capacity reduce profitability?
Model answer
Fixed costs are spread over fewer units, raising the cost per unit and squeezing profit margins.
6
What problems can arise when a business operates above its normal capacity for extended periods?
Model answer
Increased strain on machinery, higher maintenance costs, staff burnout, and reduced product quality.

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What Is Business?

Managers, Leadership and Decision Making

Marketing Management

Operational Management

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Profit = Revenue − Costs.

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AConversion can give an owner limited liability.

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