3. What is Capacity? The maximum output that a business can produce in a given period with the available resources
4.
5. What is Capacity Utilisation? The percentage of total capacity that is actually being achieved in a given period
6. Capacity Utilisation Formula Capacity utilisation (expressed as a percentage) is calculated using this formula: Actual level of output Maximum possible output X 100
7. Capacity Utilisation Example Stephenson Audio manufacturer hand-held microphones. The factor in Sandbach has a maximum output of 4,000 units per month. In Jan 2009, actual output was 3,200 microphones = 80.0% Capacity utilisation in January 2009 = Actual output (3,200) Maximum possible output (4,000) X 100
27. Economies of scale Bulk Buying Economies As businesses grow they need to order larger quantities of production inputs (e.g. raw materials) As the order value increases, a business obtains more bargaining power with suppliers and should be able to get better prices Technical Economies Businesses with large-scale production can use more advanced machinery (or use existing machinery more efficiently); can use mass production techniques and afford to invest more in research and development Financial Economies Larger firms find it easier to find potential lenders and to raise money at lower interest rates Marketing Economies Many marketing costs are fixed costs and so as a business gets larger, it is able to spread the cost of marketing over a wider range of products and sales – cutting the average marketing cost per unit Managerial Economies As a firm grows, there is greater potential for managers to specialise in particular tasks (e.g. marketing & finance). In a small firm, many roles are performed by the same person. This can create inefficiency since they are not as expert or highly qualified in one area.
