Calculating Capacity Utilisation
- Capacity utilisation is measure of the level to which a businesses assets are being used to produce output
- It compares current output to the maximum possible output a business can produce using all of its assets and is expressed as a percentage
- Capacity utilisation is calculated using the formula
Worked example
Lola Bakery produces specialist Indian and Bangladeshi breads which are sold to restaurants in the West Midlands. Batch production is used in the factory to manufacture the range of breads and the factory can produce a maximum of 68,400 units per month.
In May factory output was 51,420 units.
Calculate Lola Bakery’s capacity utilisation in May. (2)
Step 1 - Divide the Current Output by the Maximum Output
(1 mark)
Step 2 - Multiple the outcome by 100 to obtain the percentage capacity utilisation
0.75 x 100
= 75% (2 marks for the correct answer)
Worked example
Lola Bakery produces specialist Indian and Bangladeshi breads which are sold to restaurants in the West Midlands. Batch production is used in the factory to manufacture the range of breads and the factory can produce a maximum of 68,400 units per month.
In August, capacity utilisation increased to 92%.
Calculate the number of units produced by Lola Bakery in August. (2)
Step 1 - convert 92% to a decimal
92% = 0.92 (1 mark)
Step 2 - Find 92% of the maximum output using the decimal
0.92 x 68,400
= 62,928 units (2 marks for the correct answer)