Capacity Utilisation (Edexcel A Level Business)

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)

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)

Production Data for Pencil Manufacturers A and B

Explain one implication of the level of capacity utilisation for pencil manufacturer A, compared to manufacturer B. You are advised to show your working. (4)

Step 1 - Demonstrate knowledge of capacity utilisation

Capacity utilisation measures how well a business is using its available production capacity. (1 mark if calculations are not present)

Step 2 - Calculate the capacity utilisation for both manufacturers

Manufacturer A   =  

Manufacturer B    =      (1-2 marks for calculations)

Step 3 - Explain the implication

One implication is that staff may be bored and demotivated (1 mark), particularly at manufacturer A, because they have less work to do than manufacturer B (1 mark). 

Or

Unit costs are likely to be higher than they could be at both manufacturers (but worse at A) (1 mark) because resources such as workers and machinery are not being used to their full potential (1 mark).

Including a definition of the key term is not essential, as implicit understanding of a business term or concept can be shown through correct calculations and identifying appropriate points. 

In the example above, the definition could attract a mark if calculations had not been included, but the answer achieved full marks because it included correct calculations as well as an appropriate point with explanation.