4.3 Capacity Utilisation and Outsourcing

Cambridge International AS Level Business Studies | 9609

2026 📋 Syllabus Objectives

By the end of these notes, you should be able to explain:

  1. How to measure capacity utilisation
  2. The impact of operating under or over maximum capacity on a business
  3. Methods of improving capacity utilisation
  4. The impact of outsourcing on a business

📖 Main Content

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Objective 1: Measuring Capacity Utilisation

What is Capacity?

Before we look at capacity utilisation, we need to understand what capacity means.

Capacity is the maximum amount of output (goods or services) a business can produce in a given time period, using all of its available resources — such as workers, machines, and buildings — to their fullest.

Think of it like a jar. The jar can hold a maximum of 500ml. That maximum amount is the jar's capacity.

What is Capacity Utilisation?

Capacity utilisation measures how much of that maximum capacity a business is actually using at a given moment.

In other words, it compares current output (what is actually being produced right now) to maximum possible output (what could be produced if everything was running at full speed).

It is expressed as a percentage.

The Formula

Capacity Utilisation (%)=Current OutputMaximum Possible Output×100\text{Capacity Utilisation (\%)} = \frac{\text{Current Output}}{\text{Maximum Possible Output}} \times 100
  • Current output = how much the business is actually producing
  • Maximum possible output = the most the business could produce using all its resources

Worked Example

A bread factory can produce a maximum of 68,400 loaves per month. In May, it actually produced 51,420 loaves.

Step 1: Divide current output by maximum output: 51,42068,400=0.75\frac{51{,}420}{68{,}400} = 0.75

Step 2: Multiply by 100 to get a percentage: $$0.75 \times 100 = \textbf{75%}$$

So the factory is operating at 75% capacity utilisation. This means 25% of its production capacity is sitting unused.

💡 Rearranging the Formula

Sometimes in an exam, you will be given the capacity utilisation percentage and asked to find either the current output or the maximum output. Simply rearrange the formula:

  • To find current output:
Current Output=Capacity Utilisation %100×Maximum Output\text{Current Output} = \frac{\text{Capacity Utilisation \%}}{100} \times \text{Maximum Output}
  • To find maximum output:
Maximum Output=Current OutputCapacity Utilisation %×100\text{Maximum Output} = \frac{\text{Current Output}}{\text{Capacity Utilisation \%}} \times 100

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