Practise calculating capacity utilisation and analysing under- or over-capacity effects, improvement methods and outsourcing decisions before judging the best operational response.
Analyse one possible impact on a business of operating over maximum capacity.
Analyse one possible impact on a business of operating over maximum capacity.
Indicative content
Responses may include:
AO1 Knowledge and understanding
1 mark for identifying one possible impact of operating at over maximum capacity
- Stress on employees
- Impact quality
- Business inflexibility
- Unable to maintain machinery
- Strain on business resources - inventory
- Sell more
- Economies of scale
4
AO2 Application
2 marks for a developed explanation of one possible impact of operating at over maximum capacity
1 mark for limited explanation of one possible impact of operating at over maximum capacity
- The impact could affect staff - who are likely to be put under excessive stress.
- Could impact on quality - if staff rush work and make mistakes/increase waste
- Business becomes inflexible - as has no room to increase output for new orders/opportunity cost of not responding to new product demand.
- Might not be able to maintain machinery - which could break down.
- Can put a strain on business resources - staff may need extra training
- More products produced and available to sell
- Costs fall due to increased output
AO3 Analysis
2 marks for developed analysis of one possible impact of operating at over maximum capacity
1 mark - for limited analysis of one possible impact of operating at over maximum capacity
- Overworked staff could make more mistakes - a reduction in quality could impact brand image and lost sales.
- Could lead to high absenteeism and high staff turnover - increase recruitment costs - don't have enough staff to meet orders.
- May have to increase amount of overtime to meet orders - raise business costs.
- If operating over maximum capacity then new orders might not be possible - lose potential customers and sales.
- If demand reduces stock will remain unsold therefore wastage/opportunity cost
- If machines break down due to lack of maintenance - production stops - lose or delay orders - gives a bad reputation for being unreliable.
- Average costs can rise - due to falling levels of efficiency such as machines breaking down.
Accept all valid responses.
Analyse one possible impact on a business of operating at below maximum capacity.
Analyse one possible impact on a business of operating at below maximum capacity.
Indicative content
Responses may include:
AO1 Knowledge and understanding - 1 mark for identifying one impact on a business of operating at below maximum capacity
Impacts of operating at below maximum capacity include:
- low output
- wasted resources
- not competitive
- adaptability
- reduced costs
AO2 Application - 2 marks № for a developed application of one impact on a business of operating at below maximum capacity. 1 mark sape for limited application of one impact on a business of operating at below maximum capacity.
- could produce more output with current resources but isn't doing so
- available resources are not being used fully e.g. workers and machines idle
- paying fixed costs in areas which are not being fully used
4
- business is inefficient as resources not fully utilised
- able to respond to unexpected increase in demand
- buying less inventory
AO3 Analysis- 2 marks Δv for developed analysis of one impact on a business of operating at below maximum capacity. 1 mark AN for limited analysis of one impact on a business of operating at below maximum capacity
- if demand exists the business could be earning more revenue and profit
- fixed costs are spread over lower level of products so cost advantages are lost
- discounts from bulk purchases may not be available so prices may need to increase
- payment on fixed costs, resources not being fully used will increase the average costs of production
- business will be less competitive in the market than its rivals
- business could fail if high costs are not covered by sales of few outputs
- take advantage of opportunities with resources which are not being used
- need less storage space, might use JIT to reduce costs and waste
Accept all valid responses.