5.6.4 (HL)—Operations productivity and capacity measures

Capacity utilization rate = actual output ÷ maximum possible output × 100. Defect rate = defective output ÷ total output × 100. Labour productivity = output ÷ labour input, and capital productivity = output ÷ capital input; always state whether the input is workers, labour-hours or a monetary amount.

A productivity rate compares output with the specified total input, commonly expressed as output ÷ input × 100 when the question requires a percentage. Operating leverage = total contribution ÷ profit: a high value means fixed costs are large relative to profit, so a given percentage change in sales can create a larger percentage change in operating profit, in either direction.

Select the denominator named by the measure, keep units consistent and compare like with like across time or businesses. Then interpret the cause: unused capacity, defects, process methods, workforce skills, technology, product mix and fixed-cost structure can change the result.

A plant makes 8,000 units from capacity of 10,000, so utilization is 8,000 ÷ 10,000 × 100 = 80%. If 160 units are defective, the defect rate is 160 ÷ 8,000 × 100 = 2%. With 100 labour-hours, labour productivity is 80 units per labour-hour. If total contribution is $60,000 and profit is$15,000, operating leverage is 60,000 ÷ 15,000 = 4 times.

Higher utilization or productivity is not automatically better if quality, safety, flexibility or resilience falls. A falling defect rate is normally favourable, while high operating leverage increases both profit upside and loss risk; never compare productivity figures with different input definitions or units without adjustment.