Capacity utilisation within a business can be easy or hard to calculate, for a printing shop, it is easy to calculate how many sheets they can produce per hour for example and in a metal fabricators, it is easy to calculate how many sheets of metal they can produce per hour, however for a company that has varied demand, it can be very hard to predict how much the business should utilise its capacity, a clearly noticeable example would be an understaffed restaurant, although they have staff working the shift, it is clear that they did not account for the demand that the customers require.
Capacity Utilisation = Actual level of output / Maximum possible output x 100
Productivity = Total output / Number of workers
Capacity utilisation should never be at 100%, as this could mean that if something were to fail, the business may not be able to fulfil the orders, Companies may choose to ask multiple ‘what if?’ questions that may indicate if the business may want to reconsider its utilisation levels.
- What if the employment rate fell?
- What if workers were too highly skilled?
- What if forecasts are not conservative?
- What if costs increased?
- What if minimum wage increased further?
The Impact on EU Trade Imports and Exports vs Capacity Utilisation
For UK Businesses, there is a handy acronym when working with exchange rates, SPICED. ‘ strong pound imports cheap, exports dear ‘. This applies to any companies in the UK who may wish to export or import goods from elsewhere.
If the UK were to leave the EU, the cost of imports/exports could be greater/lesser depending on the trade deals we could secure with countries.
- Specialised workers would find it harder to move freely into the UK.
- Tariffs are not imposed in the EU, tariffs could cost businesses money, however it could be argued that they increase competition.
- The Common Market could potentially be lost.
- The work ethic of some foreign national employees could change.
These factors could all affect the overall capacity utilisation of UK companies.