the measurement of capacity utilisation

What is Capacity Utilisation?

Capacity utilisation measures how much of a company’s total production capacity is actually being used. It tells us whether a business is running at full speed or has room to grow.

📈 Formula: \$CU = \frac{\text{Actual Output}}{\text{Maximum Possible Output}} \times 100\%\$

Think of a pizza oven that can bake 20 pizzas per hour. If you bake 15 pizzas, the oven is 75% utilised. 🍕

Example Calculation

• A factory’s maximum capacity: 1,000 units per month.

• Actual output: 850 units.

\$CU = \frac{850}{1000} \times 100\% = 85\%\$

??

The factory is operating at 85% capacity utilisation.

Why It Matters

• High utilisation can mean higher profits but may also lead to wear‑and‑tear.
• Low utilisation indicates unused resources and higher per‑unit costs.
• Managers use it to decide on expansion, maintenance, or outsourcing.

Capacity Utilisation Over Time

Exam Tip: Calculating Capacity Utilisation

1. Identify Actual Output and Maximum Capacity from the question.
2. Plug them into the formula: \$CU = \frac{\text{Actual Output}}{\text{Maximum Capacity}} \times 100\%\$
3. Show the calculation step‑by‑step; examiners appreciate clarity.
4. Always state the result as a percentage (e.g., 85%).

💡 Example Question: “A factory can produce 1,200 units per month but only produced 900 units. What is its capacity utilisation?”

Answer: \$CU = \frac{900}{1200} \times 100\% = 75\%\$