Calculating Capacity Utilisation

Capacity utilisation is a classic percentage change calculation in business studies exams. However, it can be tested in different ways, as this short revision video shows.

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VIDEO CHAPTERS
00:00 Introduction
00:19 Examples of capacity
00:53 What is capacity utilisation
01:11 Formula for capacity utilsation
01:33 Worked example 1
03:03 Worked example 2
04:22 Worked example 3

VIDEO SUMMARY
This video is about capacity utilization and how to calculate it.

The video starts with explaining what capacity is. Capacity is a measure of output, how much output a business could potentially achieve over a given period. There are many ways to measure capacity, but it's a measure of potential output, the maximum output. For example, a fast food outlet might be able to serve a thousand customers per hour based on how many stations it has and how many staffs it has working.

Capacity utilization is a percentage that compares the actual output that is produced or used compared with the potential. To calculate capacity utilization, we first divide the actual level of output in units divided by that potential output, the capacity also in units. That gives us a number we multiply by 100 to give us a percentage.

The video then goes through three examples to illustrate how to calculate capacity utilization.

The first example is about a manufacturer of dog food, Woof Dog Foods. Woof Dog Foods has one production line and it can make a maximum of 100,000 cans of dog food per week. Last week, total production or actual production was 87,000 cans. So the capacity utilization is 87%.

The second example is also about Woof Dog Foods. The company has increased its capacity to 150,000 cans per week by adding an extra production shift. The capacity utilization last week was 90%. We can figure out that last week Woof Dog Foods made 135,000 cans of dog food.

The last example is about Woof which has expanded rapidly with a new range of organic dog food. It now plans to produce 500,000 counts half a million cans per week and it's planning a capacity utilization of 95 percent. To achieve this, Woof would need a capacity of 526,316 cans.