Business Studies Multiple Choice Question – 8 October 2021

PricklyPear plans to increase the output of its mobile phones from its existing facilities in Stafford to improve its capacity utilisation.

Which is the best way to improve capacity utilisation at PricklyPear? 

Select ONE answer:

1. Increase prices of their mobile phones
2. Reduce spending on advertising
3. Increase the workforce productivity
4. Reduce inventory levels

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not correct – an increase in prices results in less demand from consumers who may also switch to cheaper rivals, both will lead to a fall in production and therefore capacity utilisation.
2. Not correct – less advertising may lead to a fall in demand for PricklyPear and a fall in production which will cause capacity utilisation to fall even more
3. Correct – Definition of capacity utilisation e.g. the amount of actual output expressed as a percentage of the maximum possible output.  An increase in productivity will enable PricklyPear’s existing workforce to produce more mobile phones per worker.  The output of the phones is therefore increased from using the same facilities.
4. Not correct – reducing inventory levels also means that there is more unused space i.e. capacity utilisation decreases

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