An organization that produces low margin high volume commodi

An organization that produces low margin, high volume commodity products with stable demand would most likely aim for a ________ capacity utilization. A. high (>75%) B. medium (30-60%) C. low (<25%)

Solution

Capacity utilization rate refers to the rate at which potential output levels are being produced or met. It displays the slack in output production rate.

Numerically, it is calculated as: [(Actual output/Potential output)]100

For a firm with low margin, but high volume and stable demand products, it should aim for a medium capacity utilization.

This is because the demand is stable, and not very high or very low, and the margins are also low. So, aiming for a medium capacity utilization would be beneficial and safe for the organization.

A high/low rate would be a risky affair, as keeping a high rate might lead to losses in case of low or uneven demands and keeping a low rate would also lead to losses since margin rates a already low.