ABC ABC manufactures high quality safety equipment, such as automaticfire extinguishers, for the chemical and oil industries. Although it has an excellent reputation for quality and customer service it is experiencing falling capacity utilisaiton. The Operations Director of ABC has made the following comments: 'Because of falling demand our factories only worked at 75 percent capacity utilization last year. With a recession affecting the chemical and oil industries this year I don't see things getting any better. We have closed one production line but this will only delay a solution to the problem, not solve it. We are experiencing increasing competition in the market for high- tech safety equipment. The directors discussed the problem of falling capacity utilization and the rising average costs resulting from it. One director suggested cutting the costs of the HR department by outsourcing nearly all of its functions to a business in a low cost country 3000KM away. Unsurprisingly, the HR Director argued that this would be a huge mistake, especially if demand increased again and with it the need for more employees. The following figures give the trend in production: Last year 24 000 32 000 Output Capacity Q1 Analyse possible reasons for the trend in capacity utilization. This year 12 000 24 000 2