2.2 - Financial Planning

Question 1

Production

Answer 1

The action of making or manufacturing from components or raw materials, or the process of being so manufactured

Question 2

3 methods of production

Answer 2

• Job production (1 unique product from start to finish)
• Batch production (Batches of similar products)
• Flow production (Continuous production of identical items)

Question 3

Pros and cons of job production

Answer 3

+/ - Bespoke, unique, one off, to your measurements/specification e.g. kitchen or tailor made suit
- Very motivated workers and simple production organisation
- High selling costs

-/ - Skilled labour are expensive
- Wide range of tools required
- Long lead time between starting and finishing (don’t get paid till after)

Question 4

Pros and cons of batch production

Answer 4

+/ - Can change production to meet customer needs/ fluctuation in demand
- Can be mechanised, less labour than job
- Employeees specialise
- Lower skilled workforce means lower wages paid

-/ - Small batches carry higher average unit costs (don’t benefit fromEoS)
- Workers may be less motivated with repetitive work
- Idle time between batches needs to be managed

Question 5

Pros and cons of flow production

Answer 5

+/ - Average costs lower because higher volumes produced (EoS)
- Automated production improves quality and time
- Raw materials don’t need to be held
(JIT system)

-/ - High set up costs to buy factory and machinery
- Low motivation due to repetitive tasks
- Break downs and lost production can be costly as this is a wastage

Question 6

Cell production

Answer 6

The production of items is organised into groups and then teams are set at workstations and see a product through to completion

Question 7

Pros and cons of cell production

Answer 7

+/ - Minimal handling of the product reduces costs
- Motivating for workers to see a completed product
- Lead times are reduced
- Less time moving from place to place

-/ - Maybe tension in the cell or between cells if work gets competitive
- Huge investment in machinery for each cell

Question 8

Lean production

Answer 8

An approach to management that focuses on cutting out waster, whilst ensuring quality

Question 9

Productivity

Answer 9

Productivity is the measure of the efficiency of a person, machine, factory or process of production

Question 10

Labour productivity and factors that influence it.

Answer 10

Output per period (units)/ number of employees at work

• Extent and quality of fixed assets
• Skills, ability and motivation of workforce
• Methods of production organisation
• External factors

Question 11

Average cost formula

Answer 11

Total costs - output

Total costs = fixed costs + variable costs

Question 12

Methods to improve efficiency

Answer 12

• Lean production
• Cell production
• Improved employee training/ raising skills of employees
• Better quality materials
• Improved machine quality/ capital investment
• Better managemen t of staff & processes
• Improved motivation

Question 13

Capacity utilisation

Answer 13

The proportion of maximum possible output that is currently being used

Question 14

Why would working 100% capacity be a bad thing?

Answer 14

• Not enough time for routine maintenance so machine breakdowns more regular and orders will be delayed
• May not be possible to meet new/unexpected orders so business can’t grow without exapanding production
• Staff under excessive pressure, increased mistakes, absenteeism, labour turnover
• If factory overcrowded, less efficient
• May be necessary spend more time on staff overtime to satisfy order, increasing labour costs

Question 15

Ways to operate above 100% capacity

Answer 15

• Increase workforce hours
• Sub-contract some production activities
• Reduce time spent maintaining production equipment

Question 16

Features of stock control diagram

Answer 16

• Minimum amount of stock to have enough if needed (buffer stock)
• Need to order supplies at the right time so supplies are replenished when stock getting low (re-order level)
• Need to know how much stock to re-order (re-order quantity)
• Need to know how long our supplies will take to supply stock when putting in an order (lead time)

Question 17

Potential consequences of poor stock control

Answer 17

Stock costs money for a business to hold
- Storage area
- Computer records
- Staff to manage stocks held
- Cash tied up in stock

Question 18

Problems with holding too much stock

Answer 18

• Stock incurs costs (storages etc)
• Occupies space in the premises
• High opportunity costs
• May not sell all stock
• Cannot take advantage of bulk purchases
• Theft

Question 19

Just-in-time (JIT)

Answer 19

Helps navigate issues associated with holding too much stock by introducing the required supplies at the moment they are needed

Question 20

Advantages of JIT

Answer 20

• No wastage which fits TQM theory
• Cost saving in terms of premises and staff
• Less capital tied up in stock, reduced average costs of production

Question 21

Consequences of not enough stock

Answer 21

• Business may not be able to cope with unexpected increases in demand
• If deliveries are late the firm may need to halt production
• Won’t gain discount for bulk purchzse
• Higher admin costs, need to place more orders

Question 22

Quality

Answer 22

About meeting needs and expectations of customers. More than a product simply ‘working properly’

Question 23

Benefits and drawbacks of quality

Answer 23

+/ - High level of repeat business
- Allows brand building and cross marketing
- Allows a price premium
- Make products easier to place

-/ - Loss of sales
- Bad reputation
- May have to price discount
- May impact on other products
- Retailers unwilling to stock

Question 24

Types of quality

Answer 24

• Quality control (traditional, inspecting work that has already been done)
• Quality assurance (Builds quality into production process, staff responsible)
• Quality circles (group solves production issues)
• Total quality management (Culture that puts quality at heart of everything)

Question 25

Kaizen

Answer 25

A policy of constantly introducing small incremental changes in a business in order to improve quality and/or efficiency

Question 26

Key features of kaizen

Answer 26

• Improvements based on small changes
• Easy to implement ideas as they come from workers and are likely similar
• Less likely to require major capital investment as only small
• Helps encourage workers to take ownership for their work (improves motivation)