4.2 Cost Scale of production BEP Flashcards
Reasons to calculate costs
Cal profit and lost
Help managers make decisions
- increase/decrease wages
- calculate level of productivity
- buy cheaper raw materials
- reduce/increase labor
- go automated
Diff price and cost
Price - money paid by consumer
Cost - money paid by business
Break even point BEP
When Cost = Revenue
No loss, No gain
One has “broken even”
In the BEP table VALUES
________________________| Sales
Fixed cost |
Variable cost |
Total Cost |
Revenue (sales*selling price) |
Sales
BEP Graph
y = Revenue / Cost
x = Output
Label :-
Profit, loss, Total revenue, total cost, fixed cost, variable cost, BEP point,
BEP Advantages
Managers read to understand expected levels of profit and output
Impact of profit can be reflected on the graph
It can also show margin of safety
Disadvantages BEP
Shows profit and loss only if all goods produced are sold
Does not take in too account if any goods malfunction
Only constant if scale of production does not change
Economies of scale
factors that lead to a reduction in average costs as a business increases in size. The five economies of scale are:
Types of economies of scale
Purchasing
Marketing
Finance
Technological
Managerial
Purchasing EoS
Buying in bulk
marketing economy
marketing multiple product through one add
financial economy
big companies find it easy to raise a lot of money fast
technological economy
enough money/capital for machinery
Managerial economy
Money to hire ppl for all jobs
- sales
- hr
- operations
- sales
Diseconomies of scale
factors that lead to an increase the average costs of a business as it grows beyond a certain size.
