Buisness unit 4.1, 4.2, 4.3, 4.4 Flashcards
what are fixed costs?
the costs that do not change with the number of items sold or produced e.g rent, management salaries, loans, morgage
what are variable costs?
the costs that do change with the number of items sold or produced e.g raw material costs, piece rate labour
how do you calculate total costs?
total variable cots + total fixed costs
how do you calculate average cost?
total costs of production/total output
how do you calculate total revenue?
price x quantity sold
how do you calculate profit?
total revenue - total costs
what is the breakeven level of output ?
the quantity of goods that must be produced/sold for total revenue to equal total costs
what is the breakeven formula?
fixed costs/contribution per unit
(contribution = selling price - variable cost per unit)
what is the formula for contribution?
selling price - variable cost per unit
what is the margin of safety?
the amount by which current sales exceed the breakeven point
what is the formula of margin of safety?
current sales - breakeven point
(BEP = fixed costs/contribution per unit)
what are the drawbacks of breakeven?
- breakeven calculations may be inaccurate if the selling price changes over time
- assumes the fixed costs never change with output, eventually they will increase if the business has to move to a bigger factory as rent costs will increase
what are the benefits of breakeven? (3)
- managers can read off the graph how much profit/loss the business has made at any level of output
- allows the business to see the impact on the breakeven point if the business decides to increase the selling price/decrease variable costs
- allows business to see the margin of safety to determine if they are at high/low risk of making a loss
what is lean production?
techniques used to cut down on a waste of resources leads to increase efficiency
how to achieve lean production? (2)
- just in time stock control (onlt get recources when needed from suppliers)
- kaizen
what is just in time stock control? (lean production)
only reciving resources from suppliers when they are needed –> reduces the amount of stock and storage costs
whats kaizen? (lean production)
small groups of workers meet together regularly to discuss problems of excess waste and solutions to reduce it
what are the benefits of lean production? (3)
- less storage costs of inventory
- less money tied up in inventory
- quicker production of goods and services
whats production?
the total output of a buisness in a given period of time
whats productivity?
output measured against the input used to create it
how do you calculate productivity?
output/quantity of input
what does efficiency lead to for your business?
lower average costs which means businesses can decrease their process to be more competitive or make more profit per unit
how can a buisness increase efficiency? (3)
- replace employees with more machinery —> producing more goods per hour
- motivate employees to be more efficient
- train employees so that they have more skills to become more efficient
what are the methods of production? (3)
- job production
- batch production
- flow production
what is job production?
where a single unique product is made at a time
what are the benefits and drawbacks of job production? (2,2)
benefits =
- unique selling point so they can charge a higher price
- workers are doing varied tasks so they are not bored, increasing motivation
drawbacks =
- skilled labour is often used so higher costs need to be paid to skilled labour
- time consuming so lower productivity and efficiency
what is batch production?
where large quantities of a product are produced, then a quantity of another slightly different item will be made,
what are the benefits and drawbacks of batch production? 2,2
benefits =
- production can be easily changed leading to more choices for consumers
- offers some variety to workers compared to flow production
drawbacks =
- machines have to be reset between production batches, causing a delay and a reduction in efficiency
- machinery breakdowns will cause a decrease in efficiency
what is flow production?
where a large quantity of products are produced in a continuous process
what are the benefits and drawbacks of flow production? 3,3
benefits =
- high output of a standard product –> higher levels of sales
- it is capital intensive which increases efficiency causing average unit costs to be lower
- as they produce a large amount of products they will be able to benefit from E.O.S
drawbacks =
- very boring system for workers –> demotivating
- as producing large amounts of products, will need a large storage space for inventory –> high storage costs
- if one machine breaks will stop whole prices –> decreasing efficiency and output
how technology has changed production methods and productivity –> (turn around) (7)
- automation
- computer aided design (CAD)
- computer aided manufacture (CAM)
- computer integrated manufacturing (CIM)
- electronic point of sale (EPOS)
- electronic funds transfer at point of sale (EFTPOS)
- contactless payment
what is automation?
using more machinery can increase efficiency
what is computer aided design? (CAD)
allows you to design products online, decreasing the costs of designing and making it physically initially
what is computer aided manufacture (CAM)?
computers monitor the automated production process and robots in the factory increasing efficiency and reducing the risk of mistakes
what is computer integrated manufacturing (CIM)?
CAD and CAM integrated
what is an electronic point of sale (EPOS)?
allows sales assistants to scan barcodes, increasing efficiency at checkouts and so shorter ques for customers
what is electronic funds transfer at point of sale (EFTPOS)?
paying by card increases efficiency at checkouts at sales and so shorter ques for customers
what is contactless payment?
increases efficiency at checkout at sales and so shorter ques for customers
what is the definition of quality?
tp produce a good or service which meets customer services
why is quality important? (5)
- strong brand image
- helps bring customer loyalty
- maintains a good reputation
- increase in sales
- gives competitors advantages
what is quality control?
the checking for quality at the end of the production process. doee by quality inspectors
what are the benefits and drawbacks of quality control? (2,2)
benefits =
- tries to eliminate faults before the customer receives the product
- less training is required for the workers as inspectors are employed to check quality
drawbacks =
- identifies faulty products at the end but doesn’t find out the problem and so cant solve the problem
- as quality is checked at the end, the product may have to be scrapped if it now faults, causing higher costs
what are the benefits and drawbacks of quality assurance? 2,2
benefits =
- tries to eliminate faults or errors at all stages of production so save costs
- lower customer complaints
drawbacks =
- expensive to train all employees to check the quality of their own work at each production stage
- relies on all employees to be committed to checking quality. if one doesn’t it will impact overall quality
what are the benefits and drawbacks of total quality management? 2,2
benefits =
- it aims for zero faults and so this increases customer satisfaction
- production costs should be lower as there is less wastage from faulty products
drawbacks =
- it is expensive to train al epmaolyees to check the product or service
- relies on all employees to be committed to checking quality. if one doesn’t, it will impact overall quality
what is quality assurance?
checking the standard throughout and at all stages of the production process by all employees
what is total quality management?
the continuous improvement of products and processes by focusing on quality at every stage of production (aim is zero faults)
what are the factors influencing the location of a manufacturing business? 5
- proximity to customers, reduce transportation costs
- proximity to suppliers/raw materials, reduce transport costs
- government influence, government grants or fewer laws
- availability of skilled labour and the wage rate of the labour
- being close to transport to reduce transportation costs
what are the factors influencing the location of a service business (retail) 5
- proximity to customers (be in the centre to attract customers)
- availability of labour
- cost of rent
- available parking for nearby customers
- if there are competitors nearby
what are the factors to condider when deciding which country to operate in? 5
- new markets overseas
- wage rates in that country and availability of skilled labour
- rent and corporation taxes in that country
- availability of government grants
- tariffs and quotas
what are the roles of legal controls of location decisions? 2
- grants to encourage firms to locate in a certain area
- planning permission regulations
