Chapter-15 Flashcards
Production of goods and services
What is production?
The process of converting inputs like land, labor, and capital into saleable goods.
What is productivity?
A measure of the efficiency of inputs used in the production process, especially labor and capital.
How can a business improve labor productivity?
1) Increasing output with the same number of workers.
2) Keeping output at the same level but with fewer workers.
How can a business increase the productivity of workers?
1) Improving the skill level of workers.
2) Improving the motivation of workers.
3) Introducing more automation and better technology.
4) Improving the quality of management decisions.
What are inventories?
Inventories are the stock of raw materials, work-in-progress, and finished goods held by a business.
Why do businesses hold inventories?
1) Raw materials and components are needed as inputs for the production process.
2) Work-in-progress refers to part-finished goods that have not yet completed the production process.
3) Finished goods are ready to be sold or sent out to customers.
Why do businesses hold inventories despite the costs?
1) The production process requires raw materials or components; without them, production would stop, leading to idle workers and machinery, causing a loss of output.
2) Without finished goods in stock, customer orders cannot be fulfilled, leading to lost sales and potential long-term damage to the business’s profitability.
3) Businesses can benefit from economies of scale by purchasing inventories in large quantities, often receiving discounts from suppliers that are not available for smaller orders.
What are the costs associated with holding inventories?
1) Warehousing costs - the business needs a warehouse to store the inventories.
2) Handling costs - inventories must be moved in and out of the warehouse.
3) Shrinkage costs - damaged, lost, or stolen inventories need to be replaced.
4) Insurance costs - to cover losses from shrinkage.
5) Obsolescence - unsold, out-of-date goods may not be sellable.
6) Opportunity cost - working capital is tied up in inventories instead of being used more profitably.
What is lean production?
Lean production is the process of producing goods and services with the minimum waste of resources.
What are the characteristics and differences of job, batch, and flow production?
1) Job production:
Advantages-
i) Produces unique, high-quality products.
ii) Uses skilled labour rather than machinery, resulting in higher selling prices.
Disadvantages-
i) Takes a long time and can be expensive, especially with special materials or tools.
ii) Economies of scale are not possible, leading to a more expensive product.
2) Batch production:
Advantages-
i) Larger quantities produced, lowering unit costs.
ii) Offers variety and choice for customers.
iii) Materials can be bought in bulk, lowering costs.
Disadvantages-
i) Workers may be less motivated due to repetitive tasks.
ii) Goods must be stored until sold, which adds costs.
3) Flow production:
Advantages-
i) Materials can be purchased in bulk, benefiting from economies of scale.
ii) Large quantities of goods are produced.
iii) Capital intensive, with a high level of automation.
Disadvantages-
i) Requires large capital investment in production line technology.
ii) Workers are less motivated due to repetitive tasks.
iii)Not very flexible as production lines are hard to adjust.
iv) Production halts if any part of the production line breaks down.
v) High levels of raw materials, work-in-progress, and finished goods inventories increase costs.
What benefits do techniques such as just-in-time inventory management and Kaizen bring?
1) New products can be brought to the market more quickly.
2) Quality is improved.
3) Wastage of time and other resources is reduced or eliminated.
4) The costs of holding inventories are eliminated.
5) Unit costs are reduced, increasing the profit made on each unit sold or allowing the business to reduce its prices and be more competitive, leading to increased sales, revenue, and profits.
What is job production?
Job production is the production of items one at a time.
What is flow production?
Flow production is the production of very large quantities of identical goods using a continuously moving process.
What is capital intensive production?
A production process that uses a high quantity of capital equipment.
What are the main features of flow production?
1) Large quantities are produced.
2) Standardised products.
3) Workers are relatively unskilled.
4) High degree of automation.
5) Large inventories of raw materials and work in progress.
What is batch production?
Batch production is the production of goods in batches. Each batch passes through one stage of production before moving onto the next stage.
What are the advantages of new technology for businesses, consumers, and workers?
1) Business Advantages:
i) Reduces the costs and time taken to design new products.
ii) Increases productivity.
iii) Reduces costs of production.
iv) Improves quality and reduces waste.
2) Consumer Advantages:
i) Better quality products.
ii) Lower prices.
iii) Products with more features are easier to develop and produce.
3) Worker Advantages:
i) Technology completes simple and repetitive tasks that workers find boring.
ii) The work is easier with the aid of technology.
iii) A business using the latest technology is likely to be more successful, providing job security.
iv) The development and manufacture of new technology products create employment opportunities.
What factors do firms consider when choosing their method of production?
1) The amounts they are likely to sell.
2) The product they are making.
3) The costs of production.
4) The variety of goods expected by customers.
What are the disadvantages of new technology for businesses, consumers, and workers?
1) Business Disadvantages:
i) Can be very expensive.
ii) When technology is rapidly changing, it needs to be updated often to remain competitive.
iii) May require spending money on training workers, which increases costs.
iv) Products may become out-of-date more quickly.
v) If a product develops a fault, it can be expensive to repair.
2) Consumer Disadvantages:
i) Products may become out-of-date more quickly.
ii) When a product develops a fault, it can be expensive to repair.
3) Worker Disadvantages:
i) Technology often reduces the need for workers, resulting in redundancy.
ii) Technology could make the work less interesting.
iii) A smaller workforce reduces opportunities for promotion.
