costs, scale of production and break even analysis Flashcards
1
Q
using cost data
A
setting prices: avoid making losses
deciding whether to stop production:
- if the product has just been launched and if revenue will increase later
- whether fixed costs will still have to be paid
deciding on the best location: low cost but still accessible to customers
2
Q
types of economies of scale
A
- purchasing
- marketing
- financial
- managerial
- technical
3
Q
purchasing economies
A
- gains discounts for buying materials in bulk
4
Q
marketing economies
A
- can purchase large vehicle reducing transport costs
- bigger advertisements for same price
- does not need as many sales staff to market more
5
Q
financial economies
A
- can raise more capital at lower interest rates
6
Q
managerial economies
A
- afford specialist managers which increase efficiency
7
Q
technical economies
A
- large vehicles cut transport costs
- flow production uses latest equipment
- large capacity machines can be used
8
Q
types of diseconomies of scale
A
- poor communication
- lack of commitment
- weak coordination
9
Q
poor communication
A
- more chances of slow or inaccurate communication
10
Q
lack of commitment
A
- lack of relationships with top managers makes workers feel unimportant
11
Q
weak coordination
A
- longer time for decisions to reach workers and be acted upon
12
Q
break even point formula
A
fixed costs/selling price - variable costs (contribution)
13
Q
advantages of break even chart
A
- show areas of profit and loss
- helps in decision making
- shows margin of safety
- shows break even output
14
Q
disadvantages of break even chart
A
- assumes that all products are sold
- assumes that the fixed costs are constant
- concentrates only on break even
- assumes that all costs and revenues are drawn with straight lines
