Details Flashcards
Break even?
-Indicates minimal level of output needed in order to start making profit
-Neither a profit nor loss is made, all costs are covered
-No profit is being made until break even output has been met
Advantages of break even
-Find out the profit or loss at each level of output
- Helps planning, forecasting, decision making
- Helps calculate margin of safety
- Help apply for finance from banks
Margin of safety formula
Units being produced and sold- Break even output
Limitations of Break even charts
-Assume that the selling price remains the unchanged for all products sold
-Assumes all units are being sold
-Fixed costs may not always be fixed
-Does not allow for inventory holding costs
-Its a prediction
Calculation Total Revenue
Price x quantity sold
Calculation Total cost
Total fixed xost + Total variable cost
Calculation Average Cost
Total cost/ total output
Calculation Contribution
Selling price - Variable cost
Calculation Break even quantity
Total fixed cost/ contribution per unit
Calculation Margin of safety
Units sold - Break even output
Five economies of scale
-Purchasing
- Marketing
- Financial
- Mangerial
- Technical
Purchasing economies
Large no of components have to be bought so they receive bulk buying discounts that reduce cost
Marketing economies
Can afford own vehicle to distribute good
cost advantages with production
Financial economies
banks will lend large sum as they are mosre likely to pay off. They are charged low interest rate hence less average costs
Managerial economies
Large business may be able to afford to hire specialist managers who are efficient and can reduce business’ cost
Technical economies
-Largers firms can invest more into machinery
- Buy large machinery for flow prodution
- Use the most up to date technology to increase its productivity
Disecoomies of scale factors
-Poor communication
-Low morale
-Slow decision making
Poor communication
More department and employees
Low morale
No contact with senior manager so they may feel unimportant and not valued by management
Slow decision making
Chain of command is long. Communication will get slow and any decision making wil take time.
Advantages of TQM
- Quality is built into each part of the production
- Eliminates all faults/errors before customer receives
- Waste is removed and efficiency is improved
Disadvantages of TQM
- Very expensive to train employess
- Relies on employees to follow TQM so there may be consistency issue
Advantages of Quality Assurance
- Eliminates faults/error before the customer receives product or service
-Low costs as products dont have to reworked or scarpped
Disadvantages of Quality Assurance
- Expensive to train employees
- Since it relies on employees it could be inconsistent
Advantages of Quality Control
- Eliminate faults/erors before customer receives it
- Less training is required for employees
Disadvantages of Quality Control
-Expensive as specialists need to be hired
-Doesnot identify how and why the fault occured
- Increased costs if it has to be scrapped or reworked
Why is quality important
- Establishes brand image
-Builds brand loyalty - Maintains good reputation
- Increase sales
- Attract new customers
If quality is not maintained
-Lose customers to other brands and competitors
- Have to replace faulty products or repeat poor service increasing cost
- Have a bad reputation
