Operations Data Flashcards
Define unit costs
The costs per unit
Formula for unit costs
Total costs/ total output
What influences the unit costs?
Selling price
Quality
Choice of supplier
Fixed costs
Amount of waste
Efficiency
Volume(output level)
Why are unit costs vital ?
Affects profit margins and the price u set
Define capacity
Capacity is the max output given in a firms resources
What does capacity depend on?
Employee number
Raw materials
Machinery/equipment
Quantity of buildings and physical space available
Labour skills
Existing technology
The way production is organised
Why is it harder to measure capacity in the service sector?
It is harder to measure capacity in the service sector as it can take a different amount of time to serve each customer
Define capacity utilisation
Capacity utilisation measures how effectively the firms assets are being used ie what proportion of capacity the firm is using
Formula for capacity utilisation
Current output/full capacity output x100
Advantages of full capacity
Fixed costs per unit are at their lowest as the fixed costs are spread out over maximum output given
Lower fixed costs per unit causes larger profit margins or allows price cutting
Economies of scale might be gained if output is large enough
Better reputation with banks and shareholders
Disadvantages of full capacity
No time to maintain machines
Pressure on staff not to be off
Increased wages bill if overtime paid in order to reach full capacity
No time to train
Unable to meet new orders and customers may go to competition
What is the ideal capacity utilisation?
Idea, production level is abt 90% capacity utilisation
