production Flashcards
What is added value?
The difference between the cost of raw materials and the selling price of finished goods.
what is the formula for added value
Selling price – Bought-in goods and services
What is job production?
A method of producing a unique product specific to a customer’s needs, e.g., wedding dresses.
what are the advantages of job production
Unique and high-quality product
Skilled workers enjoy their job
what are the disadvantages of job production
Expensive and time-consuming
Targets a smaller market
What is batch production?
Producing a limited number of identical products before switching to the next batch.
what are the benefits of batch production?
Economies of scale
Quicker than job production
what are the disadvantages of batch production
Time lost switching between batches
Possible cross-contamination
What is flow production?
Continuous production of standardized products in a sequence.
what are the positives of flow production
Large quantities produced
Lower unit costs
what are the negatives of flow production
High setup costs
Jobs may become boring and repetitive
what is productivity
A measure of efficiency in turning inputs into outputs.
what is the formula for labour productivity
Output ÷ No. of employees
what is the formula for capital productivity
Output ÷ Capital Employed
what are the advantages of high productivity
Economies of scale
Lower unit costs
How is capacity utilization calculated
CU=( actual output/ maximum possible output)×100
What is capacity utilization
The use that a business makes of its resources, measured by comparing actual output with potential output at full capacity.
What are the advantages of operating at full capacity
- Average costs minimized, fixed cost spread.
- increasing motivation as workers are needed so secure
- Company image improves
What is spare capacity
Spare capacity is when output is less than total capacity, leading to underutilization of resources.
What are the disadvantages of operating at full capacity
- Possible strain on resources and risk of breakdown.
- Overworked staff may face stress, fatigue, and accidents.
- Lack of flexibility, preventing accommodation of new customers.
What are the problems of spare capacity
- Demotivation of staff.
- Increased costs (redundancies, reorganization).
- Reduced profits and investment.
- Lack of return on investment capital.
How can spare capacity be resolved?
Through subcontracting, rationalization, and increasing the use of assets.
What is subcontracting?
It involves getting someone else to produce goods for you, reducing the risk to the business.
What are the advantages of subcontracting
Reduces capital investment.
No need to buy machines, lease space, or train workers.
What are the disadvantages of subcontracting?
- Lack of control, particularly over quality.
- Limited subcontractors may increase costs.
- Delays in delivery, leading to dissatisfaction.
What is rationalization?
Concentrating on core products or services while disposing of others that are not essential to long-term success.
What are the advantages of rationalization
It allows management to focus on business strengths.
What are the disadvantages of rationalization
- Risk of losing customers.
- Reduction in asset book value.
- Redundancy costs involved.
