unit 4

Question 1

total costs

Answer 1

fixed costs+variable costs

Question 2

total revenue

Answer 2

selling price x quantity sold

Question 3

average costs

Answer 3

total costs/ unit produced (output)

Question 4

breakeven level

Answer 4

FC/ SP-VC

Question 5

breakeven def

Answer 5

the quantity of goods/ sales that must be produced in order to cover costs. for total revenue to equal total costs

Question 6

margin of safety

Answer 6

the amount by which current sale exceed breakeven level
= current sales - BEP

Question 7

benefits of breakeven analysis

Answer 7

• managers can read off the graph how much profit/loss has been mad at any levels of output
• allows to see the margin safety, risk of loss
• allows the business to the impacts of lowering VC or increasing SP on the break-even level

Question 8

drawbacks of breakeven analysis

Answer 8

breakeven calculations may be inaccurate if the selling price changes over time
it assumes that fixed costs doesn’t change with output

Question 9

quality

Answer 9

to produce a good or service which meets the customer’s expectations

Question 10

why is quality important

Answer 10

• establishes a strong brand image
• helps bring brand loyalty
• maintains a good reputation
• increases sales
• gives competitive advantage

Question 11

quality control

Answer 11

the checking of quality at the end of the production process. it uses quality inspectors as a way of finding faults

Question 12

benefits of quality control

Answer 12

• tries to eliminate faults or errors before the customer receives it
• less training is required for the workers as inspectors are employed to check quality

Question 13

drawbacks of quality control

Answer 13

• identifies faulty products at the end but doesn’t find out the problem and so difficult to solve
• as quality is checked at the end the product may have to be scrapped = higher costs

Question 14

economies of scale definition

Answer 14

the factors that lead to the reduction of average costs as a business increases in size

Question 15

economies of scale

Answer 15

• purchasing
• marketing
• financial
• technical
• managerial

Question 16

purchasing economy of scale

Answer 16

When a business grows they need to buy more raw materials/stock. If they are now buying large amounts of raw materials in bulk they can negoitate discounts from suppliers. This reduces average costs

Question 17

marketing economy of scale

Answer 17

a business advertisement costs will be spread over more units

Question 18

technical economy of scale

Answer 18

larger firms can afford better machinery improving efficiency and lowering average costs due to minimal manual labour required.

Question 19

financial economy of scale

Answer 19

banks often larger firms to be less risky than smaller ones so then lower rates of interest are usually charged

Question 20

diseconomies of scale definition

Answer 20

factors that lead to an increase in average costs as a business grows beyond a certain size

Question 20

managerial economy of scale

Answer 20

large firms can afford specialist managers = increase efficiency

Question 21

diseconomies of scale

Answer 21

• poor communication
• lack of commitment from employees
• weak coordination

Question 22

diseconomy of scale, poor communication

Answer 22

the larger the business the harder it is to communicate between each other due to the tall structure and lots of level of hierarchy

Question 23

diseconomy of scale, lack of commitment from employees.

Answer 23

employees may feel alienated and not valued as there is so many workers = demotivation and decrease efficiency

Question 24

diseconomy of scale, weak coordination

Answer 24

so many employees to control = employees not being coordinated and monitored which could lead to inefficiencies therefore higher costs.

Question 25

production

Answer 25

total output of a business in a given time

Question 26

productivity

Answer 26

the outputs measured against the inputs used to create it output/ quantity input

Question 27

benefits of increasing efficiency

Answer 27

- lower average unit costs =business being able to decrease their prices to be more competitive =business making more profit per unit

Question 28

how a business can increase efficiency

Answer 28

- replace employees with machinery - motivate employees to be more efficient - train employees so they have more skills to become more efficient.

Question 29

why businesses hold inventories

Answer 29

- allows a business to have enough inventory to produce their product o meet customer demand - allows a business to have enough inventory to have enough finished products for consumers

Question 30

lean production

Answer 30

techniques used to cut down on a waste of resources and therefore increase efficiency

Question 31

methods of lean production

Answer 31

- just in time stock control: only ordering resources when they are needed - kaizen: continuous improvement through the elimination of waste

Question 32

benefits of lean prodction

Answer 32

- less storage costs in inventory - less money tied up in inventory - quicker production of goods and services

Question 33

methods of production

Answer 33

job batch flow

Question 34

job production

Answer 34

when a single unique product is made at a time

Question 35

batch production

Answer 35

where large quantities of a product are produced, then a quantity of another slightly different item will be made

Question 36

flow production

Answer 36

where large quantities of an item are made in a continuous process

Question 37

benefits of job production

Answer 37

- provides unique products leading to a unique selling point, allowing the business to charge a higher price - workers are doing varied tasks and so they are not bored

Question 38

drawbacks of job production

Answer 38

- skilled labour is often used and so higher total costs - production takes longer= lower efficiency and productivity

Question 39

benefits of batch production

Answer 39

- production can be easily changed causing more variety leading to more choices for customers - still offers some variety for workers

Question 40

drawbacks of batch production

Answer 40

- machines have to be reset = reduction in efficiency

Question 41

benefits of flow production

Answer 41

- high output of a standardised product - capital intensive = increasing efficiency

Question 42

drawbacks of flow production

Answer 42

- boring system for workers = demotivation - large storage space requires = higher costs - if one machine breaks down it will stop the whole process decreasing output and efficiency

Question 43

factors influencing the location of a manufacturing business

Answer 43

- proximity to suppliers - proximity to customers - government influence - availability of labour and wage rate - being close to effective transport

Question 44

factors influencing the location of service sector business

Answer 44

- proximity to customers - availability of labour - cost of rent - availability of parking for customers - if there are competitors nearby

Question 45

just in time stock control

Answer 45

only ordering resources when they are needed

Question 46

kaizen production

Answer 46

continuous improvement through the elimination of waste, small groups that come together to discuss as to how to reduce amount of wastage.

Question 47

pieces of technology that improve productivity

Answer 47

- automation - computer aided design (online designing) - computer-aided manufacture - computer integrated manufacture (CAD and CAM combined) - contactless payment - EPOS (bar code scanner)

Question 48

quality assurance

Answer 48

when the standard of the product is checked at every stage of production by all the employees

Question 49

benefits of quality assurance

Answer 49

tries to eliminate faults and and errors at all stages of production = decreases costs there are fewer customer complaints as there are fewer errors

Question 50

drawbacks of quality assurance

Answer 50

expensive to train all employees relies on all employees to be committed and check quality. if one doesn't this can affect overall quality of the product