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Business > Unit 4-Decision making to improve operational performance (4.2) > Flashcards

Unit 4-Decision making to improve operational performance (4.2) Flashcards

1
Q

What does being efficient as possible mean?

A

Controlling costs when making goods or services.

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2
Q

What factors can you use to measure the efficiency of a business?

A

Labour productivity

Unit costs

Capacity

Capacity utilisation

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3
Q

Define ‘labour intensive’

A

When labour costs outweigh capital costs of a business

When the business has spent more on (investing in) people to complete their goods or services than the capital (money) they have invested in it.

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4
Q

Give some examples of labour intensive businesses.

A

Morgan cars

Wedding cake manufacturers

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5
Q

Define labour productivity

A

The amount (volume) of output that is obtained from each employee.

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6
Q

Which types of firm is labour productivity especially a measure of efficiency for?

A

Those which have a labour intensive production process.

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7
Q

Formula for labour productivity.

A

Output per period/ Number of employees in that period

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8
Q

What does adding wage costs to unit costs allow operations manager to do?

A

Calculate in money terms how much in wages each unit costs to produce.

This can aid in decision making.

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9
Q

What can labour productivity be influenced by?

A

Quality (and extent) of machinery ​

Skills, motivation and ability of workforce​

The methods of production used​

Reliability of raw material and suppliers

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10
Q

What 5 factors can help increase productivity?

A
  1. Increasing the number of hours worked​
  2. Training to employ output​
  3. Investment in equipment and technology​
  4. Changing the way the work is done​
  5. Motivating employees
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11
Q

Compare labour productivity with wage cost per unit.

A

The higher the labour productivity, the lower the wage cost per unit.

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12
Q

Define unit costs.

A

The cost of producing one unit of output.

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13
Q

Unit costs are more important in large businesses.

A

False.
Unit costs are equally as important if you are a large or small business.

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14
Q

Give an example of what a unit cost is.

A

How much would it cost you to produce one cupcake?

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15
Q

Formula for unit costs.

A

Total costs (£) /Units of output (in volume)

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16
Q

Formula for total costs.

A

Fixed costs + variable costs

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17
Q

What are fixed costs (FC)?

A

Costs that do not change no matter how many units you make

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18
Q

What are variable costs (VC)?

A

Costs that change when output changes

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19
Q

Give examples of fixed costs (FC).

A

Salary
Rent
Insurance
Telephone

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20
Q

Give examples of variable costs (VC).

A

Wages
Raw materials
Distribution

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21
Q

What is distribution?

A

the activity of both selling and delivering products and services from manufacturer to customer

22
Q

What are unit costs also known as?

A

Average cost (AC)

Average total cost (ATC)

23
Q

When competition is based on price, what it is vital to achieve?

A

Lowest unit costs

24
Q

All businesses compete purely on price.
True or false.

A

False.
Not all businesses compete purely on price.

25
Q

What are the 4 things unit costs are influenced by?

A
  1. How many units a business can make with its resources​
  2. How efficient the workforce is at producing the goods​
  3. How efficient the machinery (fixed assets) are at producing the goods​
  4. How easily variable costs can be controlled​
26
Q

Define capacity.

A

The maximum total level of output or production that a business can produce in a given time period.

27
Q

If a company is producing at maximum total level of output, what is this called?

A

Producing at full capacity

28
Q

Working at full capacity is not always a good thing.
True or false.

A

True

29
Q

Define capacity utilisation.

A

The percentage of a firm’s total possible production level that is being reached

30
Q

What does a 95% capacity utilisation for a machine which can make 100 products a day mean?

A

It is making 95 products out of a possible 100 every day.

31
Q

Formula for capacity utilisation.

A

(Capacity output per annum (or month)/ maximum possible output per annum (or month)) x 100

32
Q

A company is working at 84% capacity. What is the 16% remaining called?

A

Spare capacity

33
Q

What does spare capacity allow a business to plan?

A

Maintenance time.

34
Q

When is maintenance time especially important?

A

If the machine or tools are very high value to the firm

35
Q

What percentage do most people realise is the best for capacity utilisation?

A

90% or above

36
Q

What does every point below 100% in capacity utilisation show?

A

Resources are not being used and therefore high fixed costs per unit are produced

37
Q

List the 1st 3 causes of spare capacity with examples.

A
  1. New competitors or new products entering the market (Google Nexus and iPad) mean a fall in demand for existing products​
  2. Fall in demand for the product due to changes in taste or fashion (McDonald’s vs healthy options)​
  3. Unsuccessful marketing
38
Q

List the last 3 cause of spare capacity with examples.

A
  1. Seasonal demand (hotels)​
  2. Over-investment in fixed assets (Channel Tunnel)​
  3. A merger or takeover leading to duplication of resources (high street banks merging)
39
Q

Advantages of spare capcity.

A
  1. More time for maintenance and repair​
  2. Improvements can be planned in​
  3. Less pressure on employees​
  4. Can cope with sudden increase in demand – especially in a fast moving industry
40
Q

Disadvantages of spare capacity.

A
  1. Higher proportion of fixed costs per unit ​
  2. Higher unit costs lead to lower profits, therefore lower sales volume​
  3. Negative image of being unsuccessful​
  4. With less work employees become bored or demoralised
41
Q

What is the aim of an operations manager?

A

Use as few resources as possible to produce a given output, but conversely they are also seeking to maintain a given level of quality.

42
Q

Why is productivity a vital measure to help operations managers make decisions?

A

The higher the productivity, the more units each worker (or machine) makes.

43
Q

Formula for profit.

A

Sales revenue - (fixed costs + variable costs)

44
Q

What are the 3 things a business can do to increase profit?

A
  1. Increase revenue
  2. Reduce fixed costs
  3. Reduce variable costs
45
Q

Evaluate how easy it is to increase profits by increasing revenue.

A

Can be hard to do and costs money to market products.

46
Q

Evaluate how easy it is to increase profits by reducing fixed costs.

A

Can be hard and can reduce your capacity

47
Q

Evaluate how easy it is to increase profits by reducing variable costs.

A

Easiest to do.
Decrease unit costs by increasing capacity utilisation

48
Q

What does a business need to ensure before increasing capacity?

A

There is future demand and available finance for the products.

49
Q

What do businesses risk if they are not efficient as possible?

A

Wasting money and resources

50
Q

What should being efficient lower?

A

Costs

51
Q

What should being efficient raise?

A

Profit margins

Business (16 decks)

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