Unit 4 -sumn sumn sumn Flashcards
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EOS
advantages of large scale production
Purchasing economies
special prices and discounts for buying in bulk
in order to maximise production efficiency in terms of economies
marketing/Advertising economies
cheaper advert offers than smaller firms
financial economies
more trust to larger firms
managerial economies
accountants, marketing managers can be hired which results in better decision being taken and reduction in overall unit costs
Technichal economies
- use of specialist, indivisible equipment which are not available to small firms.
- as a result they use flow of production and division of labour
- leading to fast production and lower average costs
define
Marginal costs
- the change in overall production costs if one extra unit is produced
- the marginal costs involved in making one more wooden table are the additional materials and labour cost incurred.
Marginal cost formula
Marginal Cost = Change in Total Expenses ÷ Change in Quantity of Units Produced
Avg cost per unit formula
Total cost / output
BEP define
at this point cost=profit and revenue, no gain or loss.
Contribution per unit, def and formula
- The excess of price over variable costs
- cont. / unit = Selling price-variable costs
BEO form and def
- FC/cont per unit
- The minimum units to be made so no loss or profit
Margine of safety def and form
- amt of units between BEO and max units. As this region is where theres a profit
- margin of safety= Maximum capacity- Break even output
profit at masimum
- ## Profit at maximum output = Contribution per unit X margin of safety
how would i calculate level of output needed to reach a certain profit?
(Fixed cost + target profit)/ Contribution per unit
