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12 Cards in this Set
- Front
- Back
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1) Revenue
2) Cost |
- Earning of the business
- The expenditure |
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Fixed Cost
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These costs do not vary with the level of production, They are also known as overhead costs.
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Variable Costs
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This cost varies with the items sold or produced. They are called direct cost as they can be directly related to or identified. With a particular product.
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Total Cost
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Total cost is the combined total of the fixed costs and the variable costs.
TC = VC + FC |
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Examples of the types of fixed and variable costs.
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Fixed - Rent, Bank Loan, Tax
Variable - Raw materials, Labour cost, Transportational costs. |
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The breakeven point is the point at which cost and revenue are equal. There is no gain or loss.
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Average Cost = Total Cost/ Total Units produced.
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Scale of Production - To increase output in the short and long term.
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# Recognize its existing production process to make them more efficient.
# Pay its existing labour to work overtime. # Motivating its existing workforce to increase productivity. # Hire some labour on short-term contracts - Festivals etc. |
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Economies of Scale:
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Labour economies of scale: efficient and trained labour force with which there is an increase in productivity.
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Technical economies of scale: With the latest technology the productivity improves.
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Economies in stock and storage: Planning of storage space efficiently, In order to utilize the existing space.
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Purchasing economies of scale: Bulk buying, when the companies buy the raw materials in bulk at a discpunted rate.
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Financial economies of scale: When an established company wants to raise finance it is easy for them as they already have a name and reputation in the market.
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Marketing economies of scale: Large companies have the advantage of advertising all their products under one brand name.
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Risk Bearing economies of scale - This is when a large company is capable of diversifying into different areas.
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Managerial economies of scale: It is possible for large companies to hire specialist managers, this improves the work method, within the company and further improves the efficiency.
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Diseconomies of Scale:
- Problems in managing production. - Problems with communication. - Poor Morale. |
