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12 Cards in this Set

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  • Back
1) Revenue
2) Cost
- Earning of the business
- The expenditure
Fixed Cost
These costs do not vary with the level of production, They are also known as overhead costs.
Variable Costs
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.
Total Cost
Total cost is the combined total of the fixed costs and the variable costs.
TC = VC + FC
Examples of the types of fixed and variable costs.
Fixed - Rent, Bank Loan, Tax

Variable - Raw materials, Labour cost, Transportational costs.
The breakeven point is the point at which cost and revenue are equal. There is no gain or loss.
Average Cost = Total Cost/ Total Units produced.
Scale of Production - To increase output in the short and long term.
# 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.
Economies of Scale:
Labour economies of scale: efficient and trained labour force with which there is an increase in productivity.
Technical economies of scale: With the latest technology the productivity improves.
Economies in stock and storage: Planning of storage space efficiently, In order to utilize the existing space.
Purchasing economies of scale: Bulk buying, when the companies buy the raw materials in bulk at a discpunted rate.
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.
Marketing economies of scale: Large companies have the advantage of advertising all their products under one brand name.
Risk Bearing economies of scale - This is when a large company is capable of diversifying into different areas.
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.
Diseconomies of Scale:
- Problems in managing production.
- Problems with communication.
- Poor Morale.