Its a japanese approach to management in which they cut waste by not keeping large stocks so make the business more efficient.
An main example of this is Just In Time (JIT) production
This is when no large amount of stocks are kept they just gave the products delievered in when they need them.
- May improve quality as the whole production line will need to be high quality for it to run smoothly.
- If poor quality goods are sold, called "seconmds". The producer will reduce the price so will lose sales revenue
- Customer will not be happy to receive poor quality goods.
- Production may be interupted if production at a earlier stage is not good enough for final stages
This is the money the business receives for selling the good or services it produces.
Sale rev= Quantity sold x selling price
To increase sales revenue, you need to change the price or increase the amount you sell.
Raising the price may increase revenue but people may be more put off as it is now more expensive so you could lose sales revenue.
Factors affecting sales
- The number of competitors
- What competitors do
- Wheter the product is a necessicity
- How much people spend on your product.
To increase amount sold: Increase advestising, sell in greater number of outlets, or increase its product range.
Cost are the payments a business makes.
Costs that do not change no matter how much is sold. Such as rent or mortgage.
A cost that changes depending on the amount.
Total variable costs= quantity sold x variable cost per unit
Fixed cost+Variable cost= Total Cost
The average cost of production is the cost for each unit of product they sell
Average cost= Total cost/ Amount sold
Economies Of Scale Summary
Techinical:A business saves on production costs by using better methods and equipment
Managerial: A busines can employ specialist managers who improve efficiency.
Financial: A business does not have to pay out as much money to raise finance.
Risk-bearing: Has a range of products or services so is not dependant on just one product
Purchasing: A business is given a discount for buying in large quantities.
Marketing: Business saves on advertising and transport costs.
Diseconomies of scale usually occur because the firm become too big to be managed efficiently.