Types and Control or Production
the cost of production should be kept as low as possible
the quality of production should be good
the quantity should be enough to cover demand
must be what the customers want.
producing each product individually
Advantages - products are high quality, they can be made to meet the customers needs, workers often get more satisfaction from working on a product in till its completely finished.
Disadvantages - cost of production is high, labour costs can be high because it requires skilled laboures
producing one type of product for a while, then changing it to another type of product, switching backk when more is needed.
Advantages - customers needs can be met by making batches of different goods. batches are made to meet specific orders from customers this lowers costs because the product doesnt need storing. specialised machines can be used so no labour costs.
Disadvantages - takes time to switch from one product to another adding to the cost of production, materials will need to be stored for when the switch of production is needed meaning storage costs, tasks may be repetitive and boring for workers.
involves a series of automated processes whcih when applied to a variety of raw materials results in a large quantity of a finished product.
Advantages - large amounts can be made, most processes can be automated to allow production costs to be kept low, suited to products that have to be of a consistent and very good quality
Disadvantages - very expensive to set up, a problem with one part of the production processes leads to the whole process stopping untill its fixed.
involves and assembley line. one kind of product is made continously. the goods are massed produced.
Advantages - large amounts can be made, the cost of production for each product is low because the firm benefits from economies of large scale production, machinery can be used keeping the cost low, improvements in technology means that not all products need to be made the same.
Disadvantages - goods are massed produced so quality might not be as good, very expensive to set up, large st6ocks of materials nned to be stored, if one part of production stops the whole production line stops, jobs on assembely line can be repetitive and boring.
stage 1 - research what customers want and develop and design products to meet their needs
Stage 2 - identify the resources (raw materials, components, labour etc) needed in the production process to create a finished product or service.
Stage 3 - obtain feedbacks from customers. the business may need to change the design of its product in some way depending on the feedback.
Finance - revenue, costs and break-even
Sales Revenue/ sales turnover - the money a business recieves for selling the goods of service it produces.
the money a business earns depends on how much it sells and at what prices. this can be calculated using a formula
sales revenue= quantity sold + selling price
you can increasing sales revenue bu changing the charge of the product or increasing the amount you sell.
just because the price of the product is raised doesnt mean that your sales revenue will increase, because people may be put of the higher price and not by the product
when a business wants to raise or lower its prices to increase revenue it needs to judge what will happen to the amount it sells. depends on factors such as: number of competitors, what competitors do with their price, if the product is a need or a want, how much people spend on the product
Business costs - the payment a business makes in order to make a good or service eg wages electricity rent telephone bills. these are split in to two catergorys. fixed cost and vairable cost
Fixed cost - these are costs that do not change when the business chnages the amount in create. eg rent, wages
Variable cost - these costs do change when the business changes the amount it makes. eg the raw materials.
total variable cost = quantity sold * variable cost per unit
total costs - found by adding together the total for all fixed and variable costs.
Average costs - the cost for each unit of a product that a business sells
avergae cost = total cost/amount sold
important for a business to calculate average cost so it knows how much to charge for its product, if wants to make a profit the product price will need to be higher.
Managing costs - important for a business to control cosrs as lower cost may mean higher profit. if you can lower average costs you can lower the cost of your product and still make a profit.
scale of production - capacity of a business is the amount that the business is set up to produce, with the resources that it has. more than capable = above capacity. less the capable = excess capacity.
Economies of scale - scale of production increases when capacity increases, then the production cost will increase. the premises to may need to increase to allow more room for new products.
average costs do not always fall as the scale of production is increased. if they rise a firm is said to experience diseconomies of scale.
size of the market
Large market - firms produce on a large scale eg businesses producing canned food
small market - friendly convenient service to local community. advice to customers that big company's might not provide.
local market -