Businesses have 3 different types of operational targets- What are they?
Low unit costs, Quality targets, Capacity utilisation targets
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What is the equation for unit costs?
Unit costs= Total costs/Units of output
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Quality targets are set in terms of..
Low % of faulty products, or zero defects. Reducing customer complains. Achieving targets through customer satisfaction ( market research)
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What is capacity utilization?
The extent to which a business uses its maximum resources.
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What is capacity?
The full amount A firm can produce.
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Why would a firm increase/decrease its capacity?
Entry or departure of a new company, Change in tastes or fashions. New developments,
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How can a business adjust its capacity?
New buildings, closing down, more staff, more capital.
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if a business under-utilises its capacity it is said to have...
Spare or excess capacity
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What are the effects of spare capacity
1.) Higher unit costs as they aren't spread out. 2.) Profits and competitiveness may decline. 3.)Labour and other resources may be idle thereby reducing motivation. 4.) the firm may produce more output than it can sell. 5.) It may lead to firing.
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What strategies are there to avoid having spare capacity?
Increasing sales through different markets ie. overseas. They may also reduce their capacity, (rationalisation) This could be through selling land, labour or capital.
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What is a non-standard order
An order which doesn't meet the usual specification for the supplier. Ie. Smaller containers
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What does a non-standard order lead to?
use of different cans/boxes (materials) adjusting machinery to fit the needs, before and back after the order. this is costly and may not be worth it.
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