ETFO Chapter 16: Production of goods and Services > Difference between Productior »motion Production refers to goods, whereas productivity refers to the how roduced as compare to their inputs. effectively goods are being produced Labor Productivity = Total wi > No. of hours worked ® By increasing quality material = By increasing technology = By training * By supervision and control * By motivation and leadership > Why productivity is an important issue? _ i 5 ctivity directly affects the profitability of a business, if'a labor is producing efficiently and hid productivity is high, it will result in higher production and ultimately higher revenues & profits. > Methods of Production = Job Production Is a method, where one unit is produced or served at a time, ac- cording to the specific order/job. e.g. jewellery, hair dresser etc. Advantages Disadvantages | Y Quality is high * Less production \ Y Customer satisfaction is * Costly as skilled labor is a high Required ¥ Expensive sales * Not suitable for high demand \ SS am 2~— oe = Batch Production It is when a certain quantity of identical goods are produced and then another group is produces and so on. For e.g. Baker Tuition classes ete oe Disadvant ~ * All units are identic cal, Y Higher units can be pro- duced as compared to job therefore customers cannot production get a unique product i v Faster production * Costly; As production set \ up cost of different prod- | ucts is very high. \ Y Can meet high demand ~Y Flexible; Can produce | ya "different products Fi uous process. For e.g. Pepsi, Advantages Se: | 19. ADL Producti +e ere isa large riumber of units a Gera ina contin- Coke. Disadvantages | Y Higher and stable demand can be fulfilled therefore, customer satisfaction can be achieved. * Setup cost is very high ¥ Economies of Scale ¥ Labor needs to be trained (training cost) Y Productivity Increases X Maintenance cost is high. Y Labor cost is savedBRAG | Z 7 : Itis a technique used by businesses to reduce w meso iciencynntther , S Tease efficiency in their production, Methods of lean production are as followin; Itis a Japanese terminology which means continuous improve- ment. In this technique business removes all the unnecessary steps and process which results in wastage of time & resources. ~ Cell Production 2 In this the production process is divided into separate blocks. Each part is produced in a different cell. - Just in Time Businesses using this technique do not maintain or hold Inventory, they order the material just in time it is required. This saves the cost of holding stock, but for a successful JIT the reliability and nearness to supplier is necessary. pees - Kan Ban i 4 This technique runs along with JIT, here there are two bins of stock. When the Bin 1 is being utilized the Bin 2 is ready before the other Bin gets finished. Similarly, when Bin 2 is being used Bin 1 is getting refilled. > Stock Control Stock is a very important part of operations; if stock level is high it will result in high storage cost, high chances of theft & damage, cash- flow problems. And if the stock level is low then there will be chances that consumer demand cannot be fulfilled ordering & trans- portation cost will be high. Therefore, is to be decided carefully that how much stock should be ordered and at what time.> When stock should be ordered? ™ LEAD TIME It is the difference between the da of goods. > Stock control chart Max! Reorder Level n ys ordering of goods & delivery aoe AQ BHOOT ~Chapter 17: Costs, Scale of Production & Break even analysis Classification of Costs = a © ~ Variable Cost Fixed Costs + Are costs which do not vary with output. For e.g. Rent, insurance, Accountant’s salary Are those costs which vary with the output. For e.g. Material, Labor Fuel cost etc. j i é \ j a emg eee ) # eins «Neate Variable Cost $ Fixed Cost Production ProductionI's the point where Total Cost (Variable cost equal to Total Revenue. Or when there is no There are two ways of calculating the breakeve 1. Graphical Method ¥ 2. Formulae/ Numerical Method + Fixed Cost) is Profit no loss, n point QUBA' Bp ve Break Even Chart neencs| > Safety Margin or Margin of Safety It is the difference between the breakeven point and total sales | Advantages OfBreakeven | Disadvantages Of Breakeven | Charts Charts ¥ Aid in decision making % It is assumed that all the pro- duction will be sold | ¥ By plotting different figures, | * All figures are estimated to managers can identify the pat- remain same tern of profits or losses Y Margin of safety can be cal- % All lines are straight practical- culated ly not possibleQUBAIR BHOOT Break Een Formulae B Teak Even Point = Total i Cost * Conti Contribution Per unit ntriby Qu ution Per unit = Selling Price — Variable Cost per unit fited (ol Ware Fixed Cost = s 50,000 ee rece Total Cost = s 120,000 tealke) ed Total Units Produced = 10,000 Calculate the Break Even Point Solution: Variable Cos ‘otal Cost — Fixed Cost = $120,000 - $50,000 = $70,000 Variable Cost per unit = 000 10,000 = $7 Per unit Contribution per unit = Selling price — Variable cost $12 - $7 = ss Therefor ven point = Total Fixed Cost Contribution Per unit = $50,000 s5 = 10000 unitsOther Classif;, rect Cost: Are those “ cx en cote which Indirect Costs Prod igblighted from the Are those costs which PN. For e.g. material cannot be highlighted from the product, For €.g. Electricity, security > Average Cost Average Arar a® Cost is the division of total cost i Average cost = Teal Total Units produced > Marginal Cost 7 Is the cost of producing one extra unit, itis also known as aaa 4° nak per unit. : VA Wiss ct cost Economies of Scale Economies of scale are those factors which reduces the average cost, of the business when the business grows in size. Types of economies of scale are as following: - Purchasing Economies When the business purchases in bulk, its likely to achieve dix counts, hence the purchase cost becomes low. i i mes i - Financial Econo! a If the business is large, lenders tend to lend money : inance cost. interest rates, thers efore reducing the fi lowe1 Ths ne Eco r cs Ms Mean; Es 8 that lar : : ingles: Ber business are af ai cable to be. idean market their product < Pest hh Adveri re scale, th Managerial Economies Large busii sean mene can afford highly qualified and expert staff Teduce inefficiencies in t a aoa iclencies in the business and reduce aver- > Diseconomies Of Scale Are the fact: ; ors w’ Farge boson’ Which increases the cost or reduces the profit of a in : c . ess. The types OfgUNGiiérnies arc a3 follows: ~ Poor Communication As business tends to grow, business employees more staff, the/ Teading to miscommunication within the organization. Communication jargon can also be established. - Demotivation In large businesses, employees are probable to feel alienated and believe that they are not recognized and are not important to the organization. This can cause the organization a number of problems. - Slow Decision Making Asa result of the troubles of communication and a greater number of managerial levels in a large business, decision mak- ing process will be slow.ud: Budgets are the target or aims of the business in monetary terms id in dex |WeaBGezeer teen help the business | Budgets ha have a Tendency to motivate employees Y Budgets provides a line of direction to to the Business Y Budgets can estimate fu “Soe " Gomme J ” ne i Est. oe It is the “itflecad ‘between n budgets ind actual figures should not be too high. mn A making a in controlling ——_—____| * Ifunrealistic, it can demotivate employees.™ Chapter 18: Achieving Quality production > Quality Itis a feature of a product that convinces the consumer to buy again, it highly satisfies the consumer. Quality attrac satisfied and won't come aj consumers, if quality is low consumers will not get n leading to reduced sales causing lower profits, > How to Increase Quality? * Quality Control 11 where there is a Supervisor who checks the quality of removes those products which are of y quality delivery to the consumers ' In quality assurance there is a check & balance on every process to make sure that no low standard goods are produced. In this meth- od itis assumed that all produets are of'a standard quality. ed units and thet rds to avoid any I y Assurance * Total Quality Managem M): Under TQM every worker is responsible and motivated to increase quality in his business, each worker try to contribute as much quality increase as he can.n a = Chapter 19: Locati ion Decisions = = = > Why Location Is Important? Itis very important to take tl location is not easy to chan; suitable for the business, 1 QUBAIR BHOOT he decision of location very carefully, as ge in a very short time. If location is not the whole investment can face failure > Factors Affectin; Location of a Manufacturing Business = Nearness to raw material supplier A manufacturing business must be near to its raw material supplier, if the raw material is not available on time then it may affect the whole production process. = Nearness to Market = Ieis tis important th that the main market is 1g unit. It will reduce the t sci god are delivered on time Availability of Labor Labor is one trTeeoriee the most important factor of production, its avail- ability is vital at reasonable wage rate, skilled labor is required in production so location of the factory should be in a place where skilled labor is available easily. Infr: icture It includes all b: roads, communication, because without these facilities a ufacturing business cannot continue its existing operations. asic requirements such as power, heat, water sup-so : er Grants & T: There are some areas wl here government wants to promote indus- try, to attract the investors, govt. gives financial aids & tax bene- fits to businessmen. A businessman must avail this opportunity. * Cheap Rent It is very important to know that how costly the rent of the factory is, it should be reasonably low to control the cost of production. We g Location of a Service/ Retail Business ee i important factor for a service business, as customers uch a place where crime rate is high. Customers _ & peaceful place where they can come freely with valuables. ‘Visiting with their vehicle need a suitable place re is no parking area, customers might prefer toBeauty/ Attraction For a service bus ness, it is a key factor tion for the busine s, b aa lax envir ronment, ae a beautiful loca- ‘ause consumers want satisfaction and re- © some laws which restrict a service to advertise and ice business should consider this before locating decision. ™ Main Market A service or retail business should search a place where there is main market, because people usually visit such markets witha variety of shohel | io? t eG woe % i > Factors Affecting Relocation OFA Business At Home Or Abad ™ Government Grant i \ J ee ‘A business will search where govt. grants are available for finan- eds to relocate in home or abroad. cial ne usiness will search for a location country’s corporate tax rate Is Ab ss will search for a | try’s corporat low. P lo- Cheap Labor ‘ attract businessman to Te labor in a country Skilled and cheap cate their business.Cheaper raw material will reduce the cost of production of a business, hence increase profitability, so the business should relo- cate where it is cheap. * Tariffs & Quotas A business will relocate in the country where there is no import export quota & limitations which restrict their international trade. ™ Inflation A businessman must relocate its setup to a place where inflation is low, it will reduce cost of production. 3 { ; Interest rates directly affect your cost of borrowing, if finance is required from banks then interest rates should be considered. | a © VW i Yee " Exchange Rate If a business majorly imports raw materials from other countries, it will search for a location where exchange rate is low because, if imports are expensive, cost of production will be & vice versa.