Flashcards · 4BS1 · Topic 5

Business operations flashcards

19 cards on Topic 5, subtopics 5.1 to 5.4. Pick a subtopic or study them all.

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Average total cost: Total cost ÷ output. Economies and diseconomies of scale are about what happens to this figure as output grows.
Internal and external economies of scale: Internal: falling average total costs as the firm’s own output increases (fixed costs spread, bulk buying, more efficient machines). External: falling average total costs due to external factors (skilled local workers, nearby specialist suppliers, better roads).
Diseconomies of scale: Average total cost rising as output rises, for example through slow communication, weak co-ordination across sites, lower motivation, or strain on capacity.
Average total cost is 6.00 at 2,000 and 3,000 units and 6.50 at 4,000. What does this show?: Economies of scale operate up to the lowest average (6.00). The rise to 6.50 shows diseconomies have started after 3,000 units.
Is a cost rise caused by a new tax a diseconomy of scale?: No. A diseconomy is a rise in average cost caused by growing output. Costs rising for another reason, such as a tax or a supplier price rise, are not.

Job, batch and flow production: Job: a one-off item to order (highest unit cost, very flexible). Batch: groups of identical items, with downtime changing over. Flow: continuous, standardised output (lowest unit cost at high volume, costly to set up).
Productivity, and an example: Productivity = output ÷ number of inputs (for labour, output ÷ number of workers). 12 workers make 1,440 units a day: 120 units per worker per day.
Output per worker rises from 120 to 150 units a day. Percentage increase?: (150 − 120) ÷ 120 × 100 = 25%
Just-in-time (JIT) and Kaizen: JIT: stock arrives when needed and goes out quickly; less money tied up, but a late delivery halts production. Kaizen: continuous improvement through many small changes from all staff; slow gains, needs listening managers.
Robotics in production: factors to weigh: Cost (lower labour cost per unit against high purchase and repair costs), productivity (more output against stoppages), quality (consistent, but errors repeat) and flexibility (can be reprogrammed, but less adaptable than people).

The four factors of production: Land: site, premises and natural resources. Labour: the people who work for the business. Capital: equipment, machinery, vehicles and technology. Enterprise: the entrepreneur who takes risk and organises the other inputs.
Capital-intensive and labour-intensive: Capital-intensive: a high proportion of capital to labour (car plant, bottling line); low unit cost at scale but high fixed costs. Labour-intensive: a high proportion of labour to capital (salon, care home); flexible and personal, but wage costs.
Why does the mix of factors change?: Machines get cheaper or more capable, wages change relative to equipment prices, the business grows, it changes where it sells (such as online), or the entrepreneur takes on more risk.
Wages 60,000, equipment 20,000, other costs 20,000. Is the business labour- or capital-intensive?: Labour share = 60,000 ÷ 100,000 × 100 = 60%, so labour-intensive. Always compare with another business or period.

Quality: How well a good or service meets or exceeds customer expectations and the business’s own standard.
Quality control and total quality management (TQM): Quality control: checking output against a standard and removing faulty items, usually by inspectors. TQM: everyone is responsible for quality, aiming to prevent faults and get things right first time.
Features of TQM: Shared responsibility, prevention, training, a focus on internal and external customers, and continuous improvement.
How does quality give a competitive advantage?: Reputation and recommendations, the ability to charge a higher price, lower costs from less waste, rework and returns, and customer loyalty.
2,000 units, 5% defective at a cost of 8 each. Defects fall to 2%. What is the saving?: 5%: 100 units × 8 = 800. 2%: 40 units × 8 = 320. Saving = 480 per period.