Economies of Scale

Bulk economies of scale – large quantity/bulk buying lowers unit cost.

Uncontrollable Variables – Factors that business can do nothing about, aren’t able to change or contribute.

·         Tax Rates

·         Laws and Legislation

·         Trends

·         State of Economy

·         Demands of the market

·         Quantity of available materials

·         Variable Costs

·         Supplies Costs

·         Competitors

·         Government

·         Banks – interest rates of loans

·         Employees (state of mind)

·         Minimum wage

·         Who they can employee – legislation of employees (age restriction etc.)

·         Investors

·         Wars/Terrorism

·         Strikes

Types of Production

Job Production – Occurs when a firm produces specialised or one off item for its customer’s alike artists and architects. -Tailor made to the needs of their clients. -Precise service offered must be adapted for different needs. -Expensive way of making something as the firm must plan each project individually. -Insures quality. -Company has a USP. -Labour extensive.

Batch Production – Groups of items move through different stages of the production process at the same time. –Involves high level of pre-planning to coordinate batches. -Can produce a variety of products needing different marketing. –Needs fairly wide range of equipment and skills for different products. –Fairly flexible process. – Usually relatively capital intensive. –May lack in quality.

Flow Production – Products move continuously from one stage of the process to another. –Continuous production. – Economies of scale involved in mass production. –Suitable for mass marketing. –Needs one set of machines to produce standardised product. –Inflexible process. –Capital intensive (process has a high level of capital equipment, such as machinery, relative to labour input) –Not flexible. –Alot of money foes to machinery.

Lean Production – Attempts to reduce all forms of waste in the production process. –Overproduction (producing too many items and having to get rid of them because there is no demand. – Stocks (holding items in stock and spending money storing and maintain them) –Defects (wasting money putting right mistakes that have been made). –Waiting (time wasted while people and machines are idle, waiting for items to get on with production) –Transportation (wasting time while items are in transit and moving from one part of the business to another.

Differences between Managers and Entrepreneurs

Managers

·         Follow rules

·         Do not wish to take many risks

·         Manages employees and workforce

·         Employed

·         Contributes to decisions

·         Deals with everyday costs

·         Organises production

·         Manages public relation skills and team building

Entrepreneurs

·         Generally more creative and take calculated risks

·         Free in decision making 

·         Focuses on developing a business and hot to move further and to expand

·         Self Employed

·         Makes main decisions

·         Should have persuasive abilities

·         Looks at benefits of the company

·         Looks at costs

·         Directs company

·         High level of achievement and motivation

·         All round responsibilities

·         Challenges establishment

Average Cost – calculated by dividing the total production costs by the number of items manufactured.

Total Production Costs

Number of Products                                                                                                 Manufactured

GDP (Gross Domestic Products) – measures the value of a countries output over a period of time. Measuring economic activity, relates to the level of spending, production and employment in the economy over a certain period of time.

Finance

How businesses may obtain finance:

·         Loan

·         Sponsorship

·         Government funds/grants

·         Personal Savings

·         Investments

·         Remortgaging – unlimited liability

·         Redundancy money

·         Debentures

·         Friends and Family

·         Sale of assets

·         Inheritance

·         Sales and Lease back

·         Overdrafts

Short Term Finance – One year or less

What different reasons will a business need to obtain finance?

·         Start up costs (one off payments)

·         Running Costs

·         Opening a new branch or store

·         Advertising (Market research/analysis)

·         Developing new products

·         Refurbishment 

·         Distribution

·         Expansion

·         Pay off dividends

·         Higher quality

·         Higher Salary for employees

·         Innovation

·         Testing and Trialling

·         Lawsuits

·         Recruitments

·         Buying new assets (machinery)

·         Change of location

Liability – debts a business will have to pay off in a specific time period

·         Mortgage

·         Credit Cards

·         Dividends

·         Running costs – gas, water, electric

·         Rent

·         Debts to Suppliers (Trade Credit)

Assets – Things a company owns (machinery) which can be turned into cash

·         Vehicles

·         Land

·         Stock

·         Brand Name –Franchises

·         Premises

·         Undistributed products

·         Excess raw materials

·         Shares

·         Furniture

·         Stock

·         Machinery – cash registers etc.