THE FROG’S EQUATION: BUSINESS STUDIES FOR IGCSE
Production
Productivity: the output measured against the inputs used to create it.
Output (¿ a given period)
Number of emplyees
As employees become efficient the amount produced will rise and costs will fall.
Methods of production:
Job production – single product made at one time
meets customized requirements
varied jobs
greater job satisfaction
skilled labour used
higher costs
Batch production – similar products are produced in blocks
flexible working way
variety in jobs
not affected by damaged machinery
expensive
storing is costly
Flow production – large quantities produced continuously
low costs, low prices, high sales
capital-intensive production
unskilled workers
quick and cheap
no moving stocks, time saved
boring
capital costs can be high
affected by damaged machinery
Stock control: levels of stock have to be controlled to ensure there is always
enough supply. Stocks have to be reordered in time so they don’t run out.
*Lead time – the margin of time between the date when stock is obtained and
the date when it is sold on
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Paula Hohne-Tarragona
THE FROG’S EQUATION: BUSINESS STUDIES FOR IGCSE
Scale of production
Economies of scale: factors that lead to a reduction in average costs as
business increases in size
purchasing economies- bulk buying discounts
marketing economies- transport, advertising
financial economies- lower interest rates
managerial economies- specialists in all departments
technical economies- specialization and latest equipment
Diseconomies of scale: factors that lead to an increase in average costs
poor communication
low morale
slower decision making
Lean production: methods of making production more effective by trying to cut
down waste.
Kaizen - a method of increasing efficiency by continuous improvement.
Based on the idea that workers work in groups to improve production.
It eliminates waste by moving machinery closer and putting order to the
flow of production.
Just-in-time – method that involves reducing the need to hold stocks.
Everything arrives and is used just at the time they are needed.
Warehouse space is not needed- lower costs
Cell production – production line is divided into separate, self-contained
units, each making an identifiable part of the product.
Boosts morale of workers- more motivated
Costs
Business costs:
Knowing business costs is important
-costs of operating factory can be compared with revenue from the
sales to calculate whether or not the business is making profit
-to compare costs of different locations for new factories
-to help decide what Price should be charged for the product
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Paula Hohne-Tarragona
THE FROG’S EQUATION: BUSINESS STUDIES FOR IGCSE
Break even
Break-even charts: graphs that show how costs and revenues of a business
change with sales
*to draw one you need to know the fixed and varied costs of a business
and the revenue
What do they show? The main thing that these charts show is the break- even
point of production.
*break-even point- level of sales at which total costs equal total revenue
At production below this point, the business is making a loss; at
production above it makes a profit
Advantages:
Managers can see the expected profit or loss at level of output
The impact on profit or loss of business decisions can be shown by
redrawing graph
show safety margin- amount by which sales exceed break-even
point
Disadvantages:
graphs are done assuming that all products will be sold
fixed costs only remain same if scale of production doesn’t change
break-even charts only concentrate on this aspect, but there are
others that need to be taken into account
when doing charts it is assumed that lines are straight, but they aren’t
necessarily
Calculation:
Break even point=total ¿ costs ÷ contribution per unit
*contribution: selling price – variable cost
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Paula Hohne-Tarragona
THE FROG’S EQUATION: BUSINESS STUDIES FOR IGCSE
Quality
Quality: producing a good or service to customer requirements
Quality control:
inspectors checking finished goods
detecting/cutting out components/products that aren’t good enough
Quality assurance: occurs during and after production
stops faults from happening in first place
responsibility of workforce
Total quality management: the process of managing quality at every stage
within an organization and in every aspect of operations.
everyone at workplace is encouraged to think about quality
quality circles created – groups of employees meet to discuss
improvements in quality
Location decisions
Location: there are many things to consider
distance to markets
availability of raw materials
transport costs
availability of land
availability of labour
safety
utilities
communications
regional factors
government incentives
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Paula Hohne-Tarragona
