Chapter 19

Chapter 19

Costs, scale of production and break even analysis

Poll

what are the costs involved when opening new businesses?

• Fixed cost

• variable cost

• Total cost

• Average cost

Multiple Choice

1.What is the formula to calculate profit?

• Revenue - Cost

• Revenue - Fixed cost

• Revenue - variable cost

• revenue + Cost

Multiple Choice

1.What is meant by average cost?

• Total cost / Fixed cost

• Fixed cost/ total cost

• Total cost/Total output

• Total output/total cost

Open Ended

what can you say about 'cost management'?

Cost management

minimize the cost in order to maximize profit

Multiple Choice

which is NOT an example of fixed cost?

• insurance

• salaries

• Tax

• Advertising

Fixed cost vs Variable cost

• tax

• office supplies

• wages

• raw materials

​Variable cost

• rent

• salaries

• insurance

• advertising

• bank charges

• utilities

​Fixed cost

Poll

How cost data information can be used to help make business decision?

• deciding on the best location

• Deciding whether to stop production or continue

• setting price

Fill in the Blank

factors that lead to a reduction in average cost as business increase in size

Open Ended

Can you list down FIVE economies of scale

​Purchasing	​Marketing	​financial	Managerial​	Technical​
​buy large numbers of components gain discounts for buying in bulk reduces unit cost	​own vehicles to distribute goods transport costs will be reduced	​larger business able to raise capital more cheaply than smaller firms lower interest rate by bank	​qualified and specialist helps to reduce their average cost	​large ships and vehicles use flow production specialist machine

Multiple Choice

Which is NOT type of diseconomies of scale?

• poor communication

• lack of commitment from employees

• High marketing cost

• weak coordination

​Poor communication	​Lack of commitment from employees	​Weak coordination
​ ​slow and inaccurate communication lead to lower efficiency and higher AC	​ ​no close relationship between workers and top managers lack of commitment and low efficiency push up AC	​ ​difficult to reach all parts of a large business and different groups of worker

Fill in the Blank

quantity that must be produced for total revenue to equal total cost

Break event charts

• They are constructed assuming that all units being produced are sold.

• Fixed costs may not always be fixed 

Disadvantages

• able to read the expected profit or loss

• can change the cost and revenue and redraw the graph

• able to calculate margin of safety

​Advantage