Production/Cost Curves
Every company has some kind of Revenue and they all have costs that are associated with running the company. It is also true that if a company wants to increase their Revenue, their costs will increase too. It is every company’s goal to maximize revenue and either through Production or Services, and minimize cost. These things are easy to figure out, but actually identifying the production and figuring out how it will increase or decrease with change is very difficult.
In Fred Meyer our output like in all grocery stores, is not a product but the amount of items we sell. Sales is what drives the company, it is the source for our Revenue. Similar to manufacturing companies where they have numbers that tell them how much they produced, we have numbers that tells us how much we have sold. Every department has a goal that they have to reach. They have to sell their products to come to that number. The number varies daily, and managers expect from every department that they will sell more products compared to last year.
For departments to achieve that, managers have to look at the output level and decide how they can increase profit. It will be very difficult for them to do that because if they want to increase the production/output which is sales in my situation, they would incur costs. So if managers decide to try and sell more products, they could hire more employees to persuade customers to buy more products. We can see that when we go to “Circuit City” and “Best Buy”, they have employees just standing around and not doing anything, but once a customer shows up, they are all over them. So for managers in my Home-electronic department they could hire more employees to sell more products. That concept would not be very efficient after a certain number of employees are hired. If we h ire 10 more employee, than a lot of them would just stand around and be in the way of customers and even each other. This situation could be a bottleneck for people that are trying to get something done.
Graph A could best describe this example. This graph shows you what happens to the output when more labor is added. The output will slowly level off and then start to decline. If the managers want to maximize the output they would have to look at the max point on the graph to get the highest output with the lowest labor force.
Cost management plays a major role when maintaining profit margins. Management must be able to find in which areas of a business costs must be reduced and the consequences that such reductions have in the overall company. In some situations management must change the way the work is being done in order to decrease costs while in other cases changing one supplier for another might be enough, in both situations a tradeoff will occur and the consequences will impact the company as a whole.
Even though a myriad of tools and techniques learnt in the Strategic Cost Management and Strategic Business Analysis courses are not fully exploited in this essay, it is generally recognised that those techniques are useful for a corporate to formulate strategy, do strategic planning, control costing and quality, as well as eventually elevate its values, regardless the nature and size of organizations.
... increasing slowly. Currently, Labor costs have been increasing speedily for over 45% of manufacturing costs. From the previous three years, no increase in the productivity levels of the workers has been seen. If it keeps happening, the company will lose its price advantage over its rivals.
Cost revenues are expected to increase. The largest impact of cost as noted in the previous section is raw materials and commodities. Though technology is increasing in areas of production, items such as GPS and fuel injection are new add-ons that H-D is using in its product mix. As new technology is added, suppliers may be limited compared to something like steel that has multiple sourcing options. Costs need to be contained in this area by proper supplier
First of all, it will help the company gain competitive advantage through encouraging the spirit of innovation. Encouraging employees to take initiative will help them in taking innovative steps when it comes to the company's products and process. This will the company achieve product differentiation. Division of work sharpens the skills and increases performance of the employees by encouraging specialization. Specialization will lead to increased quality of products and decreased production time and resource
Moreover, the company has placed great significance on open and honest communications with the employees on many levels. Even more, leadership expected a plan that would utilize all human assets in a way that would support the organization’s attitude in servicing customers and employees. As such, they found it important to centralize the staffing initiative in order to maintain the unique corporate culture created in the beginning. Every one of these strategies would be focused on centralizing staffing, brining in the best possible employees, and retaining each on a high
To develop and establish a competitive advantage, strategic managers utilize cost/resource analysis tools to help them make decisions about the best uses of company resources. Conventional, or traditional cost accounting (TCA), methods, used primarily until the 1980s, allocates all costs to one primary cost driver and one specific product or service. As effective as this system is for a simple, or single-product manufacturing company, its effectiveness is lost when applied to business conditions outside these parameters, as many 21st century aviation organizations have become.
The overall purpose of cost accounting is to advise top administration and the management team on the most suitable and cost effective methods and actions to employ based on cost, capability and efficiencies of a given product or service. It can be defined as the method where all the expenditures used during execution of business activities are gathered, categorized, examined and noted down (Horngren & Srikant, 2000). Once these numbers are gathered and recorded the information is used to determine a selling price and/or to identify possible investment opportunities. Although the principal aim or function of cost accounting is to help the business administration with their decision making and business planning process, the cost accounting data
Productivity tends to improve when employees are treated with respect and consideration. Managers need to remember that every worker is different and that priorities of people vary from one individual to another. Managers should be open to the desires of their employees as individuals. If employees feel they are listened to they will feel that they are being respected and that they are important. Job satisfaction will tend to increase in these circumstances.
An organization if not so conscious in costing the product which it is going to manufacture often spend more cost then may be needed for the production and ultimately it has to increase the sales price to obtain a reasonable profit. Otherwise it has to face the situation in which the costs are higher than the sales value and the result is loss. The loss suffering organization ultimately suffers the situation which is known as “Financial
How and why does a firm’s average total cost curve differ in the short run and in the long run?
...ement must be aware of what each cost has influence over, rather than diminishing the uppermost expense, as this may result in various consequences such as a decrease in efficiency due to an inadequate amount of resources, which completely defeats the purpose of cost cuts and may also spark a decline in its market due to poor quality. By reinvesting the money extracted from one sector into another aspect, such as upgrading to more innovative technology to further increase both efficiency and savings.
It is practically everywhere. In the workplace. Beside exercise stations in health clubs. At athletic events. In backpacks hanging from the shoulders of students. Even on tables at conferences and workshops. Bottled water, once considered the refreshment of the affluent, has become the liquid icon of today's active, health-conscious consumer (Lambert, 1991).
Organizations use this management practice to motivate their employees so that the organization can reach its projected organizational goals. In the industrial setup, giving employees a voice in the decision making process and delegation of authority practices have a great impact on increasing productivity in the organization.
Activity-based costing (ABC) is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore “fixed” as well as variable costs. Activity-based costing is mostly used for internal decision making and managing activities while traditional costing method is used to provide data for external financial reports. Most organization uses activity-based costing as an addition system for using traditional absorption costing as sometimes the traditional cost system misleads the product’s profitability. In a company, there are many products on sale, if one product is sold at a high price with low product margin and a product with high product margin at a low price, it may result in a loss. In addition, due to the reason that cost drivers and enterprises business may change, activity-based costing analysis also needs to be revised periodically. This amendment should be prompted to change pricing, product, customer focus and market share strategy to improve corporate profitability.