Profit Maximization
Production is very essential in the growth and development of the economy. For the economy to grow and have a wide development, the production sectors need to work with the aim of getting the maximum. The location and site at which the production is carried out determines much on whether the firm will earn more profits or not. However, for the case of China, some of her production industries had to shift to the United States of America due to conducive working and production environment. It is as a result of the relatively reduced production costs and favorable profits earned. Hence, below are the related production costs that will favor the profits to increase effectively.
Total fixed costs These are the costs that set
These costs are as a result of the variable factor of production that depends on the levels of demand for the factors toward the success of the product. Total variable costs determine a lot on the levels of profits to be earned due to their variation from one position to another. The main variable cost is the value of labor required to maintain the production levels at a certain given time. As the labor increases their costs, it becomes much expensive for the production firm to maintain high levels of production (Bell, R and Ho). The firms, therefore, produce largely to ensure that they cope with the expenses incurred for the payment of the labor workers. However, a company can shift from one place to the production site to another to avoid the expenses associated with the labor supply for that particular country. Hence, this is what has made Chinese companies shift from China to the States of America. Therefore, the impact of total variable cost is an inverse relationship between the levels of profits earned. As the variable costs increases, the amount of profits earned may be deteriorating. Likewise, the profits may be at the maximum if the total variable costs are at the lowest levels of
So when there is a decrease in the number of workers employed, there is a decrease in output, hence both the marginal cost curve and the average variable cost curve will decrease. The results are a decrease in total cost. It can be concluded that a short-run change in a factor of production, namely the variable factor labour, decreases the costs of the SABMiller more than the level of their output, and therefore aids in maximising profits.
1) Total Variable Costs are 60% of Total Costs; While the other 40% are from fixed costs.
Variable costs: “Variable costs are costs that vary with the volume of activity”2 and they are: direct labor, Materials, Material spoilage & direct department expenses.
... Additionally, the hurdles imposed by the government agencies will impact the cost of sourcing from China adversely and will have a negative impact on the profitability for the company.
The cost advantages related to raw materials may be explained by better negotiated agreements with suppliers (perhaps due to the larger volumes of purchases – comp. Fig. 5) and possibly less shipping and distribution costs that stem from the fact that Samsung’s fab facilities are geographically collocated (while competitors’ facilities are spread world-wide). In terms of labour productivity only Chinese SMIC outperformed Samsung, but that came hardly unexpectedly: low labour costs in China had been and were to remain unbeatable for some time yet.
American companies purposely make their goods in other countries such as India because their labor practices do not meet US standards and can easily be manipulated for maximum profit. By paying their employees extremely low wages, they are still able to manufacture their products. As a result they pull out more profit that does not have to be given back to their employees due to minimum wage laws not being in effect in these countries. In “Distributional Effects Of Globaliz...
... 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.
Marginal cost (benefit) is the change in total cost (benefit) caused by an incremental change in the level of activity (Thomas & Maurice, 2012, pp. 95). In these definitions incremental is referring to small change relative to the total level of activity. Marginal cost is representative of the slope of the total cost curve and marginal benefit is the slope of the total benefit curve. The intersection of these two lines on a graph represent the point where the net benefit is maximized, or the optimal level of
Large corporations seeking the extra dollar to pocket are willing to spend whatever it takes to reduce the cost of production and increase profit margins. Doing whatever it takes in some instances can help men moving operations overseas to developing countries who are glad to be working. These developing countries unemployment rates are extremely high, so any job that pays is great to have. Americans lose jobs to foreign workers because the American economy is one of the largest in the world and its citizens enjoy great standards of living, when juxtaposed with a city of the same size in Taiwan. Labor costs play a huge and crucial role in corporations, which in turn pay the profits to the corporate giants who run, manage, and own the businesses.
Fixed cost is high for the container shipping industry such as vessel fees, container fees, and labor of loading and unloading. Variable cost is fuel cost, because the volatility of fuel price, so there is a potential huge impact on industry’s profit.
Term “marginal” is extensively used and known with reference to the economics which means “extra”, whereas with economic view point the marginal cost is the cost of producing every extra unit; however the accounting terminology of “marginal” defines the cost incurred on production other than its fixed cost is the marginal cost. Simply, none of the technique is applied unless it serves the benefits and the marginal costing is used by the firms for its registered benefits. Among all its benefits the primary advantage it serves is its attempt to distinguish the fixed and variable costs, and the method only considers the related variable costs to be included in production cost and the fixed costs are thus later deducted out for ascertaining net profit. The inventory at the year-end is also valued on the bases of variable cost. With all these beneficial characteristics of the said system firms using marginal costing are clearly aware of its ...
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.
For example: with the increase of the number of products produced, the cost of operating a machine also increase. Second we have batch level costs which is associated with batches; producing a multiple units of the same product that are processed together is called a batch. The third type is product level costs which arise from any activity in order to support the production of products. The fourth and the last type is facility level costs, this costs cannot be determined with a particular unit, product or batch; this costs are fixed with respect to batches, products and number of units produced. A single measure of volume is used for allocating costs to each service or product in traditional method for example: direct material cost, machine hours, direct labor cost and direct labor hours. A cost driver is an activity that generate costs, it can be generated by two types of costs the first is a particular machine 's running costs where the costs is driven by production volume as machine hours; the second is quality inspection costs where the cost is driven by the number of times the relevant activity occurs as the number of
[6] Professional Jewler Magazine Archive, Lev Leviev's Angolan Connection, [internet] Accessed on: 13th November 2005, http://www.professionaljeweler.com/archives/articles/2002/feb02/0202dn1.html
Currently in the global environment, there is a strong sense of competition that must be achieved through better performance, almost all firms are competing in international markets due to the reduction in barriers for capital and tariffs. With the new changes in both communication and technology, the consequences faced are that production processes are no longer within national boundaries but spread across (Debrah & Smith, 2002).