An efficient allocation of resources is always attempted to be achieved. Whether it be by a household or a firm, both attempt to maximise the welfare benefits they receive from using the resources they have available to them. Production and cost theory enable firms to have a clearer picture of how their resources can be allocated, and therefore they are essential to an efficient allocation of resources. The production theory mainly focuses on the relationship between the inputs that a company will inject into the production process, and the outputs that will come out of it. Firms always look at decisions in at least two different time frames: the short run and the long run. In the short run firms have at least one fixed factor of production. …show more content…
These occur only in the long-run, and allow for a firm to know whether it would improve efficiency for them to increase input levels. Economies and diseconomies of scale occur due to the idea of increasing and decreasing returns to scale. Economies of scale are reasons as to why an increased inputs will lead to a more than proportional increase in outputs. External economies of scale are those which occur due to the benefits of being in a market (eg.if logistics links are improving due to a concentrated geographical market, then this is an external economy of scale) while internal economies of scale occur due to an increase in an individual firm 's size (eg.if two firms merge and therefore they have better specialized managers for individual departments, then this is called a managerial economy of scale). Diseconomies of scale, on the other hand, occur due to communications issues (eg.if a company has a decentralized management, it may not be able to control average costs from rising). Due to the concept of economies and diseconomies of scale, firms are able to better gauge whether they can efficiently grow so that they are achieving growth targets while also keeping costs at a level of productive efficiency. Using cost theory means that firms can predict the effect that changes in their inputs will have on their
Activity-based costing (ABC) is a costing method that is usually used as a supplement to a company’s usual costing system, and is therefore used for internal decision-making. It is designed to inform managers of costing information for decisions (strategic and others) that potentially affect capacity and consequently “fixed” as well as variable costs. In addition, ABC can also be used to pinpoint activities that would benefit from process improvements.
It took a little bit to fully understand these but it made a lot of sense once I figured them out. The flow of products throughout the plant is very important. It doesn’t make sense for one machine to be making products faster than the next one can handle because it’ll all build up and cause problems. Also, the three terms throughput, inventory, and operational expense really help to simplify everything in a plant. Simplicity makes managing a plant easier, allowing the manager to do a better job at what he does.
This paper is going to identify three type of companies that use different costing systems (job costing system, process costing system, and activity-based costing allocations (ABC) ). Also, this paper is going to compare and discuss the similarities and differences you see in the companies.
Activity Based Costing (ABC) refers to an accounting method that enables businesses to gather information about their operating costs and assign them to specific activities such as planning, engineering or manufacturing. Therefore, ABC enables businesses decide which products, services and resources to employ in order to increase profitability and cut down unnecessary wastage. Unlike the traditional costing methods, ABC emerged in the 1980’s as a way to more accurately measure all business costs while at the same time associating them to the goods and services produced.
Production relates to where raw materials also known as inputs are converted into outputs. The main role of production is to produce services and products that customers demand in the most economical and efficient way (Kumar 1999).
In this paper, I will introduce and summarize the documentary, explain the application of deontological ethics to the moral question posed by the use of sweatshops (factories with extreme exploitation, fear and intimidation, arbitrary punishment, and poor working conditions), and conclude my paper (Mount Holyoke College). The documentary “The True Cost” is an excellent documentary detailing the use of sweatshops in the fashion industry, and how the pursuit of profits by large multinational companies has changed both the landscape of the fashion industry, but also that of farmers (literally), and political landscapes in nations. In the documentary, which serves as a sort of expose on the fashion industry’s use of such factories, there are numerous
There is always a trade-off between equity and efficiency. A economy can never attain the two at the same time . There is always an opportunity cost . Opportunity cost can be defined as the cost of the next best alternative that is forgone by choosing the other alternative. Only one, either Equity or Efficiency can be achieved
In this essay I will go into the allocation of scarce resources that have alternative uses and how different economic systems allocate scarce resources differently. First I'll start by saying that in a free market prices arnt why you can't have everything you want they simply indicate that there isn't enough of everything to go around ie they indicate the scarcity of goods. Prices allow producers to allocate resources most efficiently and are why resources tend to flow to there most valued uses in a free market. The main thing to learn from this essay is that profits tell producers what to produce more of and losses tell producers what to stop producing or produce less of. An example of how profit and loss help allocate resources would be if the demand for cheese increases consumers buy more cheese the increased profits either make the cheese producers produce more cheese or other producers enter the cheese
Economic efficiency can be seen to maximizing total utility from a given amount of scarce resources. There are two types of economic efficiency—allocative efficiency and productive efficiency. According to their definitions, the idea of allocative efficiency is that “consumers pay firms exactly what the marginal cost is (Price=Marginal cost)…such a pricing strategy can be shown to be a key condition if achieving a ‘Pareto optimum’ resource allocation, where it is no longer possible to make anyone ‘better-off’ without making someone else ‘worse-off’.” (Griffiths and Wall, p93) When this condition is satisfied, total consumer and producer’s surplus are maximized. Alternatively, productive efficiency is about how to produce a good or service. To achieve productive efficiency, a firm must use all available methods to produce a certain level of output at the lowest possible costs.
=[ (10,000 x 24) + ( 5,000 x 20 ) + ( 8,000 x 16 )] – 1,220,000
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.
Cost accounting system has two types, job order costing, and process cost system. These two cost systems are very different, almost every company uses order costing or process costing. Starbucks, is a coffee shop where citizens congregate to drink there morning coffee, study, and or socialize. Starbucks is one of the oldest and largest privately held specialty coffee retailer in the United States. (Starbucks) Their passion is to discover the flavors you love and always bring it home, delivering the look, taste and aroma of the world’s best coffee and teas. Job order costing is a very easy way in order to help Starbucks managers to know how much profit their company (Starbucks) made.
Economies of scale are a barrier to entry that affects the market in which my business operates as well. Moreover, I see economies of scale as a barrier because when many event planning businesses start out they are not able to fully produce goods and services on a larger scale right then and there without incurring many large costs. However, when they have been around for a while and have gained substantial amounts of business then they essentially are able to produce more of their goods/services on a larger scale with less input costs, therefore, economies of scale are said to be reached. So,
A production Function in general, without specifying what kind, is related to the output of a production process which starts which starts with the factors of production. The production functions are an integral part for explaining marginal products as well as allocative efficiency. There are different classifications for production functions, and what constitutes them, determined by the type of production. This article of the WIKI aims to focus on the Substitional production function, explaining what it is and means, as well as the limitational, doing the same. (1)
Total revenue, which is the total amount of income received from the sales of a certain quantity of goods or services. Total revenue can be calculated by multiplying the price of a product times the quantity sold. For instance, if 160 baseball caps are sold and each baseball cap was priced at $5 each, the total revenue would be (160*5) $180.