Study Guide #4 Module 11. PRODUCTION & COST CONCEPTS 1. What is the relationship between a firm’s total revenue, profit, and total cost? The total profit of a firm is equal to total revenue minus total cost. In other words, total profit equal total revenue (the amount of a firm receive for the sale of its output) minus total cost( the market value of input a firm uses in production). 2. Give an example of an opportunity cost that an accountant might not count as a cost. Why would the accountant ignore this cost? An accountant would not count implicit cost (input costs that do not require an outlay of money by the firm) as a cost. It is not included/ ignored because no money flows in or out of the firm. Accountant normally only concerned with the firm’s flow of money, so they record only explicit cost. Economic profit takes both explicit and implicit costs into an account, whereas accounting profit considers only explicit cost. 3. What is marginal product, and what does it mean if it is diminishing? Marginal product is the increase in output that arises from …show more content…
How and why does a firm’s average total cost curve differ in the short run and in the long run? In the long run a firm can adjust the factors of production that are fixed in the short run. 7. Define economies of scale and explain why they might occur. Define diseconomies of scale and explain why they might occur. Economies of scale is the property whereby long-run average total cost fall as quantity of output increases. Economies of scale often occur because higher productive levels allow specialization among workers, which permits each worker to become a specific task. Diseconomies of scale is the property whereby long-run average total cost rise as the quantity of output increases. Diseconomies of scale can occur because of coordination problems that are inherent in any large organization. Module 12. PROFIT MAXIMIZATION & PERFECT COMPETITION 1. What are the main characteristics of a competitive
[5] Colin Drury, Management and Costing Accounting, (7th edition), Chapter 17, Standard costing and variance analysis, p. 425-436
The supply-side economies of scale are related to large volumes, which forces new entrants to come in on a large scale or accept cost disadvantage. T.J. Maxx is big enough buy large quantities at a discount and sends it to thousands of its other stores (Kowitt, 2014). This would be the Sun Zi
= Economic growth is caused by improvements in the quantity and quality
There are a lot of factors that determines whether or not a company will be successful. These factors are usually derived from economics. One factor that I plan to focus on is scale economies or better known as economies of scale. Firms that have expanded their scale of operations to obtain economies of mass production have survived and flourished. Whereas smaller firms who have not been able to expand have usually ended up as high-cost producers. The topic discussed will be the Italian automotive industry and how it is affected by economies of scale.
If we define the economic characteristics in term of macro environment, there is several ways that we can categorize as the follow;
Rishinek, A., 1983. Control Aspects of Standard Costing: Variance Analysis, Inflation Adjustment, The Learning Curve and their Computer Applications. Managerial Finance, 9(1), pp. 14-18.
Profit: How much did they make? Profit is the net earnings which is found on the income statement. To find the net earnings
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
Scale Economies: the industry contains several very large players and multiple medium to small players
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.
Therefore, the amount of profit obtained is somewhat arbitrary. However, cash flow is an objective measure of cash and it is not subjected to a personal criterion. Net cash flow is the difference between cash inflows and cash outflows; that is, the cash received into the business and cash paid out of the business (Fernández, 2006). Whereas, net profit is the figure obtained after expenses or cost of resources used by the business is deducted from revenues generated from the business operations activities. Nonetheless, the figure for revenue and cash are not entirely cash, some of the items may be sold on credit and some of the expenses are not paid up
The Effect of the Development of Large Firms on Society Many firms choose to expand in size because of the cost and market share benefits the firms can reap. However, the development of large firms may not always be of benefit to consumers, and the advantages and disadvantages will be discussed in the following essay. Because larger firms such as Shell Petrol Station are able to experience internal economies of scale through lower unit costs, many of the cost savings are then passed on to the consumers through lower prices. Hence consumers are then able to enjoy greater consumer surplus, defined as the difference between the maximum price that a buyer is willing to pay for a good or service and the actual price paid. As seen from the diagram below, the marginal cost curve shifts to the right such that the new marginal cost = marginal revenue equilibrium lowers the price and increases the output level compared with the initial equilibrium.
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.
This essay analyzes the definitions and complex relations among those three concepts; considers both negative and positive effects of economic growth and proposes some solutions for environmental protection.
...an overabundance of information all applicable to the topic. My feeling was that such an overwhelming load of facts and systems directed me away from the most important facts of the chapter. Its imperative that the student understands the small scale relationship to economic development. Therefore my attempt was to highlight the main topics of the chapter and relate them to the reader to provoke intrest and thought towards many of these important life changing situations that occur everyday. If one can see past all the theories primarily and see the cause and effects behind them, they’re appreciation for the ideas stated in the theories.