Beruflich Dokumente
Kultur Dokumente
MCA
Primary Methods
Market Survey/ studies or the Survey Method. Market Experimentation.
Survey Method
The Consumer Survey. The survey of sales forces or the collective opinion.
demerits
Expensive Time Consuming The answers may not be correct or consumers may not co-operate. Information may be limited or incomplete. Failure of Designing a questionnaire Cheating on the part of the enumerators
Cost-Output Relationship
In producing a commodity (or a service) a firm has to employ an aggregate of various factors of production such as land, labour, capital and entrepreneurship. These factors are to be compensated for their efforts and contribution made in producing the commodity . This is the cost. Cost of the production is the value of the factors of production employed.
Types of Production Cost cont(7) Marginal Cost (MC)- Marginal Cost is the cost of producing an extra unit of output. MC4 = TC4- TC3
Short run costs are the costs incurred by a firm over a period during which some factors of production are fixed, whereas long run costs are the costs incurred by a firm over a period during which all factors of production are available. In the short run, the costs of the firm are divided into fixed costs and variable costs for making correct decisions. TC= TFC+ TVC TFC (salaries of administrative staff, depreciation of machinery, expenses for building, depreciation and repairs, expenses for land maintenance etc) Total Variable costs (TVC) (expenses on raw materials, cost of direct labour, running expenses of fixed capital such as fuel, power, ordinary repairs, and routine maintenance. Total Cost (TC)- TC of a firm in the short run is the sum total of the total fixed cost and the total variable cost.
AFC = FC/ Q AVC = VC/ Q Average Fixed Cost curve represents the fixed cost per unit of output produced. This curve is a rectangular hyperbola which means that it approaches the vertical and horizontal at each end. It implies that for every small outputs, fixed cost per unit is high and for large outputs, it is low. AVC represents variable cost per unit of output produced. This curve declines at first, reaches a minimum and then rises.
ATC curve represents total cost per unit of output produced. This curve is the sum of AFC curve and AVC curve at each output. As per figure 9.6, AVC which is representing variable cost per unit of output produced declines at first, reaches a minimum then rises. ATC Curve represents total cost per unit of output produced. ATC = AFC+AVC . MC cuts the ATC and AVC curve at their lowest points. When MC is below it pulls ATC curve below and when it rises upward it pulls thee later upward.
The long run average cost curve is derived from short run cost curves. LAC = LTC/Q Long run average cost curve has a U shape. This shape reflects the laws of returns to scale. According to these laws, the unit cost of production decreases as plant size increases, due to economies of scale. The economies of scale exist only up to a certain size of plant, ie optimum plant size, beyond which diseconomies of scale will arise due to managerial inefficiencies. This makes the LAC curve turn upwards. In this stage decision making process becomes less efficient.
1. At each level of output, the relevant short-run marginal cost (SMC) equals Long run marginal cost (LMC) 2. For all SAC Curves, the point of tangency with LAC Curve is at an output less than or greater than the output of minimum SAC. 3. The average cost per unit falls upto output OXM, due to economies of large scale production: and any increase in scale beyond plant size SAC2 results in increasing average cost per unit because of the existence of diseconomies of large scale production.
Cost Control
Cost Control means the regulation of the costs of operating a business firm. It is an efficient tool of management of the firm. It is a by product of effective management in business. Its emphasis is on the past and the present. Cost Control is essential in the main areas such as direct material, direct labour, sales and overheads. The steps involved are planning, Communication, Motivation, Appraisal and reporting, Decision Making.
4] Ratio Analysis- It is a tool of comparison. It acts as an effective cost control technique. In this analysis a desirable ratio is pre determined. The actual performance is compared with this ratio and corrective action is taken. 5] Value Analysis It is a technique of cost control which studies cost in relation to product design. It is a process which aims at having a product design, material usage etc.
6] Work study- The work study technique of cost control involves systematic collection of work data and critical evaluation of the existing and proposed methods of undertaking the work. It aims at analyzing and evaluating all those conditions which influence the performance of the task.
Cost Reduction
Cost Reduction means the real and permanent reduction in the unit costs of products produced and services rendered without impairing their suitability for the intended use. Its emphasis is on the present and the future. Main Areas such as product design, organization, production, purchase and material cost, labour cost and so on. Areas listed as well defined and reasonable programmes, proper organization, efficient system of data collection and reporting, Close scrutiny of the past and the present operations.
External Economies
External economies are the advantages enjoyed by all the firms in an industry which is localized at a particular place. These advantages are common to all the firms in the industry. The external economies include ..
Diseconomies of scale
Diseconomies of scale simply means the disadvantages of large scale production facing by a business firm. TYPES OF DISECONOMIES OF SCALE: Difficulties of Management- As a firm expands, complexities and problems of management increase. The manager find it difficult to control and supervise the organization. This proves to uneconomical. Difficulties of co-ordination- Organization, coordination, decision making becomes difficult.
Difficulties in Decision Making- A large firm cannot take quick decisions and make quick changes as and when they are needed, for it has to consult various departments for making any decisions and so urgent matters requiring timely decisions are inevitably delayed. Increased Risks- With the scale investment also increases and risks too. Therefore unwillingness to bear greater risks is an important limitation to the expansion of the size of the firm.
Labour diseconomies-Extreme Division of labour with a growing scale of output results in lack of initiative and drive in the executive personnel. Occurrence of grievances and Industrial dispute is common. Scarcity of Factor Supplies Due to concentration firms faced scarcity of factors of production. Financial Difficulties A big concern needs huge capital which cannot always be easily obtainable. Marketing Diseconomies Firms under the monopolistic competition undertake extensive advertising and sales promotion efforts and expenditure which ultimately lead to higher costs.