Production Methods
Making one product at a time, often customised for a customer.
What is job production?
A cost that does not change with the number of products made or sold.
What is a fixed cost?
Checking finished products or production stages to find defects.
What is quality control?
The money available for day-to-day running costs, calculated as current assets minus current liabilities.
What is working capital?
Current assets divided by current liabilities.
What is the current ratio?
The production method used to make large quantities continuously, often on an assembly line.
What is flow production?
Selling price per unit minus variable cost per unit.
What is contribution per unit?
Designing systems to prevent mistakes before they happen.
What is quality assurance?
A short-term borrowing facility that allows a business to spend more than is in its bank account, up to an agreed limit.
What is an overdraft?
Net profit divided by revenue, multiplied by 100.
What is net profit margin?
This production method makes groups of similar products before changing to another product.
What is batch production?
Fixed costs divided by contribution per unit.
What is break-even output?
Rent, customers, suppliers, labour, transport links, competition, and government incentives are examples of these.
What are location factors?
This source of finance can provide a large amount of money for expansion but usually requires interest payments.
What is a bank loan?
These are useful because they help compare business performance over time or with competitors.
What are ratios?
High set-up costs, less flexibility, and problems if machinery breaks down are risks of this production method.
What is flow production?
Managers use this to find the number of units that must be sold before the business starts making profit.
What is break-even analysis?
A business may choose this location because it can reduce transport costs and make production more reliable.
What is a location near suppliers?
This source of finance raises money for a limited company but may reduce the owners’ control.
What is share capital?
A business has a strong current ratio, but this does not prove it is successful because it may still have low sales, high expenses, or weak profit margins.
What is a limitation of liquidity ratios?
This production method gives a business some variety without making every single product separately.
What is batch production?
Managers might use this before launching a new product to estimate the sales needed to cover fixed and variable costs.
What is break-even analysis?
A location with lower rent is not always the best choice if it also means fewer customers, weaker transport links, or higher delivery costs. This is what the business must judge before deciding.
What is the most suitable location?
Reducing costs, delaying payments to suppliers, encouraging earlier customer payments, arranging an overdraft, or leasing assets are ways to improve this.
What is cash flow?
In a longer answer, this is what students should do after giving two sides of an argument: make a clear decision and explain which factor matters most for the business.
What is making a justified recommendation?