Please enable JavaScript.
Coggle requires JavaScript to display documents.
Business Chapter 19: Costs, scale of production and break-even analysis…
Business Chapter 19: Costs, scale of production and break-even analysis
business costs
needed to calculate profit and loss
fixed costs do not vary with changes in output
help managers to make decisions
average cost = total cost/output
variable costs do vary directly with changes in output
total cost = fixed + variable costs
formulas
total costs of production
total costs of production = fixed costs + total variable costs
average cost of production
average cost of production = total costs production ÷ total output
total cost
average cost per unit x output
using cost data
setting prices
deciding whether to stop production or continue
deciding on the best location
economies and diseconomies of scale
economies of scale
managerial economies
marketing economies
purchasing economies
financial economies
technical economies
diseconomies of scale
poor communication
lack of commitment from employees
weak coordination
drawing break-even chart
the y-axis (the vertical axis) measures money amounts
the x-axis (horizontal axis) shows the number of units produced and sold
the fixed costs do not change at any level of output
the total cost line is the addition of variable costs and fixed costs
uses and limitations of break-even charts
uses
show break-even output
show margin of safety
help in decision making
show area of profit or loss
limitations
assume no inventories
'straight line' assumption
fixed costs not always constant
concentrate on break-even