Production Thresholds, Factors, and Efficiency
Production Thresholds and Profitability
Threshold production: This is the minimum quantity of a component that makes it cheaper to produce internally rather than purchase it.
- Q: CF / (p – hp)
- p = purchase price
- hp = fixed variables
- cf= fixed cost
Threshold of profitability (breakeven point): This is the amount of production sold after which the company begins to make a profit.
- Q: CF / (p – hp)
- p = purchase price
- hp = fixed variables
- cf= fixed cost
Production Function
The manufacturer or processing of goods, services, or products within a company. Its objective is the organization, management, and control of operations, transforming productive factors into the product in order to maximize efficiency.
Limiting Factors
- Production Capacity: The maximum production that can be performed, based on elements such as the number of machines.
- Product Demand: The level of demand will determine the quantities of product that the company can sell.
- Production System Design: The structure of the processes that make up the production system and how to produce determine the ability of economic direction.
Economic Environment
Situations outside the company that relate to and determine a set of opportunities and threats, which can be leveraged or must be considered.
- Operational Production Control: Regulation of production programming in comparison to adapting to changes or the fairness of the system.
- Economic Production Control: Surveillance and study of production costs and their deviation in economic terms.
Quality is the set of features and specifications that define a product.
Quality Management
Allows a company to control the quality of its products and achieve the necessary level of quality through a process that has the following phases:
- Identify elements.
- Assign a system objective.
- Determine what the quality is.
- Implement control systems.
- Control causes of inadequate quality.
Quality Certification
Allows a recognized governing body to determine the conditions.
Production Department
Produces a final product with the use of some raw materials.
Duties
- Provisioning: Provides the necessary materials for production.
- Manufacturing: Manages the production process where the product is obtained from several production factors.
- Storage: Organizes all materials that are in the standby facilities.
- Quality Control: Verifies if the manufactured product has the desired characteristics.
Definitions
- Economic: Defined as the development of products from productive resources by companies so that they are acquired or consumed by households.
- Technical: Combination of several elements based on observation and tracking procedures as previously defined to obtain goods and services.
- Functional: A process that adds value to things, creating utility assets.
Added Value
The supplementary value added to raw materials, which separately have a lower value than when combined in a final product.
Factors of Production
- Human Resources: Raw materials that form the product.
- Work: Manpower or time dedicated to the service.
- Capital: Set of investments.
Technology
A specific mix of production factors.
R&D Investment
The engine of technological change that allows the company to improve its competitiveness.
Productivity
The production obtained by each unit of a productive factor used.
- Work Productivity: The amount produced per worker.
- Capital Productivity: Quantity produced per unit of capital.
- Total Productivity: Relationship between the economic value of production and the total cost of production factors.
Productive Efficiency
The care with which productive technologies are qualified and valued.
- Technical Efficiency: Technology to produce the same as B but at a lower unit of factor.
Costs
- Fixed Costs: Independent of production levels; they do not change if the amount goes up or down.
- Variable Costs: Proportional to production levels.
- Direct Costs: Directly related to the production of a good.
- Indirect Costs: Affect the entire production process or are common to a set of products.