Understanding Production Functions and Cost Management
7.1 Production Department: The production function of the business includes the entire set of activities that can produce a good or a service. These produce a final product with the use of some raw materials, machinery, and installations. Functions of the Production Department in charge of the productive function of the company:
- Provisioning: Provides the necessary materials for production.
- Manufacturing: Manages the production process from which some production factors achieve a final product.
- Storage: Organizes all the materials that exist in the facilities of the company in hopes of using them in the manufacturing process or selling them to customers.
- Quality Control: Verifies that the product meets the desired characteristics.
Comparison with Other Company Departments: The characteristics of the production department may change depending on the size of the company and its activity. In very large companies, each of these functions is the responsibility of a separate department:
- Sales Department: Focuses on satisfying customer needs.
- Finance Department: Investment in machinery and installations must be approved and financed by the financial area. It is also important to control costs.
- HR Department: As in any business, the human factor is fundamental; therefore, the department must hire qualified personnel required by the production department.
7.2 Production: Economic Point of View: Production is defined as productive activity involving the development of products (goods and services) from basic productive resources by companies. Technical Perspective: Defines production as the combination of a series of items such as labor, raw materials, power, machinery, etc. Functional-Utility Perspective: Production is a process that adds value to things and creates utility for assets. The Factors of Production:
- Natural Resources: Raw materials, energy supplies, and other materials that make the product.
- Labor: The time or manpower devoted to producing a good or service.
- Capital: The set of goods needed for production investment.
Technology: Defined as a specific way of combining some or specific production factors in order to produce goods or services. The Production Process: The global system that characterizes productive activity. Factors of production inputs = Check Product Technology Proceedings productive. Sorting According to Continuous Production: Continuous Production: The transformation of productive factors into a continuous flow of products without interruption. Intermittent Production: It does not require continuity in the production process, mainly because the product is very established. Sorting According to the Procedure:
- Manual Production: Only with human effort.
- Mechanized Production: A balance between labor and machinery.
- Automated Production: Human intervention is minimal.
Classification by Type of Product Obtained:
- Quantity Production: Yields a single product.
- Individual Production: Several differentiated products are obtained.
7.3 The Production Function: Q = F(K, L) where K is capital and L is labor. Technical Efficiency: Using technology to produce the same amount of another product (technology B) but with fewer units of production factors. Economic Efficiency: Choosing a technology that will produce at the least cost. 7.4 The Costs of the Company:
- Fixed Costs: Costs that are independent of production levels.
- Variable Costs: Costs that are proportional to the level of production, changing with production levels.
CT = CF + CV / / CM = TC / Q / CMV = HP / Q Direct Costs: Costs directly associated with production that can be assigned specifically to each product. Indirect Costs: Costs affecting the production process in general or common to a range of different products. Full-Costing System: The cost of production is the sum of all direct costs and a proportionate share of the fixed indirect costs attributable to the product. Direct-Costing System: The cost of production is the sum of direct costs and variable costs, which can be assigned to a product without using a criterion of imputation. The Threshold: The minimum amount of production is that of a component used to produce a lamb that is cheaper than producing it internally. This will incur outsourcing costs. Verge of Profitability: The point at which production begins to make profits.