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BEP & EOQ

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Topic updated on 02/15/2019 09:49am

Productivity 

  • The ratio of the relationship between inputs and outputs is known as productivity.

Importance of Productivity 

  • To make decisions regarding allocation of resources of the business
  • To make decisions on expansion of the business
  • To compare productivity with other similar business entities
  • To know the progress of the business entity

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  • Some ways through which the productivity can be enhanced are mentioned below:
    • To make the management efficient
    • To utilize modern technology
    • To provide financial as well as non financial incentives to employees
    • To get the employee participation in decision making
    • To use the quality circles

Modern Technologies

  • CAD (Computer Aided Design)
  • CAM (Computer Aided Manufacturing)
  • CIM (Computer Integrated Manufacturing)
  • CNC (Computerized Numerical Control)
Break Even-Point 

 Total Cost 

  • Total cost can be classified as fixed cost and variable cost.
  • The cost that does not change per unit up to a particular production level is known as fixed cost.
  • Eg:
    • Factory rent
    • Insurance premium
    • Factory rates
  • The cost that changes per each unit of production is called the variable cost.
  • Eg:
    • Direct material cost
    • Direct labour cost

Total Revenue

  • The total amount of revenue earned by a business firm through the sale of its total product is called the total revenue.

 Break-Even-Point

  • The production or sales level at which the business neither yields a profit nor incurs a loss is known as the break-even-point. At this point the total revenue of  the business is equal to the total cost.

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  • The break-even-point can be depicted graphically as follows:

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Stock Control

Keeping stocks at an optimal level in order to maintain the continuity of the manufacturing process is known as the stock control.

Techniques in Stock control

  • Stock level determining techniques
  • ABC analysis
  • Two bin system
  • Computer programs
  • Continuous stock recording system
JIT
  • JIT is a technique adopted to minimize the cost of storage by keeping the stocks of raw materials and finished goods at zero level.
  • This technique is named as Just-In-Time, since only the required materials are obtained at the required time and in required quantities, at each and every stage of production.
  • Keeping finished goods stored is not done in this system and immediately after the production the goods are released to the market on the demand.
Stock Levels
  • Several facts to be considered in computing stock levels are given below :
    • Consumption of materials in relation to a period
    • Re-order period
    • Re-order quantity

Consumption of materials in relation to a period

  • Required quantity of materials for the production in a particular period such as a day or a week or a month is known as the consumption of materials in relation to a period.

Re-order period 

  • Duration of time from the event of ordering to the event of stocks reaching the stores is known as the re-order period.

Re-order quantity

  • Number of units included in a single order is known as re-order quantity.

Re-order level 

  • The stock level at which an order is submitted is known as the re-order level.

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Minimum stock level

  • Minimum stock level means the stock level at which the stocks are not allowed to drop further.
  • This is also known as the safety stock.

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Maximum stock level

  • Maximum stock level means the stock level at which the stocks are not allowed to increase further.
  • This is the highest amount of stocks that can be held in the stores and it is not suitable to exceed this level.

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  • Various stock levels can be depicted graphically as follows:

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Economics Order Quantity
  • Total cost of stocks of a particular firm consists of two types as ordering cost and the holding cost of stocks.
  • Number of units to be ordered ones so as to minimize the total cost of stocks is known as theeconomic order quantity.
  • EOQ can be computed through the following graph:

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  • EOQ can be computed using the following equation too:

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Uzama Saied
Uzama Saied commented at 15:02 pm on 03/05/2020
How to calculate BEP and EOQ?

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