19 September, 2005Integrative Project in Modern Production Methods, IE285e 1 Integrative Project in Modern Production Methods (IE285e) Lecture #4 19 September,

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19 September, 2005Integrative Project in Modern Production Methods, IE285e 1 Integrative Project in Modern Production Methods (IE285e) Lecture #4 19 September, 2005

Integrative Project in Modern Production Methods, IE285e 2 Topic: Company Economy: Expenses: Fixed and Variable costs; Income Break-Even

19 September, 2005Integrative Project in Modern Production Methods, IE285e 3 Company Expenditures Fixed Costs: the costs that do NOT depend on the production volumes. Variable costs: the costs that DO depend on the production volumes. This separation is slightly arbitrary.

19 September, 2005Integrative Project in Modern Production Methods, IE285e 4 Fixed Costs Space (building, land) related: rental, building maintenance, property tax. Equipment, technology, depreciation and maintenance. Part of Environmental expenses: e.g. scrubbers. Indirect labor: Research and Development, Engineering, Quality and test groups. Administration. Part of the Direct Labor, could be up to 100%. Part of power consumed, many cases up to 100%. Product support: warranty services, after warranty services. Marketing Cost of Finance: Principal and Interest

19 September, 2005Integrative Project in Modern Production Methods, IE285e 5 Variable Costs Materials used. Power consumed. Shipment related: packaging, transportation. Seasonal Direct Labor. Part of Equipment Maintenance and Depreciation Part of Environmental expenses: e.g. filters. …

19 September, 2005Integrative Project in Modern Production Methods, IE285e 6 Business time scope Each business and manufacturing should have a time scope, related: A) to marketing horizon; B) technology duration, equipment depreciation; C) - A) and B) depend on the stage of the lifecycle (introduction, growth, maturity, decline, withdrawal).

19 September, 2005Integrative Project in Modern Production Methods, IE285e 7 Pricing strategy Mostly depends on market situation: Well known and respected companies may command high prices. Dumping tactics dictates lower prices.

19 September, 2005Integrative Project in Modern Production Methods, IE285e 8 Break Even Having the expenses, the time scope and pricing logic, one calculates the relationship between needed sales volumes that for the particular pricing strategy will provide break even in the particular time duration: Sales = Price x N = Expenses N, number of sold items, should be related to a period of a given capacity of the operation.

19 September, 2005Integrative Project in Modern Production Methods, IE285e 9 Software Excel is one of the best software packages for this type of calculation when writing a business plan, Or when making any preliminary assessments and calculations. It is also a great tool for making technological/business decisions.