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Three Main Types of Production

   

Added on  2020-02-05

17 Pages3480 Words98 Views
Financial and EconomicLiteracy for Managers

Table of ContentsQuestion 1......................................................................................................................................4a) Three classifications of production with examples................................................................4b) Opportunity costs with examples...........................................................................................4c) The purpose and evolution of the UK standard industrial classification (SIC) since 1948...5d) The shift in the demand curve and the movement along the demand curve along withdiagram.......................................................................................................................................6e) The income and substitution effect of an increase in price....................................................7Question 2......................................................................................................................................8a) Two types of markets with examples.....................................................................................8(b) Public good with example....................................................................................................9c) Three ways in which government intervenes in the market including examples..................9d) Four key macroeconomic policy objectives that governments typically pursue.................10e) The circular flow of income including the inner flow, withdrawals and injections............10Question 3....................................................................................................................................11a) Examples of each of the four major areas of finance...........................................................11b) Determinants of market interest rates including the various types of risk premiums..........11c) Four basic financial statements, including formats and purpose.........................................12d) Ratio analysis of Marks and Spencer for 2014....................................................................12Question 4....................................................................................................................................13a) Importance of capital budgeting decisions and purpose of use............................................13b) Use of net present value (NPV) technique to make investment decisions..........................13c) Yield curve including the reasons why yield curves differ..................................................14d) Selection of project on the basis of Net present value tactic...............................................14REFERENCES.............................................................................................................................17

Question 1 a) Three classifications of production with examples Three main types of production are Job Production, Batch production and Mass or flowproductionJob Production: The cited production method is one where manufacturing companiesproduces special or non-standardized products as per the orders placed by customers. Forexample: The method is used in ship, dam or bridge building, book printing, wood workingshops, metal fabrication shops etc (Chen, 2010). Batch production: This method is used to manufacture identical products on the basis ofcurrent and expected demand for products in advance (Chen, 2010). The example are smallhand tools such as drill, screw driver, bakeries, tinned food etc. Mass or flow production: Here mentioned method of production includes continuousproduction of standardized products in a large volume. This method is mostly used to reducedirect manufacturing cost. For example food, chemicals, and household appliances andautomobiles (Armendáriz and Morduch, 2010).b) Opportunity costs with examples Opportunity cost is considered as a fundamental cost in economics, which denotes to thevalue forgone, for the purpose of making one specific investment instead of another. The cost issignificantly used to compute cost benefit analysis of a project. Generally, such cost is excludedfrom accounting books, however, is recognized in decision making process through calculatingcash outlays and profit or loss gained by a business as an impact of opportunity cost. In terms ofeconomics, opportunity cost is associated with optimal use of scare resources to resolve issue of

scarcity. Illustration: An individual has £10,000, which can be either invested in XYZ’scompany’s stock or can put towards a post graduate degree. However, the person has chosen toinvest in stocks, then, opportunity cost is the increased lifetime earnings which might haveresulted from completing post-graduation degree. Hence, individual forgo the increase inearnings as he purchased stock. c) The purpose and evolution of the UK standard industrial classification (SIC) since 1948 A Standard Industrial Classification (SIC) was familiarized into the UK in 1948 whichhas a purpose of classifying business institutions according to the type of economic activity inwhich they are engaged. This framework is used by regulatory bodies to classify industrialactivities into a common structure. Since 1948, there have been number of revision in SIC UKbecause new products and industries came into force. UK SIC Codes are helpful in identifyingthe line of business in which company operates and it is also necessary to fill company’s annualreturn.Figure 1 Timeline for Standard Industrial Classification (SIC) in the UK since 1948

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