Operation managment:

1. What is the difference between production and productivity?

Formula of productivity = Total output/total input
Production: How much total output you’re producing
Productivity: in a car factory there are 3000 cars as output and how many people and what
you’re using to create that is the input.
How important is productivity to an operation manager? Type in the perspective of the
operation manager.
As an operation manager my job involves managing business resources
It is very important to maintain producing that
 If output is higher and input is less, then there will be more productivity.
 Efficiency will be higher since you are using less resources used will be less.
 Efficiency has a link with cost.
How will productivity increase efficiency? How will efficiency increase sales and profit?
To what extent does higher productivity and increased efficiency help increase sales and profit?
Higher productivity increases the morale of workers and allows there to be more
efficiency, which will allow there to be more goods to sell to customers.
If output is greater and input is less, you are more productive. There are 2 ways of calculating
productivity which are labor and capital. Input can be labor or capital. To calculate with labor
then number of workers will be input. The capital is the number of machines used.
What are the different production methods?
Job production Batch production Flow production
Definitio The production The production of goods The production of
n of items one at in batches. Must go very large
a time. through different stages. quantities of
Products are Can be used to make identical goods
made for more than one product at using a continuous
specific one time. Can also be moving process. In
client/custome used to make similar this method,
r. things with different goods flow along a
customizations. Goods production/assem
are produced in lots and bly line. They go
batches. All items in a from one stage to
batch are similar just the other without
differ in one area. breaks. The
number of stages
depends on the
product. There is a
worker/ machine
at each stage
doing one
operation. Flow
production is used
in mass
 production.
Example Creating a Clothes, electronics, pens,
Chocolates,
s bridge phones. Cycling production
line
Advanta  Very  Employees will  More
ges high become capital
quality specialized. intensive
 There is  Can be customized than job or
tons of to customer’s batch
flexibili wants. production
ty  Workforce isn’t  Large
 Higher specialized so number of
motiva don’t have as goods
tion much pay. produced
 Unfinished goods  Materials
can be stored to can be
be customized and purchased
finished later in larger
 Cost per unit is quantities
less than job making
production them
 Several items can cheaper
be produced on due to
one production bulk-
line buying
 Batch size can be economies
changed according of scale.
to the order  Good for
 Products are mass
identical produced
 Batches can be goods
changed to suit  Cheap,
customers. lower
skilled
worker
needed.
 Complex
designs can
be made
more easily
due to
automatio
n.
Disadva  Time  Making many  Requires
ntages taking small batches can very large
 Speciali be expensive. capital
zed  If production runs investment
worker are different there .
s may be additional  Workers
 Prices costs and delays in aren’t very
will be preparing motivated
very equipment  Not a
high  Machines may flexible
have to be reset method
once a batch is  If one part
finished. of
 Small batches production
increase retooling line is
time ( time in broken
which machines down, the
are down) entire
 Increase in storage production
costs (work in will have to
progress and stop.
finished goods)  Products
 Might involve must be
repetitive jobs standardiz
which is ed
demotivating.  Expensive
to shut
down
production
line.

Stock production Lean Production

Definition Stock production is Lean production
how stock is sold. focuses on cutting
Lead time is the out waste while
difference between increasing efficiency.
when an order is 7 Wastes:
placed to a supplier Methods:
and when the order 1. Just in time
 is received. Just in 2. Kaizen means
time is a tradition continuous
that stock isn’t kept improvement.
by the business but 3. Cell
placing the order as production
soon as the customer
places the order.
Examples
Advantages
Disadvantages

Just in time:
As soon as consumer places order, the order for materials is sent to the supplier and the
supplier will send the stock then to the business so the business can make the product for the
consumer.
Advantages:
 Waste elimination
 High quality
Disadvantages:

Kaizen:
Kaizen means workers giving ideas to solve problems constantly for long term improvements.
This doesn’t just increase efficiency, but workers will also become motivated thinking their
opinion matters. At the same time, it will also bring pressure not just for different ideas but also
because people don’t like change.

Cell production:
Different parts of the product are organized in individual units (cells) to then be combined into
one product. Each team is assigned to one cell and that team is considered part of the team.
This increases employee morale, makes the workers feel more valued and makes the workers
less likely to strike or cause disruption. Every cell has team members and a team leader. The
team works together with the objective of reducing waste and increasing efficiency by working
on the production process. The process is team oriented, and the movement of materials and
labor will be reduced.
Breakeven is no profit and no loss.

Total cost=total fixed cost + total variable cost

Total variable cost (T.V.C) =Variable cost of one product * total output. Variable cost changes
with the change in proportion of level of output. Some examples of variable costs are wages,
raw material, labor cost, packaging cost.
Semi variable cost is the costs which include both fixed and variable elements. These will be
treated as fixed but if written in question it can be treated as variable. Electritricity, water,
telephone and other such bills are examples of semi variable costs.
Total Fixed cost (T.F.C) = the sum of all fixed costs in the case study. It is
the cost which will not change with the change in output. They are the costs a business has to
pay regardless of how much it produces or sells.
Fixed cost limitation: If rent or any other fixed cost changes, this is known as a fixed cost
limitation. For example if rent level is increased by landlord, then the fixed cost will be
increased.
Target output (for target profit) = (Total fixed cost + Target profit)/Contribution/unit
Target price = (target profit+ total cost)/output
Revenue= number of goods * selling price of each product
Profit or loss= Total revenue- total cost
Average cost means the cost of making one product. Creating in more quantity will also cause
bigger discounts.
Average cost= total cost/output
Fixed cost examples: Rent, interest on bank loans, salaries, advertisement expenditure, market
research, office stationery, security, and professional accountancy fees, electricity cost, water,
internet.
Breakeven point is a point where there is no profit or loss. This is where total cost = total
revenue
Economies of scale is when you buy in bulk, you will get a discount.
DIRECT COST VS INDIRECT COST

A direct cost is specifically related to an individual project or the output of a particular product;
without which the costs would not be incurred.
Examples: Telephone bills, postage, photocopying costs, etc.
If a business purchases a commercial building, the direct cost will be solicitor fees, bank
charges, consultancy cost, postage

Indirect costs, also known overheads (fixed costs), are those that cannot be clearly traced to the
production or sale of any single product.
Examples: Legal expenses, insurance premiums, security, etc.
Fa 2: location
Next week: 2 companies we will choose one will be manufacturing while the other a service
business (banks) find out what factors are to be considered if we are moving from one place to
another. Due next Thursday

Total fixed cost is 5000 dollars per year

Variable cost is of pair of shoes is 3 dollars
Output is 2000
Variable cost=output * variable cost per item
3*2000=6000
Total cost= total fixed cost + total variable cost
6000+5000=11000
Total revenue/Sales revenue/Turnover= number of goods sold/produced (output)* selling price
per item (price)
16000=2000*8
Total cost = total revenue is breakeven
11000=16000
Profit=total revenue (TR)-total cost (TC)
Breakeven 2nd formula: fixed cost/contribution cost per unit
Contribution cost per unit= selling price per unit- variable cost per unit
Table to calculate breakeven:
Max output: 2000
Selling price=8
Variable cost per item=3
Output Fixed cost Variable Total cost Total Profit/loss
cost revenue
0 5000 0 5000 0 (-5000)
500 5000 1500 6500 4000 (-2500)
1000 5000 3000 8000 8000 0=breakeven
1500 5000 4500 9500 12000 2500
2000 5000 6000 1100 16000 5000

Breakeven output=1000
X axis: output
Fixed cost line total cost line and total revenue line are needed in graph

Fixed cost/Contribution per unit =

Question 1:
Fixed cost = 480,000
Variable cost = 3 dollar per unit
Selling price = 9 dollar per unit
Max capacity = 120,000
Current demand = 100,000
Margin of safety=40,000
Calculate= breakeven point, breakeven revenue and margin of safety
Output Fixed cost Variable Total cost Total Profit/loss
cost(3*output) revenue
0 4,80,000 0 4,80,000 0 -4,80,000
40,000 4,80,000 1,20,000 6,00,000 3,60,000 -2,40,000
60,000 4,80,000 1,80,000 6,60,000 5,40,000 -1,20,000
80,000 4,80,000 2,40,000 7,20,000 7,20,000 0
1,00,000 4,80,000 3,00,000 7,80,000 9,00,000 1,20,000
 1,20,000 4,80,000 3,60,000 8,40,000 10,80,000 2,40,000

2 to 3 advantages and disadvantages of breakeven

Quality:

Cash: Includes money in hand and bank

Cash inflow: Sources of money coming into the business
Cash outflow: Sources of money leaving the business
Cash inflow Cash outflow
Loan Loan Payment from you to other
Capital Payment to Creditors
Savings Purchasing goods
Grants Payment of wages
Permits Purchasing fixed assets
Sale of asset Paying expenses
From investor Business paying loan
Incentive Paying rent

Cash= Cash inflow- cash outflow

Profit= Revenue-cost
Revenue: Income earned by sold goods.
Cash outflow can also be considered in credits while inflow is only counted in cash not credit.
Numerical:
Jan Feb March
Cash inflows(A) 35000 45000 50000
Cash outflows(B) 30000 65000 40000
Net cash flow(D) 5000 -20000 10000
(A+B)
Opening 10000 15000 -5000
balance(C)
Closing 15000 -5000 5000
balance(C+D)

Format:
Cash Flow Forecast for 3 months
Months Jan Feb March
Cash Inflow
Cash sales 15000 15000 20000
Payment from 5000 5000 7000
 debtor
Total cash inflow 20000 20000 27000
Cash Outflow
Material 3000 3000 5000
Rent 15000 15000 25000
Total cash 18000 18000 30000
outflow
Net cashflow 2000 2000 -3000
Opening balance 3000 5000 7000
Closing balance 5000 7000 4000

Cash flow forecast analysis:

1. Bank/lender will ask for cash flow forecast to see how successful the business might be
in the future. Lender and bankers won’t give loans unless your cash flow forecast is
good.
2. Managers/director: if cashflow= negative then managers/ directors will think of
strategies to reduce expenses and increase revenue.
3. Business planning: Strategies of reducing expenses and increase revenue
If outflow is controlled, inflow will be controlled.
Strategies to deal with cashflow problems:
Reduce cash outflow Increase cash inflow
Better stock control (Just in time) Tighter credit control (make a contract of
getting the cash in a particular period of
time)
Use different suppliers (old suppliers aren’t Improve product portfolio (Let’s say there are
sending goods in time, have lower quality or 4 products, for 1st product, the market
are asking for too much money) growth isn’t increasing, and in the 2nd one,
the growth is decreasing, so the third and 4th
ones will be the ones sold. This will increase
sales)
Reduce expenses (rent, internet, taxes, Don’t use credit (while using credit, people
salaries, raises, office expenses, interest, will pay after months when you have a
advertisement) problem now)

Nicole is planning to open a perfume boutique in Canada is starting in August. Nicole has 10,000
from personal bank account that she wishes to use for her business. She estimates that the first
four months that the sales will be 4000, 4800, 6000, 8000
Particulars August September October November
Cash inflow $ 4000 $ 4800 $ 6000 $ 8000
Cash outflow
Purchases $ 2000 $ 2160 $ 2700 $ 3645
Advertisement $ 1600 $ 900 $ 900 $ 900
 Salaries (5 $ 4000 $ 4000 $ 4000 $ 4000
members)
Other cost $ 550 $ 550 $ 550 $ 550
Total cash $ 8150 $ 7610 $ 8150 $ 9095
outflow
Net cashflow $ (-4150) $ (-2810) $ (-2150) $ (-1095)
Opening balance $ 10,000 $ 5850 $ 3040 $ 890
Closing balance $ 5850 $ 3040 $ 890 $ (-205)

Cash flow cycle:

Cash flow cycle is the process of the cash flow in stages.
4 criteria
A: Knowledge and understanding
Command terms: Explain, State, Define
Write at least 3-4 sentence in this criterion. Explain, State or define depending then give an
example.
Like define job production.
Job production is the production of 1 product at once, products are made for a specific client.
for example, creating a bridge.
Criterion B: Investigation
Will give business scenario and will ask for research question or action plan.
*Action plan table should be elaborate; it should be brief.
Criterion C: Communicating
We will be given a table (for Example: Stock control chart), picture, mind map or something like
that and we will have to analyze it.
Expect a long answer.
Harder than A and B.
Criterion D:
Command terms: Analyze, discuss and evaluate.
Probably the hardest criterion.
*For questions with choices, first compare then say your preference at the end.
**Link to case study. In comparison say only points that are relevant to the case study.
Case study is given to us, and we will be given question on in.

Things required in a good RQ:

1. Start with to what extent or should
2. Strategy the company should take
3. Measurability factor

Quality standards are set in advance and employees need to stick to those standards as part of the production
process. This approach focuses on preventing any faults or defects, so that by the end of the production process
the products are ready for the customer.
RQ: To what extent would using quality control and quality assurance help improve quality?
Action plan:
Date Step Definition Duration Modification
14th September, Survey Make a survey 20-30 mins Added question
2021 asking questions explaining
about what the quality control
customers about and quality
what they think assurance and
about increasing whether the
the quality and company should
make it public. use this or not.
15th September, Investigation As the survey in 1 hour Do research on
2021 public, do how to rework
research on the faults and
both quality defects of
control and products that
assurance. the company
create.
16th September, Investigation Continue with 1 hour None.
2021 the research.
17th September, Combination Combine all the 20 mins None.
2021 research along
with the results
of the survey
and look at your
results to figure
out whether this
is a good this is a
good option
18th September, Finish or restart If the results are Weeks/Months None.
2021 good, use this
method for your
company, if not
then continue
looking for other
methods to have
products with
better quality.

Fleet Bikes is a United Kingdom (UK) business which manufactures high

quality adult road bikes to sell to retailers. Orders from retailers are
expected to be delivered within two weeks. There are lots of competitors
for adult bikes. To increase its share of the bike market, the business has
decided to develop its own range of children’s bikes. A loan will be required
to fund a factory extension. The business is aiming to reduce production
costs. The factory uses total quality management (TQM). The production of
bikes uses steel and aluminum. The price of these raw materials goes up
and down daily. Each month Fleet Bikes estimates the amount of steel and
aluminum which it will need in advance for production. These large orders
are delivered within a week and take up all the space in its warehouse.
Currently, Fleet Bikes receives a 10% discount from its main supplier for
large orders. The supplier can deliver smaller amounts within three hours
for an extra cost. Children’s bikes will be sold only on Fleet Bikes’ website.
Customers will expect quick delivery and many of the bikes will need to be
manufactured and then sent to the customer within 24 hours of receiving
the order.

 Explain how total quality management (TQM) can help a business

achieve better quality.                       [2 marks]

 When ordering raw materials of steel and aluminum the business is

considering changing to Just in Time stock control (JIT).

 Advise Fleet Bikes Ltd whether this is a good idea. Give reasons for
your choice

Trading account for Clockworks Ltd. Company from April 1, 2013 to March 31, 2014

$ $

Sales: 3000*35 = 105,000

Cost of goods sold: (Opening stock + Purchases)-Closing stock

Opening stock 15,000

Purchases 50,000

Closing stock 20,000

45,000

Gross profit 60,000

Accounts, accountants and final accounts

Accounts: financial records of a firm’s transactions.
Accountants: Professionally qualified people who have responsibility for keeping accurate
accounts and for producing the final accounts.
Account book
Sep 30 Sales 200*5
Oct 1 Sales 1000*10

Income statement: Produced at the end of the financial year. They give details on the profit and
loss made over the year and it shows the worth of the business.

The final accounts of a company include the income statement, balance sheet and cash flow
forecast. It is shown by law
Calendar year: 1st Jan 2020 – 31st December 2021
Financial year: 1st April 2020 – 31st March 2021
Importance of profit:
Profit is reward of running enterprise or business.
RiskàRewardàProfit
More risk more profit/reward.
Profit is a source of finance: retained profit (internal finance)
Indicator of success.
Income statement:
Define income statement.
Income statement is a financial statement that records the income of a business and all costs
incurred to earn that income over a period of time (for example, one year). It is known as a
profit and loss account.
Features of income statement:
Income statement of company for year ended date
Particulars $ $
Revenue/sales/turnover ------ 10000
Cost of goods sold ------ ------
Opening stock 3000 ------
Purchases 1000 ------
Direct cost 2000 ------
 Closing stock (1000) ------
------ ------ 5000
Gross profit ------ 5000
Income ------
Rent 2000
Commission 1000
Interest 3000
11000
Indirect cost (fixed costs)
Rent to pay 1000
Wages 1000
Salaries 1000
Bills 1000
(4000)
Net profit (before interest 7000
and tax)
Interest (500)
Net profit (Before tax) 4500
Tax (500)
Net profit 4000
Dividend (500)
Retained profit 3500

Income statement of Gem gallery Jewelers for year 2012

Particulars $ $
Sales 61500
Cost of goods sold 35200
Gross profit 26300
Indirect cost 21900
4400
If the cash flow forecast isn’t good then the manager can find ways to fix and if the cash flow
forecast is good, we can apply for loans.
Jan Feb March April
Cash inflow:
Cash sales 22000 25000 20000 22000
Total cash inflow 22000 25000 20000 22000
Cash outflow:
Stock 11000 12500 10000 11000
Other expenses 4000 13000 15000 15000
Total cash 15000 25500 25000 26000
outflow
Net cashflow 7000 500 (-5000) (-4000)
Opening balance 2000 9000 9500 4500
Closing balance 9000 9500 4500 500
The manager will try to look for better suppliers as the suppliers are very expensive.
Profitability ratios:
GP margin%=GP/Turnover (Sales)*100
Gp shows efficiency in controlling cost
GP improvement strategies: Increase sales reduce cost of goods sold
NP margin%=NP/Turnover(sales)*100
High NP means overall efficiency
NP improvement strategies: Increase GP and reduce indirect cost
ROCE%=Net profit/Capital employed*100
Sales is also known as sales revenue and sales turnover
How to reduce cost of goods sold: buy goods from cheap suppliers but it might affect quality of
product.
Reduce labor: For example, if people are making burgers It might cause more motivation by
increasing competition but will increase workload on employees
Liquidity ratios:
Whether or not the company have enough cash to pay day-to-day expenses and debts and
stuff.
Current ratio=Current Assets/Current liabilities=?:1
Standard ratio is around 1.5:1 to 2:1, if it is below, it isn’t good and if it is more then that isn’t
good.
Current assets being too high isn’t good because too much stock, too much cash and other stuff
like that.
Acid test ratio: Current assets-stock/Current liabilities=?:1

Criterion A: Knowledge and Understanding

Command Terms:
Design, Explain State, Brief etc.
Types of questions:
Could have MCQ
Could also have written questions. Don’t forget to relate to question
Criterion B: Investigation
Miss hasn’t decided yet, but we’ll probably be given investigation task like last time.
Practice action plan and RQ
Criterion C: Communication
Might give some sort of table, picture, graph, data, findings etc.
On those pieces of info, we must do analysis. Try to use ratios to help with this also memorize
strategies to help fix ratio problems. Commands term: Probably analysis
Criterion D: Critical Thinking
Miss might give one big case study to analyze or might give a few small ones to analyze. Be sure
to link with case study or points will be cut.
Chapter coming for exams:
Section 5:
Ch. 22: Business Sources of Finance:
Do activity 22.8
Ch. 23: Cash flow forecast and Working Capital
Know difference between cashflow and profit
Make cash inflow and outflow list. At least 10 points.
Do activity 23.1
Revise notes
Do case study Gardener’s Green
Whenever there will be a cash flow forecast question here will be two things. First thing will be
creating the table while the second one will be analysis.
Ch. 24: Income Statements
Miss is planning to give us income statements, balance sheet and profit and loss accounts to
create and analyze.
Ch. 25: Statement of Financial Position
Ch. 26: Analysis of Accounts

Term Definition Advantage Disadvantage

Capital employed is the long-term capital invested which is calculated by adding any long-term
loans taken plus the amount of money shareholders are putting in the business.

ROCE is how much money a person/business is returned if they invest in a business. Answer is
in percentage.

Capital employed is the addition of any long-term loans and how much money shareholders are
investing in a business. It is also known as long-term capital invested.
ROCE:
2018:12%
2017:15.5%
The ROCE in 2017 is better because the net profit was more while capital employed was less. In
the year 2018 Triton Canning Ltd. invested too much and the net profit wasn’t enough thus you
ended up getting a worse ROCE.

Gross profit can be increased by increasing sales and by reducing cost of goods sold.
As we can see the sales does increase and the cost of goods can be easily calculated.

Income statement for Joe.

Pizza option Curry option
Revenue 50000*3 150000 40000*5 200000
Cost of goods 50000*1 50000 40000*2 80000
sold
Gross profit 100000 120000
Expenses
Annual 13000 12000
equipment costs
Annual 15000 20000
advertising costs
Other expenses 13000 15000
Total expenses 41000 47000
Net Profit 59000 73000
Joe should consider the quality of products and the competition around the area for both
places.
Joe should try and reduce his indirect costs and increase his gross profit.

1. Outflow
2. Inflow
3. Outflow
 4. Outflow
5. Inflow
6. Inflow
7. Outflow
8. Outflow
Balance sheet of KL and HK company ltd
KL. Co ltd
Non- current 50
assets
Current assets
Inventories 12
Accounts 8
receivable
Cash 1
Total assets 71
Current 18
liabilities
Non-current 20
liabilities
Total liabilities 38
Net assets 33
Share capital 20
Retained profit 13
Capital 33
employed