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Revision Production function

Question ONE
A small company makes hand crafted, large-scale, wooden toys using a job production system.
Sales have been continually rising over the past three years and the company is considering
introducing a batch production system.
(a) Compare the advantages for this company of the job and batch production systems.
Answers
(a) Job production is usually associated with the making of unique items. In this case the large
wooden toys are each slightly different and can be made specifically for the customer. This
uniqueness can command a premium price above the normal market price for mass produced
toys. The task normally requires the use of general-purpose tools or machinery that is operated
by a highly skilled workforce. The unit cost is, therefore, quite high but the end product can
command a high price. For the employees there is high motivation and satisfaction at producing
such items to order. Another advantage is that materials only need purchasing when a firm order
is received.
Batch production, however, is concerned with making a number of standardized toys aimed at a
more general market. A number of toys or batch completes each process before passing onto
the next production stage. The greater quantity and longer production run allows the use of
special purpose machines. Labor productivity is, therefore, much higher and the unit cost of the
finished toy is much lower. The end product can be sold at a lower price and supply a much
bigger section of the toy market.
The differences between the two systems are, therefore, the type of product made, the machinery
used, the skill level of the workforce needed and the unit cost.

Question TWO
Explain two advantages and two disadvantages of flow production for:
(i) The business
(ii) The employee
Answer
(i) The business Advantages include increased output, the availability of economies of scale,
greater scope for standardization, lower labor costs, increased productivity, more assured quality
and most important lower unit costs. Disadvantages include the high initial cost of investment,
the need for a large constant demand and the higher impact on production of any breakdown in
machinery.
(ii) The employee An employee does not require sophisticated training as the system is highly
mechanized. There is less for the employee to worry about or to be responsible for. The skills are
transferable to other production lines. The main disadvantage is that the tasks can be very

repetitive and boring. Production line work is often done on a shift basis resulting in the working
of unsociable hours. The operative remains low skilled.
Question THREE
(a) Define the following terms, giving examples:
(i) Lean production
(ii) Cell production
(iii) CAD/CAM
(iv) Benchmarking
(v) Kaizen
Answers
a) (i) Lean production is a series of management techniques intended to make efficient use of a
firms resources thus reducing waste. The overall aim is to make more with less. It includes
techniques such as kaizen, benchmarking, and just-in-time production methods. Firms using lean
production need multi-skilled workers in order to carry out a variety of activities to meet
customer needs in the shortest possible time. In this way, firms using lean production only
produce to order in contrast to the old mass production technique that produced for stock. This
reduces the need to keep large stocks of raw materials, work-in-progress and finished goods thus
minimizing the level of working capital required.
(ii) Cell production is a method of overcoming boredom and helping to motivate workers who
are on a continuous-flow production line. It works by dividing the production process into selfcontained units. Each cell will be in charge of a unit, enabling the cell members to feel
ownership of their complete unit of work. Each cell passes on their product to the next cell
thus creating an internal chain of customers. This method not only increases productivity, but
also improves quality as the cell has pride in satisfying its customers.
(iii) The term CAD/CAM stands for computer-aided design and computer-aided manufacturing.
It is a term used to describe the use of computer technology to aid in the design, analysis, and
manufacture of products. CAD allows designers and draughtsman to store, retrieve and modify
their work using multidimensional images. CAM uses computers to automate the ordering,
delivery and manufacture of materials and components to the production line, and to control the
operation of robots carrying out production activities. Using CAD/CAM technologies improves
productivity and quality.
(iv) Benchmarking is the practice whereby a firm studies the best production and marketing
process used by immediate competitors and firms from similar industries. Benchmarking
involves identifying processes that need improvement; studying how other firms perform these
processes particularly well; adapting and implementing those processes and monitoring the
impact of the change. This ensures that a firm constantly and consistently drives up quality in
line with the best in the industry.
(v) Kaizen is a Japanese term meaning continuous improvement. It is a means of improving
performance by involving all employees in the suggestion and implementation of small changes.
The cumulative effect of these changes, often the idea of shop floor workers, is a steady rise in
productivity, a fall in the reject rate and the raising of quality. Products will be made right first
time and to the correct specification thus assuring the customer of the quality of the product.

Question FOUR
The manager is considering moving the factory from its current location on the edge of a city to a
new rural site 20 miles away in the countryside.
Identify and explain three problems that the company might face with such relocation.
Answers
Moving to a new site 20 miles away could cause a variety of problems. A crucial one would be
the impact on the work force. If the factory is in a remote part of the countryside there is little
chance of public transport by bus or train. Therefore the move would be reliant on the workers
making their own way by car which would add to their personal costs. The employees would
look to the business to compensate them for the extra travel or to supply company transport such
as a bus. This in turn would increase the costs of the business. Some employees may be
unwilling to commit the extra travel time involved and find other employment. This could be
important if they were key workers.
A second problem might be availability of resources and access for suppliers. If the factory
requires large amounts of raw materials especially bulky items such as steel and wood they will
need good transport links. These are readily available in most cities but might be missing in rural
areas.
A third problem might be availability of utilities such as gas, electricity and telecommunications.
The need for a reliable source of energy would be important for a factory that is highly
mechanized. In a similar way telecommunications is important in today's economy for links with
customers and suppliers via e-mail and a website.
The business must balance the advantages of cheaper land and more modern facilities against the
problems associated with employees, supplies and energy.
Question FIVE
A small company makes hand crafted, large-scale, wooden toys using a job production system.
Sales have been continually rising over the past three years and the company is considering
introducing a batch production system.
Compare the advantages for this company of the job and batch production systems.
Answers
Job production is usually associated with the making of unique items. In this case the large
wooden toys are each slightly different and can be made specifically for the customer. This
uniqueness can command a premium price above the normal market price for mass produced
toys. The task normally requires the use of general-purpose tools or machinery that is operated
by a highly skilled workforce. The unit cost is, therefore, quite high but the end product can
command a high price. For the employees there is high motivation and satisfaction at producing

such items to order. Another advantage is that materials only need purchasing when a firm order
is received.
Batch production, however, is concerned with making a number of standardized toys aimed at a
more general market. A number of toys or batch completes each process before passing onto
the next production stage. The greater quantity and longer production run allows the use of
special purpose machines. Labor productivity is, therefore, much higher and the unit cost of the
finished toy is much lower. The end product can be sold at a lower price and supply a much
bigger section of the toy market.
The differences between the two systems are, therefore, the type of product made, the machinery
used, the skill level of the workforce needed and the unit cost.
Question SIX
(a) Following a series of takeovers, a furniture manufacturer now supplies a national market.
Identify and explain four economies of scale that might be available to this company.
(b) At present the business uses a batch production system to produce its furniture.
Explain the advantages and disadvantages associated with this form of production.
Answers
(a) Economies of scale are the cost reductions gained through expanding the level of output.
The furniture manufacturer could take advantage of four of the following economies:
Purchasing economies larger output provides more scope for bulk-buying of raw
materials such as wood and cloth and obtaining better discounts. Larger customers are
able to obtain more favourable credit terms.
Marketing economies a wider range of promotion and advertising is possible since
these costs can now be spread over a larger output. Specialist advertising agencies can be
used to design more effective, better-targeted campaigns. Although total marketing costs
increase, the cost per unit falls.
Financial economies financial institutions often regard larger firms as less of a risk and
are therefore willing to offer loan capital at more favourable rates of interest.
Technical economies a larger-scale plant costs proportionately less to build than a
smaller one. Larger firms can also afford to apply the idea of division of labor more
effectively with the employment of specialist staff such as furniture craftsmen and
designers.
Managerial economies the division of labor, when applied to management, allows the
employment of specialists in the functional areas of marketing, finance, production,
purchasing and human resources.
Risk-bearing economies diversification can lead to greater security by not being reliant
on one product, market, consumer or supplier. A range of furniture products can be
marketed nationally so that a fall in sales in one area will not adversely affect the whole
organisation.
Any four of the above economies would be acceptable.

(b) Batch production is the manufacturing technique of creating a group of components at a


workstation before moving the group to the next step in production. Batch production allows the
furniture manufacturer to produce a large number of standard items aimed at a national market
e.g. dining tables and chairs. These can be produced using specialist machinery which will
improve efficiency and reduce costs.
Another advantage of batch production is that it can reduce initial capital outlay because a single
production line can be used to produce several types of furniture.
Batch production is also useful for new designs of furniture for which it is difficult to forecast
demand. A trial production run can be done producing a small number of items until the
popularity of the design is fully known. As many of the operations are done by specialist
machines, it reduces the need for expensive skilled labor.
Batch production also has disadvantages. There are inefficiencies associated with batch
production as equipment must be stopped, re-configured, and its output tested before the next
batch can be produced. Idle time between batches is known as downtime. Another disadvantage
is the need for high stock levels. A lot of raw materials are tied up in semi-finished items. The
firm must balance the advantages associated with economies of scale with the extra investment
required for a batch production system.
Question SEVEN
Outline the factors that would influence the choice of location for a large car company that is
thinking of establishing a car assembly plant in an overseas country.
Answers
The main factors that would influence the location decision of a large car company are:
Availability of land - a large assembly plant requires a significant area of reasonably priced
land, not only for storage of components but also for parking of finished cars. Most car assembly
plants are single storey buildings; therefore a flat area would be the most suitable.
Closeness to final market - locating a plant in Africa is obviously meant in the first instance to
supply the regional market. Being close to final customers will reduce the overall transport costs.
Suitable transport links - a large assembly plant must have good road, rail and sea links for
easy access for its suppliers as well as for distribution of finished cars, especially if they are
being exported back to Europe.
Availability of labor - an assembly plant requires a large number of semi-skilled and skilled
workers. It is unlikely that suitable labor already exists in Africa; therefore there will be the need
for in-house training, which will be time-consuming and expensive. The compensating factor
will be the lower unit labor cost of employing staff in a developing economy.
Political stability - this will be a major factor as no company will be willing to invest very
large sums of money unless they are convinced that the country is stable.
Government incentives - one of the attractions of Africa could be generous tax incentives for
new companies. This would allow the company to enjoy a tax free or a low tax environment for
the early years of the investment.