Notes, summaries, assignments, exams, and problems for Economy

Economies of Scale

Economies of scale refer to the falling average cost of production as a firm expands. While total costs may increase, the cost of producing each additional unit decreases.

Diseconomies of Scale

Diseconomies of scale, on the other hand, occur when a firm becomes too large and experiences rising average costs.

Internal Economies of Scale

Internal economies of scale are cost benefits that an individual firm can enjoy as it expands:

• Purchasing economies: Bulk buying can lead to lower costs.
• Marketing economies: Marketing costs can be spread over a larger volume of output.
• Technical economies: Larger factories can be more efficient than smaller ones.
• Financial economies: Large firms have better access to capital and can borrow at lower

Unit 7: Full Cost Systems

Introduction

This unit explores full cost systems, assuming that manufacturing processes consume resources to perform tasks. The costs of these resources are accumulated to determine the cost of the centers. Variations in this hypothesis lead to different systems:

1. Unnecessary Resource Consumption: Some resource consumption might be deemed unnecessary and accounted for as a period loss, not a production cost. This leads to distinctions between traditional and economical full costing.
2. Resource Cost vs. Accumulated Cost: The cost of resources used in production might differ from the cost accumulated in the units produced. This introduces systems with predetermined rates like normal costing, imputation rationelle, and standard

Available for sale securities - are debt and equity securities that are neither held for trading, held to maturity, nor held for strategic reasons.

Business combination - purchase of more than 50% ownership of the investee’s stock.

Consolidated financial statement - Combined financial statements from parent and subsidiary company.

Cost method - Investment of less than 20% of the investee’s outstanding stock.

Debt securities - Notes and bonds that pay interest and have a fixed maturity date.

Dividend yield -measures the rate of return to stockholders, based on cash dividends.

Equity method - Investments between 20%-50% of the outstanding stock.

Equity securities - Are preferred and common stock that represent OWNERSHIP in a company and DO NOT

Step 1: Forecasted Operating Cash Flows

Step 2: Forecasted External Capital Required

Pricing Studies:

Research can be used to evaluate alternative price approaches for new products before launch or for any proposed changes in prices.

Gabor and Grainger Method:

Different prices for a product are presented to respondents who are then asked if they would buy. A 'buy-response' curve of different prices, with the corresponding number of affirmative purchase intentions, is produced.

Multibrand-Choice Method:

Respondents are shown different sets of brands in the same product category, at different prices, and are asked which they would buy.

Research for profit-oriented pricing

Research for share-oriented pricing

Quantitative approaches

Market Potential:

Maximum total sales level that can be reached in a certain market. It contributes to the... Continue reading "Pricing Studies and Market Potential: Research for Profit-Oriented Pricing" »

Budgeting Fundamentals for Business Success

What is a Budget?

A budget is a spending plan that helps determine in advance if you will have enough money to achieve your goals. It involves simply balancing expenses with income. Always start with sales budget preparation.

Key Budgeting Concepts

Limiting Factor

A limiting factor is a key factor that creates a bottleneck, hindering your objectives.

Budget Periods

• Periodic Budget: A budget for a specific period (e.g., January-December).
• Continual Budget: Revised every month, requiring more effort and cost depending on the business.

Five Main Benefits of Budgeting

Budgeting offers several crucial benefits for organizations:

• Promotes forward-thinking and identifies short-term problems.
• Motivates managers to better

Neoliberal Industrial Policy: From Vertical to Horizontal Measures and Structural Reforms

The Rise of Neoliberalism (1970s Onward)

In the wake of a shrinking working class, industrial policy underwent a significant shift from the 1980s onward, beginning in the late 1970s with Margaret Thatcher in the UK and Ronald Reagan in the US. This shift was characterized by a move away from vertical policies towards horizontal measures and structural reforms, such as labor market and services reform.

By 1982, the debt crisis forced Latin American countries to open their economies and embrace neoliberal policies, marking the end of the Third World project. Export-oriented industrialization was promoted, and foreign transnational corporations (TNCs) gained... Continue reading "The Shift from Vertical to Horizontal Industrial Policy: A Historical Perspective" »

Imputation of Structure Costs

L'imputation Rationelle Method

One of the main disadvantages of full-cost systems is that the unit cost of the product depends not only on the productivity and cost of the applied resources but also on the activity level of the productive centers. The Imputation Rationelle method avoids the influence of this variance (between actual and normal activity level) in unit costs when using a full-cost system. The method modifies the department fixed costs to be assigned to products following these steps:

1. Activity rate calculation for each department and period of analysis (t): the actual activity level (Ar) divided by the normal activity level (An).
2. Actual fixed/structure cost for the period (F) is multiplied by the rate

Resources and Influence of Interest Groups

Interest groups leverage various resources to exert influence over Congress:

• Finance: Money empowers interest groups to run campaigns, make monetary contributions, purchase television advertisements, and employ a large staff. A larger staff translates to more opportunities for promotion, lobbying, and campaign contributions.
• Expertise: Congress respects and pays attention to interest groups perceived as experts in their respective fields. This perceived expertise can enhance their credibility and influence, allowing them to directly impact policy decisions.
• Size: Larger groups wield greater influence due to their ability to mobilize votes and resources effectively. Their size facilitates fundraising and

Customer Relationships Are Key to Your Marketing Strategy

If I could show you how to increase your sales by 50% without increasing your marketing budget, would you be interested?

There are many reasons a customer or client may leave you, but the ones you will hear most often are:

• They felt your pricing was too high or unfair.
• They had an unresolved complaint.
• They took a competitor's offer.
• They left because they felt you didn't care.

When faced with the above facts, why is it businesses spend 80% of their marketing dollars going after new customers?

Before you spend your time and money going after new customers and clients you do not currently have a relationship with, consider the following statistics:

• Repeat customers spend 33% more than new customers.