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Integrative Project in Modern Production Methods (IE285e)

Understand fixed and variable costs in company expenses, break-even analysis, time scopes, pricing strategies, and software tools for calculations in modern production methods. Learn to calculate break-even points and optimize pricing strategies using Excel software.

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Integrative Project in Modern Production Methods (IE285e)

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  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 Integrative 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. Integrative Project in Modern Production Methods, IE285e

  4. Fixed Costs • 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 • 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. Integrative 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. • … Integrative 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). Integrative 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. Integrative 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 time @ a given capacity of the operation. Integrative 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. Integrative Project in Modern Production Methods, IE285e

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