Summary Chapter 3 (2017)Resumen Inglés
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Scale economy: 3 causes which is the Hoover’s principle
- Multiple principle: fix costs are not divisible (1/4 of a machine)
- Reserves accomulation principle: Stock products in case something bad happens.
- Wholesale operations principle: (operaciones al por mayor) discounts.
Idling and usage costs: 1. Idling costs (costes de marxa en vacio) CT you don’t use.
2. Usage costs: CT you’re using.
(max production – production) IC (idling costs) = max production Leverage (efecto apalancamiento): increase reduction sells makes bigger the fix cost what means really high or really low benefits, so you must take a risk. This effect varies depending on CF. The bigger the fix cost, the higher the risk.
If sales increase the benefit increase in proportion of the fix costs.
If sales decrease the benefit decrease in proportion of the fix costs.
Degree of operating Leverage (grado de apalancamiento operativo) or DOL: Shows how a chanfe in sales affect the benefits, it shows our risk situation.
AB/B DOL= (p-CVu) · q DOL= AQ/Q Global Margin DOL= q · (p-CVu) – CF Benefits When we are given the BP we can find DOL dividing = Q / (Q-BP) And so if its below 0 is used to cover fix costs, above it as earnings.
Contribution margin (CM): It’s the amount of money per unit, the part of income obtained per unit sold. It depends on the BP; before it the cm is used to cover fix costs, above it is used as an earning.
CM = (p – Cvu) GM (Global Margin) = cm · q Coverage coefficient: It’s the proportion of each euro. Below the BP it’s the proportion of each euro invested used to cover fix cost, above it is used as an earning.
(p – Cvu) CC = P ...