Production

The act of building or providing service to the customer in business is known as production. Your traditional thinking is a plant producing widgets, but there is more to it than just this vision. There are work schedules, inventory control, and delivery. All of these are essential to the final customer smile.

Economies of Scale

Economies of Scale

Of the basic business principles, economies of scale has the greatest impact on profitability over any other business principle. As an enterprise’s investment is spread over higher volume the cost per unit of production decreases. The differential between sales price and cost changes add to the overall profitability for the company.

Project Reports – Introduction

Project Reports

There are basically three groups of financial based project reports. Each set has its own priorities and purposes. Project reports are a function of production reporting with the exception of the balance sheet set (commonly used for cash flow purposes). 

Vertical Integration in Business

Vertical Integration

Vertical integration in business refers to the process of gaining control over more steps of the product production stream. Whenever a business obtains or can greatly influence any one of these steps along the process of producing and selling a product, it is referred to as vertical integration.  

Substitution Principle in Business

Substitution Principle in Business

There are a multitude of principles used in business, some are industry specific, others are functions of business. But there is one that is a general principle that is used across the board in all areas of business. It is called the ‘Substitution Principle’. It works just like the substitution principle in math that we all learned about in algebra. 

Cost Drivers in Small Business

Cost Drivers in Business

The textbook answer defines cost drivers as those factors that determine the overall cost of operations. As an example, in manufacturing the cost drivers may be processing time or number of steps to produce the product. With service, the cost drivers could be the actual ratio of billable to non-billable time.

Fixed Costs – Explanation and Examples

Fixed Costs

‘Fixed costs’ is a business term used mostly in cost accounting. It has several meanings based on its usage. The most common definition associated with fixed costs is expenses that must be paid regardless of production or sales volume. The best example is rent for a company. It doesn’t matter whether you produce or sell one widget or several thousand, the rent must still be paid.

So why is it important to understand fixed costs?  How is it used in cost accounting and in financial reporting?  Finally, what are examples of fixed costs? 

The Key Man

Key Man

One of the most misunderstood principles of business deals with the one or few individuals in a small business operation who are critical to operations. This individual is referred to as the Key Man. The best example is that of the primary wage earner in the family unit. 

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