|
|
Efficiency
It is vital to a company to ensure they are efficient. Although Cameron Balloons is the clear leader in the hot-air balloons market, it is nevertheless a very competitive market and has suffered in the past from ‘over capacity’. They therefore have to keep a careful eye on how their costs compare. One of the ways they may do this is to look at the level of average costs. The average cost is calculated as follows:
| AVERAGE COST | = | TOTAL COST
OUTPUT |
This gives the cost per unit of production, and so one measure of efficiency. Another measure would be to look at how much each particular factor of production (labour / capital / land) manages to produce. In this way we can measure productivity. For example to calculate labour productivity:
LABOUR
PRODUCTIVITY | = | OUTPUT (in a certain time)
NUMBER OF EMPLOYEES
(during the same time) |
This can be a useful measure but does need careful interpretation. For example, who exactly do you include - all employees, or just those directly involved in production? You also have to ensure that you always calculate it consistently or it will be very difficult to draw useful conclusions.
Why not now try the worksheet on Cameron Balloons costs?
|
