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Summary - Unit cost and Efficiency

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The document on Unit Cost and Efficiency explores operational efficiency in business operations, emphasizing how effectively resources like machinery, materials, and labor are utilized to maximize outputs. It introduces LUCC (Labour, Unit Cost, Capacity, Capacity Utilisation) as critical factors fo...

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  • July 5, 2024
  • 3
  • 2023/2024
  • Summary

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Unit Cost and Efficiency
Operational efficiency – shows how well a business uses it resources including machinery materials
and labour to maximise its outputs



LUCC – Ways to improve effeciency

Labour productivity

Unit cost

Capacity

Capacity Utilisation



Efficiency can be improved by:

- Increase capacity utilisation
- Increasing labour productivity
- Lean production techniques
- Choosing the optimal resource mix
- Using technology



Unit cost = Key indicator of efficiency and productivity of a business



Average cost per unit is calculated using:

Total Production costs∈ period( £)
Total output ∈a period(Units)


Labour vs Capital

Unit costs are closely linked to the relationship between labour and capital in operations

Labour intensive – labour resources

Capital Intensive – production relies on machinery

Examples:

Labour Capital
Food processing Oil extraction
Hotels and restaurants Car manufacturing
Hairdressing Transport infrastructure

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