Production and Operations Management
This domain tests how goods are produced efficiently and at the right quality and quantity. Questions ask you to choose a production method, explain location decisions, calculate break-even, or distinguish quality control from quality assurance.
Core rules
- Methods: job (one-off, customised), batch (groups of identical units), mass/flow (high volume, standardised), continuous (24-hour, e.g. cement, sugar).
- Labour-intensive methods suit low volume and cheap labour; capital-intensive methods need heavy investment but give consistent quality and lower unit cost at high volume.
- Location factors: near raw materials or market, transport, power and water, labour supply, government incentives, security.
- Economies of scale lower unit cost as output rises; diseconomies arise from poor communication and coordination.
- Productivity = output per unit of input; it is not the same as total production.
- Stock control: buffer stock, economic order quantity, just-in-time (lower holding cost but risky if supply fails).
- Quality control detects faults after production; quality assurance prevents them through systems and standards.
Worked example
Fixed costs are K600,000, selling price K500, variable cost K300. Contribution per unit = 500 − 300 = K200. Break-even = 600,000 ÷ 200 = 3,000 units. At planned output of 4,000 units the margin of safety is 4,000 − 3,000 = 1,000 units, or 25% of output. Reasoning: below 3,000 units the firm makes a loss; each unit beyond that adds K200 to profit. If a supplier raises the variable cost to K350, contribution falls to K150 and break-even rises to 4,000 units.
Traps that cost marks
- Adding fixed costs into unit contribution.
- Confusing productivity with production volume.
- Mixing up quality control (detect) and quality assurance (prevent).
- Ignoring the supply risk of just-in-time production.