Summary - Unit cost and Efficiency

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