CHAPTER 10

(1)

CHAPTER 10

(2)

HAYVANCILIK EKONOMİSİ DERS NOTLARI HAYVANCILIK EKONOMİSİ DERS NOTLARI

Prof. Dr. Yılmaz ARAL Prof. Dr. Yılmaz ARAL

PRODUCTION PLANNING IN

BUSINESS

(3)

* Income depends on the amount of goods sold. The amount of goods sold varies depending on the demand.

* The income of the enterprise can be analyzed under three headings:

- Total Income

- Average Income - Marginal Income

For example, let us consider the data of a dairy cattle breeding enterprise.

* Income depends on the amount of goods sold. The amount of goods sold varies depending on the demand.

* The income of the enterprise can be analyzed under three headings:

- Total Income

- Average Income - Marginal Income

For example, let us consider the data of a dairy cattle breeding enterprise.

Incomes

(4)

(5)

The product produced by the enterprise in a given period multiplied by the unit price (P) of the product generates the total income (TI) of the

enterprise.

TI = TP x P

However, stock movements are not taken into consideration here and it is assumed that the

produced product is sold in the same period.

The product produced by the enterprise in a given period multiplied by the unit price (P) of the product generates the total income (TI) of the

enterprise.

TI = TP x P

However, stock movements are not taken into consideration here and it is assumed that the

produced product is sold in the same period.

a. Total Income:

(6)

(7)

Average income is obtained by dividing the income (TI) obtained in a certain period by the amount of product (TP) sold in that period. In other words, average income (AI) is the selling price of one unit of the product that the

enterprise produces and sells.

AI= TI / TP

The average income function of the enterprise; total income function divided by the amount of product sold.

Average income is obtained by dividing the income (TI) obtained in a certain period by the amount of product (TP) sold in that period. In other words, average income (AI) is the selling price of one unit of the product that the

enterprise produces and sells.

AI= TI / TP

The average income function of the enterprise; total income function divided by the amount of product sold.

b. Average Income:

(8)

Marginal income is defined as the additional income generated by the last unit product produced and sold.

In other words, an additional (additional) increase in total income (total sales income) when the entity sells one unit of excess product is called marginal income.

Im=It-It_n-1

Marginal income is defined as the additional income generated by the last unit product produced and sold.

In other words, an additional (additional) increase in total income (total sales income) when the entity sells one unit of excess product is called marginal income.

Im=It-It_n-1

c. Marginal Income:

(9)

There is a geometric relationship between average and marginal income lines. This relationship is that the marginal income line divides the stitch drawn from the y-axis from any point of the average income line into two

equal parts.

There is a geometric relationship between average and marginal income lines. This relationship is that the marginal income line divides the stitch drawn from the y-axis from any point of the average income line into two

equal parts.

(10)

(11)

The cost of the production of economic goods and services is called cost.

Expenses will be analyzed in 3 sections, just like Total income;

- Total cost

- Average cost - Marginal cost

Total expenses, average expenses and marginal expenses of dairy cattle holdings are shown in the table below.

The cost of the production of economic goods and services is called cost.

Expenses will be analyzed in 3 sections, just like Total income;

- Total cost

- Average cost - Marginal cost

Total expenses, average expenses and marginal expenses of dairy cattle holdings are shown in the table below.

Costs

(12)

(13)

Total expenditure or total production cost is the sum of the expenditures made in order to produce the economic goods produced in a certain period.

a. Total Cost

(14)

Total expense or cost divided by the amount of goods produced.

AC = TC / TP

As shown in the diagram, as the amount of production increases, the average cost decreases to a certain point, and then the average cost

increases despite the increase in production.

Total expense or cost divided by the amount of goods produced.

AC = TC / TP

As shown in the diagram, as the amount of production increases, the average cost decreases to a certain point, and then the average cost

increases despite the increase in production.

b. Average Cost:

(15)

Marginal cost is defined as the cost of the last unit product produced in the enterprise or an additional increase in the total cost of a unit increase in the production of the enterprise.

c. Marginal Cost:

Diyagramda görüldüğü gibi marjinal maliyet eğrisi, ortalama maliyet eğrisini en düşük olduğu noktada kesmektedir. Bu, ortalama maliyetin en düşük olduğu noktada, marjinal maliyete eşit olduğunu ifade etmektedir. Aynı zamanda bu nokta, işletmenin en düşük maliyetle üretim yapabileceği kapasitesini de göstermektedir.

(16)

The marginal cost curve first decreases more rapidly than the average cost curve and rises faster after the intersection. In the first ranks of production, the marginal cost starts to decrease when the marginal cost is high, and the marginal cost of each new unit added to the production after the turning point at which the marginal cost is the lowest increases gradually and therefore the curve rises upward.

As the number of cows produced increases, marginal cost decreases more quickly than average cost and rises faster than average cost after a certain level of production.

(17)

In terms of business economics, the issue of cost is extremely important. By controlling the costs in the enterprise, a cheaper price determination and release policy can be provided. A production unit dominating operating costs has the ability to better compete with competing enterprises and thus increase profits.

(18)

As mentioned before, the enterprise producing a certain economic good cannot control the prices in itself even under incomplete competition. In other words, price is a factor that occurs outside the enterprise, but it affects the profitability of the business significantly. Therefore, the entity should follow a better price and sales policy by mastering the cost elements on its own initiative. In this way, an enterprise that controls its costs can compete with other enterprises and thus has the opportunity to increase its profit.

(19)

As in other enterprises, the cost elements that constitute the cost of livestock enterprises are grouped in two groups.

a. Fixed Costs b. Variable Costs a.Fixed Costs:

The fixed costs are the expenses that do not change regardless of the production amount in the enterprise until it reaches a certain capacity. Building, land rents, building-tools and machinery depreciation, such as permanent staff wages.

Fixed costs are divided into total fixed costs and fixed costs per unit.

As in other enterprises, the cost elements that constitute the cost of livestock enterprises are grouped in two groups.

a. Fixed Costs b. Variable Costs a.Fixed Costs:

The fixed costs are the expenses that do not change regardless of the production amount in the enterprise until it reaches a certain capacity. Building, land rents, building-tools and machinery depreciation, such as permanent staff wages.

Fixed costs are divided into total fixed costs and fixed costs per unit.

Cost Elements in Enterprises

(20)

(21)

Increasing or decreasing costs depending on the amount of production in enterprises is called variable costs. For example, raw materials, auxiliary materials, energy, fuel, feed, medicine, labor, packaging costs are examples of variable costs.

The variable costs are divided into total and variable costs per unit. Total variable costs first increase with production, then

increase with decreasing and continue to increase again after a certain point.

Variable costs per unit, on the other hand, decrease to a

certain amount of production after reaching the lowest point at a certain level of production, it goes up again.

Increasing or decreasing costs depending on the amount of production in enterprises is called variable costs. For example, raw materials, auxiliary materials, energy, fuel, feed, medicine, labor, packaging costs are examples of variable costs.

The variable costs are divided into total and variable costs per unit. Total variable costs first increase with production, then

increase with decreasing and continue to increase again after a certain point.

Variable costs per unit, on the other hand, decrease to a

certain amount of production after reaching the lowest point at a certain level of production, it goes up again.

b. Variable Costs:

(22)

As shown in the diagram, the enterprise has to make a total fixed cost of KL and total variable cost of LM for its production at the OK level. At this production level, the total expense (cost) of the enterprise is equal to MK.

The fact that unit variable costs are U-shaped in the enterprise is generally explained for internal and external economic reasons.

(23)

Internal economies are in-house savings. Generally, as the amount of production increases, variable costs per unit decrease.

Reasons for this include workers' specialization, good use of machinery, a small increase in sales costs, such as advertising costs, and a greater increase in versioning, as well as reduced management and inspection costs.

External economic reasons ensure some savings in average variable costs as production increases in the enterprise. For

example, savings in capacity size often reduce costs in large enterprises.

Internal economies are in-house savings. Generally, as the amount of production increases, variable costs per unit decrease.

Reasons for this include workers' specialization, good use of machinery, a small increase in sales costs, such as advertising costs, and a greater increase in versioning, as well as reduced management and inspection costs.

External economic reasons ensure some savings in average variable costs as production increases in the enterprise. For

example, savings in capacity size often reduce costs in large enterprises.

(24)

The following figure is obtained if we show all of the above mentioned elements in a single diagram in terms of determining unit costs in an enterprise.

(25)

* The sum of fixed and variable costs per unit gives either unit cost or average cost.

For example, if we show the unit costs on a line at OE

production level, AE marginal cost; BE is the average cost, CD is the variable costs, and DE is the fixed costs per unit.

* Variable costs play a major role in maintaining

enterprise continuity. The fact that the sales income of the entity cannot meet the variable costs requires the entity to temporarily or completely cease

operations.

* The sum of fixed and variable costs per unit gives either unit cost or average cost.

For example, if we show the unit costs on a line at OE

production level, AE marginal cost; BE is the average cost, CD is the variable costs, and DE is the fixed costs per unit.

* Variable costs play a major role in maintaining

enterprise continuity. The fact that the sales income of the entity cannot meet the variable costs requires the entity to temporarily or completely cease

operations.

(26)

The purpose of production planning in the enterprise is to estimate the amount of production that will provide the highest profit. An enterprise can move in order to obtain the highest possible profit can take two ways to determine the amount of production.

1* To compare the total income and total expenditure series to determine the amount of production with the highest total

profitability,

2* To try to find the amount of production where marginal income and marginal expense are equal.

The purpose of production planning in the enterprise is to estimate the amount of production that will provide the highest profit. An enterprise can move in order to obtain the highest possible profit can take two ways to determine the amount of production.

1* To compare the total income and total expenditure series to determine the amount of production with the highest total

profitability,

2* To try to find the amount of production where marginal income and marginal expense are equal.

Profit Planning in Livestock Farms

(27)

When this criterion is used to determine the quantity in production planning, it is necessary to determine the production amount in which the difference between total income and total expenditure is the greatest.

If we explain the production planning in theory by using the data of the breeding dairy cattle enterprise given as an example, the production level of 6 units is the amount that allows the profit to be maximized as shown in the table.

When this criterion is used to determine the quantity in production planning, it is necessary to determine the production amount in which the difference between total income and total expenditure is the greatest.

If we explain the production planning in theory by using the data of the breeding dairy cattle enterprise given as an example, the production level of 6 units is the amount that allows the profit to be maximized as shown in the table.

1. Comparison of Total Income and Expense Series

(28)

It is necessary to find the point where the marginal income and expense curves intersect in order to determine the amount of production that provides the maximum profit. This allows both the production quantity and the optimum sales price to be determined.

2. Production at the point where marginal income equals marginal expense:

(29)

* As seen from the diagram; OM distance from the L point (Q) where the marginal income cuts the marginal expense, from the M point at which the vertical is cut to the axis of

production (Q) will yield the production amount that provides the maximum profit.

* The OA distance at which this vertical crosses the

average income curve yields the optimum sales price and the ABCD area gives the total profit. Profit in this area is

maximized. BC or AD yields profit per unit product.

* As seen from the diagram; OM distance from the L point (Q) where the marginal income cuts the marginal expense, from the M point at which the vertical is cut to the axis of

production (Q) will yield the production amount that provides the maximum profit.

* The OA distance at which this vertical crosses the

average income curve yields the optimum sales price and the ABCD area gives the total profit. Profit in this area is

maximized. BC or AD yields profit per unit product.

(30)

There are other factors that affect production planning in enterprises. These are consumer responses and behaviors and attitudes of competitors and enterprises.

It is necessary to use advanced techniques that will keep costs low in the enterprises.

There are other factors that affect production planning in enterprises. These are consumer responses and behaviors and attitudes of competitors and enterprises.

It is necessary to use advanced techniques that will keep costs low in the enterprises.

(31)

Production Planning in Practice:

In practice, the word profit planning is used more often than production planning.

In practice, the main reasons for using this technique more than marginal income-expense analysis are:

a) Marginal theory is considered a new and cumbersome way for most enterprises. Because, a good demand analysis that will allow determination of income function requires

advanced econometrics knowledge.

b) Statistical data to allow a sound determination of the income function is often lacking or limited.

Production Planning in Practice:

In practice, the word profit planning is used more often than production planning.

In practice, the main reasons for using this technique more than marginal income-expense analysis are:

a) Marginal theory is considered a new and cumbersome way for most enterprises. Because, a good demand analysis that will allow determination of income function requires

advanced econometrics knowledge.

b) Statistical data to allow a sound determination of the income function is often lacking or limited.

(32)

The following diagram shows the graphical method of finding the land transition point in the enterprise.

As shown in the diagram, it is essential to draw the lines Ct and It linearly and to find the first intersection of these two lines.

At the point K, where the two lines intersect, the enterprise passes through the land. At this point, total income and total expenditure are equal.

The following diagram shows the graphical method of finding the land transition point in the enterprise.

As shown in the diagram, it is essential to draw the lines Ct and It linearly and to find the first intersection of these two lines.

At the point K, where the two lines intersect, the enterprise passes through the land. At this point, total income and total expenditure are equal.

(33)

There are very important benefits for the enterprise to know this point.

a) In this way, the minimum production and sales amount of the enterprise will be

determined and the enterprise will try not to fall below this level.

b) Another important reason is that it allows the company to have a level of production and sales to achieve a certain profit.c) The last

important benefit is the establishment of capacity utilization rate in the enterprise.

There are very important benefits for the enterprise to know this point.

a) In this way, the minimum production and sales amount of the enterprise will be

determined and the enterprise will try not to fall below this level.

b) Another important reason is that it allows the company to have a level of production and sales to achieve a certain profit.c) The last

important benefit is the establishment of capacity utilization rate in the enterprise.

(34)

Profit transition analysis can be calculated

mathematically if there is some data about total income and expense in the enterprise. The following is an

example of how the profit is planned in practice.

I_t = P * Q

C_t = TFC + (VCPU * Q)

P = I_t - C_t = P * Q – [TFC + (VCPU * Q)] denklemi ile bulunabilir.

P : Profit

Q : Amount of production TFC : Total fixed costs

VCPU : Variable costs per unit P : Price

I_t : Total Income

Profit transition analysis can be calculated

mathematically if there is some data about total income and expense in the enterprise. The following is an

example of how the profit is planned in practice.

I_t = P * Q

C_t = TFC + (VCPU * Q)

P = I_t - C_t = P * Q – [TFC + (VCPU * Q)] denklemi ile bulunabilir.

P : Profit

Q : Amount of production TFC : Total fixed costs

VCPU : Variable costs per unit P : Price

I_t : Total Income

(35)

Example: In a dairy farm, if the total fixed costs are 300,000 TL, the variable costs per unit are 1.2TL, the price of the

product is 3 TL, and what is the amount of milk that the enterprise should process to make a profit of 420,000 TL?

P = I_t - C_t = P * Q –[TFC + (VCPU * Q)]

Example: In a dairy farm, if the total fixed costs are 300,000 TL, the variable costs per unit are 1.2TL, the price of the

product is 3 TL, and what is the amount of milk that the enterprise should process to make a profit of 420,000 TL?

CHAPTER 10

CHAPTER 10

PRODUCTION PLANNING IN

BUSINESS

TI = TP x P

TI = TP x P

There is a geometric relationship between average and marginal income lines. This relationship is that the marginal income line divides the stitch drawn from the y-axis from any point of the average income line into two

equal parts.

There is a geometric relationship between average and marginal income lines. This relationship is that the marginal income line divides the stitch drawn from the y-axis from any point of the average income line into two

equal parts.

420.000= 3 * Q - (300.000 – 1,2 * Q) 420.000=3Q – 300.000 – 1,2Q

420.000+300.000 = 3Q – 1,2Q 720.000=1,8Q

Q = 400.000 litre

420.000= 3 * Q - (300.000 – 1,2 * Q) 420.000=3Q – 300.000 – 1,2Q

420.000+300.000 = 3Q – 1,2Q 720.000=1,8Q

Q = 400.000 litre

Any Questions?!?

Any Questions?!?