CHAIN ANALYSIS OF A PRODUCT. 2
chain of a vibarated concrete block. 4
PRODUCTION THEORY. 5
COSTS SCHEDULE. 9
BENEFITS ANALYSIS. 11
VALUE CHAIN ANALYSIS OF A PRODUCT
Value chain is
the tool developed by Michael Porter( Havard Business School). According to
Porter, valuue chain includes all the activities to design, produce, deliver
and support the product/service. Value chain is concentrating on the activities
starting with raw materials until the conversion into final goods.
Value chain is categorized into types based on the types of organization,
these categories include
Manufacturing basedService basedBoth manufacturing and service
Value chain analysis is used to;
Identify the sources of
competitive advantages specifically on the opportunity to secure cost
advantages and opportunity to create produc/service differentiation.Includes the value creating
activities of all industry participants.
In value chain, there are two categories of activities that are being
carried out, including
Primary acitivies that include
the creation, sale and transfer of products( including after sale
services). These include
Inbound logistics: concerned with receiving, storing,
distribution of inputs
Operations: Transformation of inputs into finished product
Outboound logistics: involves the collecting, storing and
distribution of the product to the buyers( processing of orders, warehousing
and finished delivery goods)
Sales and marketing: identification of customers needs and
generation of sales.
Support and service activities: involves to maintain the
value of the product after it is purchased.
Support activities. These
include the following
Firm insfrastracture: includes the activities such as the
organization structure, control system, company culture.
Human resource management: includes recruiting, hiring and
training development and compensation.
Technology development: these activities are intended to
improve the product and the processs can occur in many parts of the firm
Procurement: concerned with the task of purchasing inputs
such as raw materials, equipment and even labour.
Value chain as a tool, is used for
Source of competitive advantage a firm can be seen from
Examaine activities of
Helps in performance of the firm at lower cost and better
Helps the firm to maintain profits
Present opportunities for intergration.
Source: Word press
Value chain of a vibarated concrete block.
making firm at Nane nane area was selected for this purpose. They are dealing
with the making of concrete block of various sizes. A 6x3x9 inches block was
selected as a product of focus.
In the production of a
concrete block the following tools are used
A sand mixerA vibrator or a block maker.Electricity to run the machines
A mixture of sand, water and
cement in the ratio of 3:1:1 is being used to
make a complete mixture of making blocks. From the mixer, the mixture is
being taken to block making machine for compacting. After the compaction the
block is being carried using the racks to a drying area.
In the drying area, the block
stays for eight (8) hours on the racks then, it is being overturned to remove
the rack. The block stays in the drying area for 2 days, in that time, the
block is being watered twice per day in order to help it solidify well. after
thoes two days the blocks are being arenged in piles on the storage area ready
to be sold to the customers. Thes e blocks are used for construction purposes.
THE PRODUCTION THEORY
The firm operates daily. It has 4 machines for the
operations of which, 2 are for mixing and two are for the making of bricks.
These machines all together are worth a total of 10.4 millions Tanzanian shillings.
The machines are operated by 4 people, that is 1 person for
the machines. Meaning with only four people production cannot take place. At full
capacity the firm produces 3600 bricks daily by having a total of 12 people
working. The firm also uses 5000 Tshs for electricity and 3000 Tshs for water
bills daily. 150,000/= is also being used for rent which is 3000 per day.
The firm uses up to 70 bags of cement (60 on average), 10
trips of sand for daily production.
Payment of labor is per a bag of cement that is being used to make up to 30
bricks. Therefore labor about 17500/= is being paid per unit of labor per day.
The bricks are being sold at 1050/= per brick. The
transportation cost is on the customer to incur. But the fee for loading and
unloading is being paid by the firm. Since the price for loading and unloading
is 50/= this makes the actual selling price of a brick being 1000/= per unit.
Therefore the firm has only the labour as the variable input
as other inputs are fixed. Therefore, the production function is
Number of workers (L)
Total product (Q)
Average product (AP=Q/L)
Marginal product (MP=DQ/DL)
From the regression analysis we obtained that the production
Units of labor
From the total output graph, we
see that the firm produces high when the total number of labor is 12 where the
The firm operates in a
short runThere is law of
diminishing marginal return apply on the efficiency of workers as their
number increasesWith zero labor no
operation takes place, and the operations only begin when number of
workers reach 4.Labor is the variable
factor. All other factors remain constant.The number of unit
produced is for one day only.
The responsible personnel
for the firm might have not given the actual data for the daily
proceedings of the firmThe firm only produces
not more than 4000 units per day due the machines capacity.
The firm incurs a daily costs including the following
10 trips of sand=
60,000×10=600,000/=140 bags of cement=
11,000×140=1,540,000/=Other charges =200,000/=
Variable costs include 3500 for 30 units of blocks.
Therefore labors have to produce many units of blocks in order to earn more. In
total it takes 767 Tshs to make one unit of a block.
TOTAL COSTS SCHEDULE
Total fixed cost (TFC)
Total variable cost
TOTAL COSTS CURVES
MARGINAL COSTS SCHEDULE
Average fixed cost
Average variable cost
Average total cost
MARGINAL COSTS CURVE
The firm is producing when
COST BENEFITS ANALYSIS
COSTS BENEFITS ANALYSIS OF A FIRM
average price for making one unit of brick does not change no matter how many
units produced, the firm is producing under diseconomies of scale. This is due
to the fact that there is no economic advantage of expanding the firm. Moreover
if the firm becomes so large other costs like transportation costs will
Economic rent is A payment to a resource in excess of the
resource’s opportunity cost. On the
position of the firm, that is land, the economic rent of having a brick making
firm on Nane Nane grounds, is that the firms gets low cost of security as the
grounds are always guarded. Moreover the firm is along the road, so the
customers can see it easily.
Since the firm is in town, many customers
can reach it leading to many customers. Moreover transportation of raw
materials become easy as the firm is along the Morogoro –DSM road.
Cheap labor is available as the firm is on
the walking distance from the town centre where many of the locals reside.
The firm operates on competitive market
structure whereby it is characterized by
number of firms competing with each otherThe
products are undifferentiatedNo
barriers to entry in the marketAvailable
of information about the productThe
firm has no power to control the price, hence it is a price taker
The brick making firm uses an average of 2,761,200/= as
the variable cost for making 3600 bricks per day. In return it gets 3700000/=
on sales. Hence total revenue exceeds the variable costs TR>VC therefore the
project is worth undertaking. No shutting down.
If the project is
to shut down the sunk costs will be
Rent paid amounting to 150,000/=Cost for buying the machines 10,400,000/=