Economics Concepts

Economic Performance Reports in Business

Reports on the economic performance of business units are quite different. Management reports are prepared monthly or quarterly, whereas economic performance reports are prepared at irregular intervals usually once every several years. For reasons stated earlier, management reports tend to use historical information actual costs incurred, whereas economic reports use quite different information. In this section we discuss the purpose and nature of the economic information.

Economic reports are a diagnostic instrument. They indicate whether the current strategies of the business unit are satisfactory and, if not, whether a decision should be made to do something about the business unit- expand it, shrink it, change its direction, or sell it.… Read the rest

Abey Francis

Activity Based Costing (ABC) – Advantages and Disadvantages

In the past, the vast majority of departments used direct labor hours as the only cost driver for applying costs to products. But direct labor hours is not a very good measure of the cause of costs in modern, highly automated departments. Labor-related costs in an automated system may be only 5 percent to 10 percent of the total manufacturing costs and often are not related to the causes of most manufacturing overhead costs. Therefore, many companies are beginning to use machine-hours as their cost-allocation base. However, some managers in modern manufacturing firms and automated service companies believe it is inappropriate to allocate all costs based on measures of volume.… Read the rest

Abey Francis

Harrod-Domar Models of Economic Growth

The Harrod-Domar models of economic growth are based on the experience of advanced economies. They are primarily addressed to an advanced capitalist economy and attempt to analyze the requirements of steady growth in such economy.

Both Harrod and Domar are interested in discovering the rate of income growth necessary for smooth and uninterrupted working of the economy. Though their models differ in details, yet they arrive at similar conclusions.

Harrod and Domar assign a key role to investment in the process of economic growth. But they lay emphasis on the dual character of investment. Fist, it creates income, and secondly, it augments the productive capacity of the economy by increasing its capital stock.… Read the rest

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Time Horizon in Forecasting

Business forecasts are classified according to period, time and use. There are long term forecasts as well as short term forecasts. Operation managers need long range forecasts to make strategic-decisions about products, processes and facilities. They also need short term forecasts to assist them in making decisions about production issues that span, only few weeks. Forecasting forms an integral part of planning and decision making, production managers must be clear about the horizon of forecasts.

The three divisions of forecast are short range forecast, medium range forecast and long range forecast.

  1. Short range forecast: It is typically less than 3 months but has a time span of up-to 1 year.
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Objectives of Demand Forecasting

Demand forecasting means an estimation of the level of demand that might be realized in future under given circumstances. These are concerned with the predictions of demand for products or services to minimize the uncertainties of the unknown future. These forecasts on demand facilitate in formulating material and capacity plans and serves as inputs to financial, marketing and personnel planning. The demand forecast itself may be generated in a number of ways, many of which depend heavily upon sales and marketing information.

The objectives of demand forecasting are different in case of short run and long run forecasts.

Short Run Forecasting

Short run forecasting is usually a period not exceeding one year.… Read the rest

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Requirements of a Good Forecast

A good forecast should satisfy the following criteria:

  • Time frame: The first factor that can influence the choice of forecasting is the time frame of the forecasting situation. Forecasts are generally for points in time that may be a number of days, weeks, months, quarters, or years in the future. This length of time is called the time frame or time horizon. The length of the time frame is usually categorized as Immediate, Short term, Medium or Long term. In general, the length of the time frame will influence the choice of the forecasting technique. Typically a longer time frame makes accurate forecasting more difficult with qualitative forecasting techniques becoming more useful as the time frame lengthens.
… Read the rest
Abey Francis