Generally, the size of a unit depends upon the volume or size of capital and, in turn, the volume of capital depends on its size. Larger the size of a unit, larger the volume of capital required and easier to obtain capital because large volume of production and operational efficiency insure adequate return on capital.
Answers
Answer:
Professor Robinson has grouped the factors determining the optimum size of a business unit into five classes. They are: 1. Technical factors, 2. Financial factors, 3. Managerial factors, 4. Risk factors and 5. Marketing factors:
Each class of factors decides the optimum size of unit. The optimum depending upon the group of factors is known as the optimum technical unit, optimum financial unit, optimum managerial unit, together may give the optimum size.
1. Optimum technical unit:
Technical factors are concerned with methods of production. They may include specialization, division of labor, mechanization and the like. Production methods become economical when these steps are taken. Technical forces decide the minimum and the maximum limits to size.
2. Optimum Financial unit:
Generally, the size of a unit depends upon the volume or size of capital and, in turn, the volume of capital depends on its size. Larger the size of a unit, larger the volume of capital required and easier to obtain capital because large volume of production and operational efficiency insure adequate return on capital. The optimum financial unit is governed by the volume of funds.
3. Optimum managerial unit:
Management expenses may vary with size. If the size is small it may be relatively costly to manage its affairs whereas with the growth of size there is an economy in such expenses. The growth of size may bring in complexities of organization and management. But in a larger unit the advantages of specialization and division of labor may be obtained and managerial efficiency improved.
4. Optimum survival unit:
The production of a commodity depends upon its demand in the market. Since demand may fluctuate from time to time, there is risk and uncertainty before the firm. Therefore, conditions of demand may influence the size of a unit because the risk or uncertainty is influenced by such conditions.
The changes in demand may be permanent cyclical and seasonal. Changes in demand due to the development of a substitute or a change in the taste and habits of the consumers may be taken as a permanent change.
The firm should reorganize its activities to adjust to the changed conditions. Cyclical variations are those which are concerned with depressions and booms. The firm has to meet both these situations and make adjustments. Seasonal variations are governed by change situations the firm has to adjust its size to keep it optimum in a particular situation, in seasons and the subsequent change in the demand for a commodity. In all these, however, changes in the size of a unit are difficult to make.
5. Optimum marketing unit:
Marketing optimum has to seek a balance between large scale marketing operations with a view to having some economies in selling and buying and better quality of commodities and services by limiting the size to a manageable limit. Demand estimates are to be prepared to decide the size of marketing operations.
Explanation:
Answer:
The following points highlight the top thirteen factors that determine the working capital:-
- (1) Nature or Character of Business,
- (2) Size of Business/Scale of Operations,
- (3) Production Policy,
- (4) Manufacturing Process/Length of Production Cycle,
- (5) Seasonal Variations,
- (6) Working Capital Cycle and others.
Explanation: