Services Manufacturing

B. Five differences between services and manufacturing:

Services Manufacturing

Output is intangible. Example: A general physician provides sick patients with checkups and treats their illness. The service provided by the doctor is intangible as it cannot be touched or seen. Output is a tangible product. Example: A bottle manufacturing company produces a physical product which customers can see and touch

There is no need for a specific location for production of services. Example: Lawyers and consultants can provide services from anywhere through any means of communication A specific location is need for manufacturing activities. A location where product is manufactured and stored as inventory before it heads out for sale.

Service industry needs to provide training to its labor as it needs its labor to provide high quality, customer based service. Labor should be skilled and should possess information of the services the company provides. Example: Supply chain consultants should possess high expertise in SCM in order to successfully provide solutions to their clients. Manufacturing industry can do with unskilled labor to an extent as the process is repetitive and automated to an extent. Skilled labor is needed for the production planning, handling of operations and logistics part of the process. Example: Coal based electricity generation plant.

Services are based on customer requirements. Manufacturing is done in bulk mostly and the products are put into the market and then absorbed based on the customer needs. However, with market segmentation this is changing.

Service firms do not hold any inventory. Manufacturing companies need to hold inventory.

D.

a. FC= $20,000

Sale Price of each chair = $50

Variable cost of each chair = $25

Sale Price of each bar stool = $50

Variable cost of each bar stool = $20

Sales mix ratio is 1:1

At break-even point, Total Revenue = Total Cost

(50 * x) + (50 * x) = 20000 + (25*x) + (20 * x)

X = 363.63 which is approximately = 364 units

Hence for break-even point firm needs to sell 364 units of chairs and 364 units of bar stools

Therefore break-even revenue = 100 * x = $36400

D

b. FC= $20,000

Sale Price of each chair = $50

Variable cost of each chair = $25

Sale Price of each bar stool = $50

Variable cost of each bar stool = $20

Sales mix ratio is 1:4

At break-even point, Total Revenue = Total Cost

(50 * x) + (50 * 4 * x) = 20000 + (25*x) + (20 * 4 * x)

X = 137.93 which is approximately = 138 units

Hence for break-even point